SANTA  BARBARA  STATE  COLLEGE  LIBRARfj 


MATERIALS  OF 
CORPORATION   FINANCE 


BY 
CHARLES   W.   GERSTENBERG 

MEMBER  OP  THE  NEW  YORK  BAR;  DIRECTOR  OP  THB 
DEPARTMENT  OF  FINANCE,  NEW  TOUK  UNIVERSITY 
SCHOOL  OF  COMMERCE,  ACCOUNTS  AND  FINANCE 


FIFTH  EDITION 


1924 

PRENTICE -HALL,    INC. 
NEW  YORK  CITY 


COPYRIGHT,  1915,  BY 

CHARLES  W.  GERSTENBERG 


All  Rights  Reserved 


DHAN  CLARENCE  D.  ASHLEY  and 
DEAN  ARCHIBALD  L.  BOUTON 

Leaves  me  still  immeasurably  in  their  debt 


TATE  COLLEGE  LIBRARY 


PREFACE 

THIS  source  book  has  been  compiled  to  facilitate  the  study  of  cor- 
poration finance  in  classes  where  the  use  of  the  original  documents  is 
impossible  or  impracticable.  Commenting  upon  the  very  recent  pub- 
lication of  an  English  compilation  of  select  documents  in  English 
Economic  History,  The  New  Statesman  says:  "It  may  not  be  so 
valuable  as  a  means  of  passing  examinations,  but  it  is  ten  times  as 
instructive  to  get  the  student  to  read  some  of  the  actual  documents 
about  the  manor  or  gild,  instead  of  composing  the  most  elegantly 
expressed  essay  upon  the  subject."  The  reviewer  then  suggests  that 
a  source  book  of  "Political  Economy  itself  .  .  .  might  put  some  'elan 
vital'  into  economic  teaching.  It  would  at  least  enable  us  to  realize 
what  it  was  that  the  professors  were  talking  about." 

That  this  compilation  will  do  for  the  subject  of  corporation  finance 
what  a  source  book  of  economics  is  promised  to  do  for  the  field  of 
economics  is  the  desire  of  the  compiler.  To  sustain  the  student's 
interest  I  have  refrained  from  editing  except,  as  in  the  cases  of  ac- 
knowledgments and  of  the  similarly  expressed  clauses  in  the  long  mort- 
gages and  equipment  trust  agreements,  where  much  valuable  space 
would  be  unnecessarily  wasted.  For  the  most  part,  the  student  may 
rely  upon  having  a  faithful  transcript  of  the  original  documents;  the 
form,  in  many  cases,  unhappily,  has  been  changed  on  account  of  the 
limitations  of  the  size  of  the  printed  page. 

The  contents  of  this  book  have  been  collected  in  various  ways  dur- 
ing the  seven  years  last  past.  I  have  many  people  to  thank  for 
assistance — too  many  to  enumerate  here.  Not  the  least  part  of  the 
book  is  made  up  of  contributions  from  my  students.  To  those  who 
have  made  direct  contributions  I  express  my  hearty  thanks;  but  to 
all  my  students,  who  have  always  helped  to  make  corporation  finance 
an  entrancingly  interesting  subject,  I  acknowledge  my  large  debt  of 
gratitude  for  their  assistance  and  inspiration. 

I  have  leaned  heavily  on  the  ready  assistance  of  Messrs.  Richard  P. 
Ettinger  and  Hugh  D.  Hite,  and  to  them,  as  well  as  to  Miss  Ethel  A. 
Watson  and  Mr.  Lars  P.  Meyer,  who  have  helped  in  the  difficult  task 
of  proofreading,  I  express  my  deep  thanks. 

C.  W.  G. 

New  York  University, 
January  12,  1914. 


INTRODUCTION 

WITH   SUGGESTED   BIBLIOGRAPHY 

THE  habit  of  searching  for  truth  and  of  energizing  it,  of  mar- 
shalling facts  in  logical  order  and  of  extracting  a  principle,  of  seeing 
where  that  principle  can  be  applied  and  of  applying  it,  is  the  real  goal 
of  education.  Ladling  science,  Laputa-wise,  into  the  brain  of  a  stu- 
dent to  save  time  is  as  harmful  as  ladling  soup  into  his  gullet  to  save 
teeth.  To  save  our  teeth  we  must  use  them;  to  know  truth  we  must 
find  it;  to  win  in  the  long  struggle  of  life  we  must  struggle  until  we 
love  the  struggle.  All  these  seeming  paradoxes  are  equally  true. 
Education  should  not — indeed,  cannot — be  made  easy. 

The  purpose  of  this  book  is  to  provide  a  field  for  vigorous 
training  in  finance.  It  can  best  be  used  with  an  instructor  to  drive 
and  to  guide.  The  lash  of  the  interrogation  should  be  constantly  felt 
by  the  student,  especially  where  the  aim  is  utilitarian.  He  who  can 
give  the  reason  for  the  difference  between  one  form  and  another  when 
both  seem  to  have  the  same  general  purpose,  who  can  discover  a  gen- 
eral principle  involved  in  a  given  excerpt,  will  have  a  training  far 
more  useful  than  that  of  the  student  who  has  the  principles  supplied 
to  him  predigested.  What  would  happen  if  this  paragraph  or  this 
sentence  were  omitted?  If  a  corporation  acquired  property  or  lost 
property  or  sold  or  exchanged  property,  what  effect  would  this  pro- 
vision have  on  its  stockholders  or  its  creditors?  Can  you  think  of 
a  method  whereby  the  directors  can  evade  the  limitations  placed  on 
them  by  this  provision?  How  have  the  drafters  of  this  agreement 
anticipated  such  a  method  of  evasion  and  provided  against  it?  If 
the  figures  were  thus  and  so  instead  of  those  given,  would  the  plan 
have  to  be  changed?  Questions  such  as  these  should  constantly  be 
asked  and  answered. 

No  claim  is  made  that  the  order  of  presenting  the  various  forms 
and  reports  is  the  best  possible  order.  Indeed  it  will  be  found  neces- 
sary to  refer  to  different  parts  of  the  book  adequately  to  conquer 
any  given  subject.  The  question  of  bonds,  for  example,  will  probably 
be  discussed  in  full  in  connection  with  the  Jones-Laughlin  Steel 
Company  mortgage,  but  many  other  parts  of  the  book  will  be  used  for 
collateral  reading,  for  example,  the  certificate  of  incorporation  of  the 
Atchison,  Topeka  &  Santa  F6  Railway,  the  plan  of  readjustment  of 
the  Hudson  &  Manhattan  Company,  the  bond  circular  of  Spencer 
Trask,  etc.  The  parts  of  the  book,  therefore,  have  not  been  numbered. 


viii  INTRODUCTION 

It  will  be  found,  however,  that  in  general  the  following  order  has 
been  observed :  Kinds  of  business  associations ;  organization  and  legal 
management  of  corporations;  kinds  of  stock  and  rights  of  stock- 
holders; corporate  bonds,  notes  and  mortgages;  control  of  the  issue 
of  securities  by  the  State;  sale  of  stocks  and  bonds  to  stockholders 
and  to  the  public;  prospectuses;  Wall  Street  market;  promotion; 
intercorporate  relations;  financial  management  and  provision  of 
working  capital;  readjustments  and  reorganizations. 

A  brief  commentary  on  each  form  will  aid  the  student  in  prepar- 
ing his  work.  First  of  all  be  it  said  that  with  hardly  an  exception 
these  forms  and  reports  have  been  used  in  actual  practice.  In  a 
very  few  cases,  where  personal  relations  are  involved,  the  names  have 
been  changed,  but  in  most  cases  the  originals  have  been  faithfully 
reproduced. 

The  partnership  agreement  (p.  1)  with  which  the  book  opens  was 
drawn  by  a  firm  of  New  York  lawyers  and  was  used  for  a  period  of 
over  ten  years.  The  names  have  been  changed.  The  certificate  of 
limited  partnership  (p.  4)  is  interesting  because  it  illustrates  a  form 
of  business  association  which  is  growing  in  favor  in  this  country,  and 
has  been  extensively  used  in  Germany.  It  is  a  product  of  the  civil 
law  and  was  first  adopted  into  the  common  law  in  the  United  States 
by  the  State  of  New  York.  The  joint  stock  company  articles  (p.  6) 
are  not  very  important  in  present-day  finance.  The  most  important 
joint  stock  companies  at  present  are  the  large  express  companies. 
The  so-called  "Massachusetts  Trust"  (p.  11)  has  been  extensively 
heralded  in  certain  quarters  as  "an  effective  substitute  for  incorpo- 
ration/' giving  the  benefits  of  incorporation  without  the  concomitant 
disadvantages  of  public  interference.  One  of  the  most  important 
Massachusetts  Trusts  in  existence  is  the  New  England  Investment  and 
Security  Company,  which  is  one  of  the  financial  corporations  of  the 
New  York,  New  Haven  &  Hartford  Railroad  system.  A  complete 
legal  explanation  of  the  Massachusetts  Trust  is  contained  in  a  book 
entitled  Trust  Estates  as  Business  Companies,  by  John  H.  Sears. 

In  the  chart  showing  the  legal  attributes  of  the  various  forms  of 
business  associations  (p.  22)  the  most  important  attributes  only  have 
been  included.  A  working  explanation  of  the  legal  problems  involved 
can  be  found  in  any  elementary  book  on  commercial  law. 

The  New  York  classification  of  corporations  (p.  24)  does  not 
follow  the  old  classical  classification  into  corporations  sole  and  aggre- 
gate, etc.  It  does,  however,  give  the  modern  practical  classification. 
Notice  that  in  the  business  man's  language  the  words  "public,"  "quasi 
public"  or  "public  service"  and  "private"  are  frequently  applied  to 
corporations.  These  words  correspond  closely  to  "municipal,"  "trans- 


INTRODUCTION  fc 

portation"  and  business"  as  used  in  the  statute.  The  statute  takes 
no  cognizance  of  the  classification  of  corporations  on  the  basis  of  prod- 
ucts produced,  e.  g.,  railroad,  public  utilities,  mining  and  lumbering, 
real  estate  and  industrial.  This  classification,  from  the  standpoint  of 
finance,  is  most  important  and  could  be  carried  out  with  more  detail 
to  advantage. 

The  early  corporations  were  formed  under  special  act  of  the  legis- 
lature. The  constitutions  of  most  States  now  provide  that  the  legis- 
lature cannot  create  corporations  by  special  act  (p.  26)  "except  in 
cases  where,  in  the  judgment  of  the  legislature,  the  object  of  the  cor- 
poration cannot  be  attained  under  the  general  laws."  (Constitu- 
tion of  the  State  of  New  York,  Article  8,  Section  1.)  The  object 
of  this  provision  undoubtedly  is  to  prevent  the  creation  of  such  bank- 
ing companies  as  Aaron  Burr's  Manhattan  Company.  Notice  that 
the  legislatures  frequently  give  special  charters  to  philanthropic  in- 
stitutions and  to  business  concerns  which  are  to  carry  on  several 
businesses  that  would  necessitate  incorporation  under  two  different 
general  acts. 

At  this  time,  when  France,  Germany  and  England  are  at  war, 
as  they  were  one  hundred  years  ago,  the  first  general  corporation 
law  (p.  31)  is  doubly  interesting.  The  belligerents  in  that  day  had 
as  little  respect  for  the  rights  of  others  as  they  have  at  this  time. 
Unfortunately — or  perhaps  fortunately — America  was  the  principal 
victim.  The  Berlin  and  Milan  decrees  and  the  Orders  in  Council 
produced  in  America  a  famine  of  European  manufactures,  and  every- 
where the  cry  was  for  "goods  made  in  America."  New  York  did  its 
share  by  providing  an  easy  method  for  the  incorporation  of  manufac- 
turing corporations.  (For  a  history  of  the  general  corporation  acts 
in  the  United  States,  see  Kent's  Commentaries,  Volume  II,  page  272. 
For  a  general  history  of  corporation  laws,  see  Machen's  Modern  Law 
of  Corporations,  Chapter  I.) 

While  the  Illinois  law  (p.  34)  has  been  given  in  the  book,  the 
laws  of  the  State  in  which  the  students  reside  should  generally  be 
studied  in  relation  to  the  organization  and  legal  management  of  the 
corporation.  A  convenient  and  inexpensive  book  is  Where  and  How. 
published  by  the  Broun-Green  Company,  New  York  (fifty  cents).  It 
gives  a  digest  of  the  corporation  laws  of  the  nine  most  impor- 
tant incorporating  States  with  outlined  forms  of  certificates  of  in- 
corporation, object  clauses,  etc.  The  charted  digest  (p.  51)  of  cor- 
poration laws  may  well  be  used  as  the  basis  of  the  question  of  where  to 
incorporate. 

One  of  the  remedies  proposed  by  the  Federal  Railroad  Securities 
Commission  (see  report  of  November  1,  1911)  for  the  evil  of  stock- 


x  INTRODUCTION 

watering  was  the  plan  for  the  issuance  of  shares  of  stock  without  par 
value.  Shortly  afterwards  the  State  of  New  York  (p.  43  and  p.  47) 
passed  a  law  providing  for  the  formation  of  corporations  issuing  stock 
without  par  value.  The  method  of  determining  the  amount  of  stock- 
holders' income,  stockholders'  liabilities,  etc.,  under  this  statute  should 
be  carefully  observed. 

The  Atchison,  Topeka  &  Santa  Fe  charter  (p.  54)  is  a  good  exam- 
ple of  a  charter  procured  through  reorganization.  Notice  the  vetoing 
power  of  the  preferred  stock  and  the  use  of  "adjustment"  income 
bonds.  For  an  account  of  the  reorganization  see  Stuart  Daggett's 
Railroad  Reorganization,  Chapter  VI. 

The  United  States  Steel  Corporation  (p.  59)  is  the  largest  indus- 
trial in  the  world.  It  was  originally  formed  as  a  $3,000  company 
in  order  that  contracts  could  be  made  before  the  news  of  the  creation 
of  the  gigantic  corporation  got  abroad;  but  within  a  few  months  the 
capital  stock  was  increased.  The  corporation  has  been  written  up 
a  number  of  times.  See  Wilgus'  United  States  Steel  Corporation, 
Report  of  the  Commissioner  of  Corporations,  and  the  report  of  the 
Stanley  Committee  of  Congress. 

The  bylaws  of  the  United  States  Steel  Corporation  (p.  66)  are 
not  unusual.  The  student  will  do  well  to  make  a  chart  showing  the 
relation  of  the  committees  and  officers  to  each  other.  Section  8  of 
Article  2  is  worthy  of  special  study.  For  a  study  of  the  legal  princi- 
ples involved,  see  Machen's  Modern  Law  of  Corporations,  Chapters 
XXIV,  XXV  and  XXVI.  See  also  the  account  of  the  United  States 
Steel  Corporation  bond  conversion,  Chapter  VIII  of  Ripley's  Trusts, 
Pools  and  Corporations. 

The  minutes  of  organization  meetings  (p.  80)  must  always  be 
drawn  up  with  the  utmost  care.  Important  property  rights  are  usu- 
ally at  stake  and  frequently  become  involved  in  litigation,  the  out- 
come of  which  depends  on  the  care  with  which  the  minutes  have 
been  drafted. 

It  has  been  brought  out  very  clearly  in  recent  investigations  that 
one  company  can  control  another  without  owning  fifty  per  cent  of 
its  stock.  The  reason  for  this  is  to  be  found  partly  in  the  American 
system  of  sending  out  notices  of  meetings,  attaching  thereto  proxies 
directed  to  persons  associated  with  the  management  (p.  88).  These 
proxies  are  returnable  in  envelopes  addressed  to  the  company  and 
properly  stamped.  Thousands  of  stockholders  in  this  way,  without 
questioning  the  expediency  of  the  appointment,  regularly  send  in  their 
proxies  to  persons  in  control. 

The  care  with  which  notices  of  meetings  (p.  89)  are  drawn  up  is 
very  important.  An  improper  notice  may  invalidate  subsequent  ac- 


INTRODUCTION  ri 

tion  taken  at  the  meeting.  (See  Chapter  XXI  of  Machen's  Modern 
Law  of  Corporations.) 

The  form  of  ballot  used  by  the  Erie  Railroad  (p.  90)  is  used  where 
cumulative  voting  is  not  practiced,  though  it  may  be  used  even  in 
connection  with  cumulative  voting.  For  a  description  of  cumulative 
voting,  see  the  General  Corporation  Laws  of  the  State  of  Illinois 
(p.  35).  See  an  article  on  The  Mathematics  of  Cumulative  Voting, 
Journal  of  Accountancy,  January,  1910. 

Modern  corporate  monopolies  became  known  as  "trusts"  because  the 
first  form  of  organization  of  importance  and  stability  was  a  voting 
trust  agreement  (p.  91)  wherein  the  stockholders  in  several  cor- 
porations surrendered  their  right  of  control  to  trustees  who  elected 
the  directors  in  the  constituent  companies  and  in  that  way  were  able 
to  establish  harmony  of  action.  The  common  law  of  voting  trusts, 
aside  from  any  question  of  monopoly  that  may  be  involved,  was 
established  by  the  New  Jersey  cases  of  Chapman  vs.  Bates,  61  N.  J. 
Eq.  658;  Warren  vs.  Pirn,  66  N.  J.  Eq.  353. 

The  Great  Northern  Iron  Ore  Certificate  (p.  98)  is  a  certificate  of 
interest  in  properties  held  in  trust,  similar  to  the  Massachusetts 
Trust.  It  is  a  certificate  without  par  value.  For  a  description  of  the 
properties  and  other  matters  relating  to  the  trust,  see  the  Report  of 
the  Commissioner  of  Corporations  on  the  Steel  Industry. 

Mr.  W.  H.  Lyon,  in  his  Capitalization,  A  Boole  on  Corporation 
Finance,  very  clearly  brings  out  the  attributes  of  ownership  in  a  cor- 
poration, whether  it  is  the  immediate  ownership  of  a  stockholder 
or  the  contingent  ownership  of  a  bondholder.  The  three  attributes  of 
interest  are  control,  income  and  risk ;  one  security — a  stock  or  a  bond 
— differs  from  another  security  through  some  variation  in  control,  risk 
or  income.  The  control  of  stockholders  is  direct  or  indirect.  Where 
a  proposition  is  brought  forward  involving  all  the  property  of  the 
company,  stockholders  usually  have  direct  control ;  that  is,  there  must 
be  a  referendum  of  the  proposition  to  the  body  of  stockholders.  Mat- 
ters involving  ordinary  management  are  subject  to  the  stockholders' 
indirect  control  only;  that  is,  they  are  passed  on  by  the  board  of 
directors.  The  New  York  statutes  (p.  99)  are  typical  of  the  statutes 
of  most  States  in  respect  to  the  questions  that  must  be  decided  by  a 
referendum  to  the  stockholders. 

The  excerpts  from  the  certificate  o»f  incorporation  of  the  Califor- 
nia Petroleum  Company  (p.  101),  the  Chicago,  Milwaukee  &  St.  Paul 
Railway  Co.  (p.  105),  and  the  May  Department  Stores  (p.  107)  are 
given  to  illustrate  the  different  kinds  of  preferred  stock.  The  student 
will  do  well  to  analyze  these  excerpts  very  carefully  and  to  make  a 
table  of  the  different  kinds  of  stock  illustrated.  At  the  same  time 


xii  INTRODUCTION 

he  ought  to  undertake  to  tell  whether  a  given  provision  in  the  char- 
ters has  been  included  for  the  purpose  of  varying  the  control,  the  in- 
come, or  the  risk. 

The  Uniform  Stock  Transfer  Law  (p.  Ill)  made  certificates  of 
stock  wholly  negotiable.  If  A  endorsed  a  certificate  in  blank  and 
then  lost  it,  under  the  common  law  it  would  appear  that  his  title 
would  never  be  divested  except  if  the  loss  was  occasioned  through  his 
own  negligence.  Nobody  could  get  title  unless  the  finder  or  a  sub- 
sequent holder  procured  a  transfer  of  stock  to  his  own  name,  and  then 
with  the  certificate  in  his  own  name  made  assignment  to  an  innocent 
purchaser  for  value.  It  would  appear  that  this  last-named  person 
would  get  title  as  against  the  corporation,  not  as  against  A.  Under 
the  Uniform  Law,  the  first  bonafide  purchaser  for  value  gets  title  as 
against  the  original  holder. 

More  stock  is  transferred  in  New  York  than  in  any  other  State, 
or  perhaps  than  in  all  the  other  States  taken  together.  The  Transfer 
Tax  Law  (p.  114)  of  New  York  State  and  the  regulations  of  the 
State  Comptroller  (p.  122)  are  therefore  very  important  to  the  stu- 
dent of  corporation  finance.  Transfers  of  stock  are  governed  by 
statute,  by  bylaws,  and  by  the  Stock  Exchange  rules  when  the  trans- 
fer is  being  made  between  members  of  the  Exchange.  A  great  many 
of  the  large  corporations  have  found  the  rules  of  the  Stock  Ex- 
change governing  transfers  (p.  126)  at  once  safe  and  convenient,  and 
therefore  have  adopted  their  own  code  of  rules  (p.  171)  based  on  the 
Stock  Exchange  Eegulations.  See  generally  on  this  subject  Gold- 
man's A.  Handbook  of  Stock  Exchange  Laws. 

The  rules  governing  the  listing  of  stock  on  the  New  York  Stock 
Exchange  (p.  151)  are  interesting  to  the  student  of  corporation 
finance  because  they  outline  the  practical  considerations  involved  in 
an  issue  of  stock.  When  a  corporation  makes  an  application  to  list 
its  stock,  the  members  of  the  Exchange  are  notified  through  a  state- 
ment, an  illustration  of  which  is  given  on  page  162.  The  whole  sub- 
ject of  the  control  of  the  Stock  Exchange  over  listed  securities  is 
important  at  this  time  on  account  of  the  agitation  to  get  greater  pub- 
lic control  of  the  exchanges  of  the  country,  especially  of  the  New 
York  Stock  Exchange.  Notice  in  the  application  of  the  Pacific 
Light  and  Power  Company  (p.  163)  the  protection  offered  to  bond- 
holders through  the  modern  device  of  the  improvement  fund.  See 
generally  on  this  subject  Chapter  VII  of  Meade's  Corporation 
Finance. 

The  form  of  real  estate  bond  and  mortgage  (p.  180  and  p.  176)  was 
prepared  by  the  Lawyers'  Title  Insurance  and  Trust  Company  of  New 
York.  Before  the  student  undertakes  to  study  the  corporate  mort- 


INTRODUCTION  xiii 

gage,  he  should  master  the  ordinary  real  estate  mortgage,  and  study 
the  rights  of  the  mortgagee  thereunder. 

The  corporate  mortgage  of  the  Jones  Laughlin  Steel  Company 
(p.  183)  is  given  in  full,  except  that  part  of  the  description  of  the 
property  pledged  was  omitted  as  being  of  no  value  to  the  student. 
This  mortgage  is  a  thoroughly  typical  mortgage  and  can  well  be  made 
the  basis  of  a  study  of  bonds  and  orf  the  subject  of  the  rights  of 
bondholders  of  insolvent  companies.  Notice  particularly  the  restric- 
tions on  the  issue  of  the  second  $15,000,000  worth  of  bonds  to  be  issued 
and  compare  these  restrictions  with  those  placed  on  the  issue  of  the 
first  $15,000,000.  (See  generally  Chapter  V  of  Meade's  Corporation 
Finance.) 

Bonds  may  be  classified  on  the  basis  of  their  purpose,  their  secur- 
ity of  principal  and  interest,  their  manner  of  payment  of  principal 
and  their  manner  of  payment  of  interest.  Besides  the  words  listed 
below,  many  other  words  are  used  in  the  titles  of  bonds;  the  words 
given  are  most  frequently  used  in  practice. 

Purpose  of  bonds:  Adjustment;  consolidated  refunding;  construc- 
tion; extension;  improvement;  purchase  money. 

Security  of  principal:  Prior  lien;  first,  second,  third  mortgage, 
etc.;  underlying;  overlying;  senior;  junior;  bridge;  ferry;  dock; 
wharf ;  divisional ;  terminal ;  general  mortgage ;  first  and  consolidated, 
and  other  phrases  indicating  that  the  mortgage  is  not  the  first  mort- 
gage on  all  the  property ;  debenture ;  collateral  trust ;  equipment  or  car 
trust;  sinking  fund;  income;  participating  or  profit  sharing;  joint; 
assumed;  guaranteed;  endorsed;  stamped;  receiver's  certificate. 

Manner  of  payment  of  principal:  Gold;  silver;  currency  or  legal 
tender;  redeemable  or  irredeemable;  serial  or  equal  installment;  con- 
vertible. 

Manner  of  payment  of  interest:  Registered;  coupon;  interchange- 
able; registered  as  to  principal  with  negotiable  interest  coupons. 

In  studying  the  mortgage  try  to  discover  the  attributes  of  the  vari- 
ous bonds  above  enumerated.  For  a  complete  description  of  all  kinds 
of  corporate  bonds  see  Chamberlain's  Principles  of  Bond  Investment. 

The  mortgage  of  the  Mortgage-Bond  Company  (p.  255)  brings  out 
the  international  nature  of  large  flotations.  It  is  also  important  as 
illustrating  a  method  of  securing  bonds  with  shifting  assets. 

The  subject  of  collateral  trust  bonds  (p.  255)  may  be  studied  in 
connection  with  this  mortgage  as  well  as  in  connection  with  the 
Jones  Laughlin  mortgage,  and  should  be  coupled  with  a  complete 
discussion  of  the  financing  of  subsidiary  companies.  For  a  complete 
description  of  corporate  mortgages,  see  Jones'  Corporate  Bonds  and 
Mortgages. 


xiv  INTRODUCTION 

Short  term  notes  (p.  291)  are  temporary  substitutes  for  bonds  and 
their  place  in  corporation  finance  is  very  important.  It  is  said  that 
they  are  used  amongst  the  banks  in  New  York  to  settle  clearing 
house  balances. 

The  reason  why  a  safe  investment  like  an  equipment  bond  pays  a 
high  rate  of  interest  should  be  understood  by  the  student. 

Equipment  trust  agreements  (p.  299  and  p.  313)  do  not  take  the 
form  of  an  ordinary  mortgage  on  account  of  the  effect  of  the  after- 
acquired  clause  in  the  usual  corporate  mortgage.  The  equipment 
trust  device  is  used  in  order  to  provide  a  first  lien  on  the  equipment 
before  it  can  be  subjected  to  the  lien  of  the  general  mortgage  of 
the  corporation.  The  device  should  be  clearly  worked  out  by  study- 
ing the  various  transfers  of  the  legal  title  to  the  property  from  the 
time  it  leaves  the  car  company  to  the  time  the  corporation  gets  physi- 
cal possession.  Another  question  of  importance  is,  why  are  equip- 
ment trust  notes  (p.  301)  well  treated  in  reorganizations? 

The  subject  of  refunding  and  the  function  performed  by  the  banker 
is  a  subject  that  may  well  be  considered  in  connection  with  the  adver- 
tisement of  the  Toledo  Traction  Company  (p.  320).  What  is  the 
object  of  the  Toledo  Traction  Company  in  refunding  the  bond  issues 
of  its  subsidiaries?  Why  do  corporations  refund  their  bonds  instead 
of  paying  them  ?  The  theory  of  funding  and  refunding  is  thoroughly 
discussed  in  Chapter  II  of  Lyon's  Capitalization.  See  also  pages  398 
and  399  of  Meade's  Corporation  Finance. 

Convertible  bonds  make  up  a  large  part  of  the  security  issues  of 
corporations.  Their  advantages  are  well  pointed  out  in  the  Spencer 
Trask  circular  (p.  324).  For  a  thorough  discussion  see  Lyon's  Capi- 
talization, p.  43  et  seq.  and  p.  90  et  seq. 

The  advertisements  printed  on  page  336  should  be  used  in  connec- 
tion with  a  discussion  of  Article  4  of  the  Jones  Laughlin  Steel  Com- 
pany mortgage. 

A  complete  compilation  and  analysis  of  the  laws  of  forty-three 
States  and  of  the  Federal  Government  for  the  regulation,  by  central 
commissions,  of  railroads  and  other  public  utilities  has  been  pub- 
lished by  the  National  Civic  Federation  (1913)  under  the  title  Com- 
mission Regulation  of  Public  Utilities.  The  complete  New  Jersey 
Public  Utilities  Act  is  given  on  pages  337-349,  and  is  typical  of  public 
service  commission  laws  of  other  States.  The  rulings  of  the  New  York 
Public  Service  Commission  on  the  issuing  of  securities  have  been 
abundant,  and  therefore  the  New  York  statute  bearing  on  that  point 
has  been  given  (p.  350). 

The  general  orders  of  the  New  Jersey  Utilities  Board  on  the  issue 
of  securities  (p.  351)  is  a  fair  summary  of  the  attitude  of  public  ser- 


INTRODUCTION  xv 

vice  commissions  toward  new  issues  of  securities  or  bonds,  and  may 
well  be  made  the  basis  of  a  study  of  the  formation  of  the  financial 
plan  for  new  corporations.  For  example,  the  corporation  to  be  cre- 
ated referred  to  in  the  Engineers  Report  (p.  457). 

The  whole  subject  of  stockhdlders'  rights  (p.  358)  has  been  thor- 
oughly worked  out  by  the  New  York  Court  of  Appeals  in  the  case  of 
Stokes  vs.  Continental  Trust  Co.,  186  N.  Y.  285.  The  theoretical  value 

P  X  R 

of  a  right  may  be  found  from  the  following  formula : ,  where  P 

is  the  premium  on  the  old  shares  and  R  is  the  rate  or  percentage  of 
increase.  For  a  discussion  of  rights  and  of  the  application  of  this 
formula  see  Lough's  Corporation  Finance,  Chapter  XXIV. 

The  various  documents  beginning  with  the  newspaper  advertise- 
ment announcing  the  sale  of  the  United  Dry  Goods  Company  pre- 
ferred stock  (p.  367)  down  to  and  including  the  bond  letter  of  N.  \V. 
Halsey  and  Co.  (p.  404)  should  be  considered  carefully  in  connection 
with  the  problem  of  selling  securities  to  the  public.  Compare  the 
dignified  letter  of  N.  W.  Halsey  and  Co.  with  the  delightfully  ingenu- 
ous letters  of  the  Sterling  Debenture  Corporation  (pp.  383-4).  The 
editor  has  frequently  wondered  why  that  corporation  did  not  more 
abundantly  exult  in  the  discovery  of  natural  rubber  trees.  Probably 
only  a  quotation  from  Holy  Writ  could  adequately  express  the  Com- 
pany's joy  in  finding  itself  in  partnership  with  Nature.  Apply  to 
all  these  documents  the  fact  and  opinion  test;  to  what  extent  does 
the  corporation  or  its  agents  make  representations  based  on  past 
facts  instead  of  cunningly  twisting  expressions  of  opinion,  upon 
which  action  for  fraud  cannot  be  based,  into  apparent  statements 
of  fact. 

The  subject  of  syndicate  underwriting,  illustrated  by  documents 
on  pages  410-411,  was  first  strongly  called  to  public  attention  by  the 
insurance  company  investigation  of  the  State  of  New  York,  in  which 
investigation  Charles  E.  Hughes,  now  Supreme  Court  Justice,  was 
inquisitor.  For  a  statement  of  management,  profits  and  losses,  etc., 
of  underwriting  syndicates,  see  the  report,  entitled  Testimony  Taken 
by  the  Legislative  Insurance  Investigating  Committee,  New  York, 
1905.  See  also  Chapters  XVIII  and  XIX  in  Lough's  Corporation 
Finance,  Chapter  II  of  Cleveland  and  Powell's  Railroad  Finance,  and 
Chapter  XIII  of  Meade's  Corporation  Finance. 

Wall  Street  Ways  (p.  421)  will  be  especially  interesting  to  those 
who  care  to  use  the  book  in  a  study  of  speculation  and  investment. 
This  document,  with  those  following  down  to  and  including  those  on 
puts  and  calls,  might  well  be  studied  in  connection  with  the  Stock 
Exchange  rules  mentioned  above.  See  generally  on  this  subject  Con- 


xvi  INTRODUCTION 

way  and  Atwood's  Investment  and  Speculation,  and  Nelson's  ABC 
of  Stock  Speculation. 

Corporations  depend  largely  on  savings  banks,  insurance  companies 
and  private  trustees  for  the  "digestion"  of  their  securities.  It  will  be 
interesting  for  the  student  to  study  carefully  the  rules  governing  legal 
investments  for  trustees  (p.  447)  and  then  to  analyze  the  lower  part 
of  the  Baltimore  and  Ohio  Ey.  income  statement  for  1908  (p.  625). 
He  will  probably  discover  the  reason  why  the  railroad  paid  its  divi- 
dend that  year  although  it  did  not  earn  it. 

Things  necessary  to  be  done  to  promote  a  public  utility  corporation 
are  summarized  in  the  excerpt  from  the  brief  of  the  Public  Service 
Corporation  of  New  Jersey  (p.  455).  For  the  steps  taken  in  promo- 
tion see  Lough's  Corporation  Finance,  Chapter  XII. 

The  report  of  the  engineers  (p.  457)  may  be  taken  as  a  typical 
engineer's  report  to  the  bankers  who  are  asked  to  participate  in  the 
promotion  of  a  new  enterprise. 

The  complaint  in  Haskins  vs.  Ryan  (p.  489)  is  included  as  an 
illustration  of  the  method  of  "discovering"  a  consolidation.  The 
student  who  has  failed  to  read  Meade's  Trust  Finance  should  do  so 
at  once.  He  will  find  Chapters  IV,  V,  and  VI  of  great  importance 
in  connection  with  this  complaint. 

The  whole  subject  of  intercorporate  relations  is  too  large  to  permit 
of  any  extensive  commentary  in  this  introduction.  All  the  impor- 
tant forms  of  intercorporate  relations  are  illustrated,  from  pools  (p. 
496)  to  the  holding  company  (p.  570).  Undoubtedly  the  best  book 
that  has  ever  been  written  on  the  subject — although  it  is  now  somewhat 
old — is  Noyes  on  Intercorporate  Relations  (second  edition,  1909). 
Stevens'  Industrial  Combinations  and  Trusts  is  a  source  book  on  that 
subject  in  the  industrial  field.  See  Interstate  Commerce  Commission's 
special  report  on  Intercorporate  Relationships  of  Railways  in  the 
United  States  as  of  June  30,  1906.  For  a  concrete  study  of  a  num- 
ber of  industrial  consolidations  see  Dewing's  Corporate  Promotions 
and  Reorganizations.  Anti-trust  literature  is  boundless.  The  prob- 
lem is  well  treated  in  Jenks'  The  Trust  Problem,  and  in  Haney's 
Business  Organizations  and  Combinations.  For  a  solution  see  Wy- 
man's  Control  of  the  Market  and  Van  Hise's  Concentration  and  Con- 
trol. For  a  historic  and  international  survey  of  monopolies  see  Levy's 
Monopoly  and  Competition,  Macrosty's  Trusts  and  the  State,  and 
Hirst's  Monopolies,  Trusts  and  Kartells. 

The  subject  of  corporate  financial  management  can  best  be  stud- 
ied in  connection  with  annual  reports.  A  comparison  of  the  extremes 
of  good  and  bad  reports  may  be  had  by  studying,  on  the  one  hand, 
the  Westinghouse  (p.  627)  and  New  Haven  (p.  663)  reports,  and, 
on  the  other,  the  report  of  the  American  Glue  Company  (p.  782). 


INTRODUCTION  xvii 

It  is  likely  that  the  Federal  Trade  Commission  will  in  the  course  of 
the  next  ten  years  make  such  rules  and  regulations  as  will  enable 
the  stockholders  of  industrial  companies  to  get  the  same  information 
out  of  their  annual  reports  as  can  the  stockholders  of  the  railroad 
companies,  thanks  to  the  Interstate  Commerce  Commission.  The 
first  book  on  the  analysis  of  corporate  reports  was  Woodlock's  Anat- 
omy of  Railroad  Reports;  it  has  been  entirely  superseded  by  Sakol- 
ski's  American  Railroad  Economics.  Concrete  studies  in  the  analysis 
of  reports  will  be  found  in  Moody's  Analyses  of  Public  Utilities  and 
Industrials,  and  Moody's  Analyses  of  Railroad  Investments,  each  pub- 
lished annually. 

A  wealth  of  material  will  be  found  in  Professor  Bemis'  report  (p. 
783).  It  is  recommended  at  once  as  a  field  for  the  study  of  financial 
management  and  as  a  concrete  example  of  the  analysis  of  financial 
statistics.  The  whole  subject  of  physical  valuation  is  ably  treated 
in  Whitten's  Valuation  of  Public  Service  Corporations. 

The  three  problems  of  financial  management  are  those  of  main- 
tenance, provision  of  working  capital,  and  the  distribution  of  surplus. 
The  study  of  maintenance  can  be  made  in  connection  with  annual 
reports  (pp.  627,  663)  and  with  Professor  Bemis'  Report  (p.  783). 
The  study  of  working  capital  may  be  taken  up  in  connection  with 
short  term  loans.  See  forms  beginning  with  the  application  for  bank 
loan  (p.  902)  down  to  and  including  the  settlement  of  open  accounts 
(p.  908).  See  generally  Lough's  Corporation  Finance,  Chapters  VIII 
and  XX.  In  connection  with  the  registration  of  commercial  paper,  see 
Trust  Companies  Magazine,  Volume  XII,  page  101. 

Readjustment  may  be  necessary  on  account  of  (1)  desire  for  profit 
(p.  910),  (2)  existence  of  illogical  capital  account  growing  out  of 
piece-meal  financing  (p.  929),  (3)  financial  failure,  imminent  or  ac- 
tual (pp.  933,  966),  or  (4)  disintegration  in  pursuance  of  a  court  de- 
cree after  an  anti-trust  prosecution  (p.  1001).  On  this  subject  see 
Lyon's  Capitalization,  Chapter  III;  Meade's  Corporation  Finance, 
Chapter  XXXI;  Bowing's  Corporate  Promotions  and  Reorganiza- 
tions, and  Daggett's  Railroad  Reorganization. 


Since  the  publication  of  the  first  edition,  MATERIALS  OF  CORPORA- 
TION FINANCE  has  been  adopted  in  many  colleges  throughout  the 
country  and  the  author  has  frequently  been  consulted  upon  the  best 
method  of  using  it  in  class  work.  For  his  own  class,  the  author  has 
prepared  a  Syllabus  of  Corporation  Finance  containing  a  very  concise 
statement  of  principles,  and  a  book  of  problems  based  on  MATERIALS 
OF  CORPORATION  FINANCE,  which  problems  are  made  the  basis  of 
classroom  discussion. 

The  above  books  are  published  by  PRENTICE-HALL,  Inc. 


TABLE  OF  CONTENTS 

PAGM 

Articles  of  Co-Partnership  1 

Certificate  of  Limited  Partnership  in  the  State  of  New  York 4 

Articles  of  the  Pierce  Fordyce  Oil  Association — A  Joint-Stock  Company. .  6 

Form  of  Declaration  of  Trust  Establishing  a  Holding  Company 11 

Chart  Showing  Principal   Forms  of  Business  Associations  with  a  Com- 
parative Summary  of  Loading  Features  22 

Classification  and  Definitions  of  Corporations  24 

An  Act  to  Incorporate  the  General  Electric  Company 26 

First  General  Corporation  Law 31 

General  Corporation  Law   34 

Certificate  of  Incorporation  with  Shares  of  Stock  without  Par  Value 43 

An  Act  in  Relation   to  Corporations   Having   Shares   of   Capital   Stock 

without  Nominal  or  Par  Value   47 

Comparison  of  So-called  Incorporating  States   51 

Certificate  of  Incorporation  of  the  Atchison,  Topeka  &  Santa  F6  Rail- 
way Company    54 

Amended  Certificate  of  Incorporation  of  United  States  Steel  Corporation. .  59 

By-Laws  of  United  States  Steel  Corporation   66 

Form  of  Organization  Papers  of   a   Corporation,   including  Minutes   of 

Organization  Meeting 80 

Minutes  of  the  First  Meeting  of  the  Board  of  Directors 83 

United  States  Steel  Corporation,  Notice  of  Annual  Meeting 88 

United  States  Steel  Corporation,  Notice  of  Special  Meeting 89 

Erie  Railroad  Company's  Form  of  Ballot    90 

Voting  Trust  Agreement,  International  Harvester  Company,  Dated  August 

13,   1902    91 

Great  Northern  Iron  Ore  Properties — Trustees'  Certificate  of  Beneficial 

Interest  98 

Corporate  Acts  Requiring   Consent  or   Vote  of   Stockholders   under   the 

New  York  Statute  99 

From  the  Articles  of  Incorporation  of  the  California  Petroleum  Corporation  101 
From  the  Articles  of  Association  of  the  Chicago,  Milwaukee  &  St.  Paul 

Railway  Company    105 

From  the   Certificate  of   Incorporation   of  the  May  Department   Stores 

Company   107 

Transfers  of  Certificates  and  Shares  of  Stock Ill 

Stock  Transfer  Tax  Law  of  New  York 117 

Rulings  of  the  State  Comptroller  Governing  the  Collection  of  Taxes  on 

Transfers  of  Stock    122 

Stock  Exchange  Bylaws  and  Rules 120 

Certificate  of  Stock  of  British  American  Mines  150 

Rules  of  Committee  on  Stock  List  of  New  York  Stock  Exchange 151 

Application  for  Listing  Pacific  Light  A  Power  Company's  First  and  Re- 
funding 20  Year  5%  Bonds  on  New  York  Stock  Exchange 162 

Regulations  Governing  the  Transfer  of  Stocks  and  Bonds 171 

Real  Estate  Mortgage    176 


xx  TABLE    OF   CONTENTS 

PAGE 

Bond  to  Accompany  Real  Estate  Mortgage   180 

Corporate  Mortgage — Jones  &  Laughlin  Steel  Company 183 

Trust  Agreement — The  Mortgage  Bond  Company  of  New  York  with  United 

States  Trust  Company  of  New  York 255 

Agreement  Securing  Short  Term  Notes   291 

Conditional  Sale  Agreement 299 

Agreement  between  Standard  Steel  Car  Company  and  Bankers  Trust  Com- 
pany and  Erie  Railroad  313 

Illustration  of  the  Method  of  Refunding  with  the  Aid  of  a  Banker 320 

Conversion  of  Bonds  into  Stock  322 

Convertible  Bonds — Spencer  Trask  &  Company  Circular 324 

Specimen  of  Offer  to  Purchase  Bonds  Where  the  Mortgage  Gives  Trustees 
the  Right  to  Invest  Sinking  Funds  in  Bonds.  Bonds  Are  not  Re- 
deemable    336 

Public  Utilities  Commission  Act  of  New  Jersey   337 

Approval  of  Issues  of  Stocks,  Bonds  and  other  Forms  of  Indebtedness. . . .   350 

Interpretation  of  Security  Restrictions  351 

Stockholders'  Rights — New  York,  New  Haven  &  Hartford  Railroad  Com- 
pany    358 

Stockholders'  Rights — Union  Pacific  Railroad  Company  363 

United  Dry  Goods  Company  Preferred  Stock — Newspaper  Advertisement 

Announcing  Sale    367 

Bond  House  Circular  (Blair  and  Company)  Announcing  Jones  &  Laugh- 
lin Steel  Company  Bonds  374 

Prospectus  of  Mining  Company 377 

Promoter's  Letters — Sterling  Debenture  Corporation    383 

Bartica  Company  Annual  Report,  January,   1912 387 

Mining  Prospectus — Black  Wonder  Mill  and  Mines 398 

Example  of  Direct  Appeal    399 

Bond  Letter — N.  W.  Halsey  &  Company   404 

Underwriting   Synolicate   Agreement — Republic   of   Cuba   Five    Per   Cent 

Bonds  of  1904 405 

Selling  Stock  without  Underwriting — The  Kansas  City,  Mexico  &  Orient 

Railway  Company 412 

American  Wolves    415 

Stillwell's  Road  is  in  Receiver's  Hands   418 

Wall  Street  Ways 421 

Buying  and  Selling  to  Support  the  Market 435 

Stock  Pooling  Agreement — Hocking  Valley  Railroad  436 

Puts  and  Calls 438 

Options 441 

Puts  and  Calls — Facsimile  "Call"  made  by  Jay  Gould 444 

Puts  and  Calls — Facsimile  "Put"  made  by  Daniel  Drew 446 

Legal  Investments  for  Trustees 447 

Elements  of  the  Cost  and  Value  of  a  Gas  Plant 455 

Engineers'  Preliminary  Report — with  Maps,  etc ' 457 

Promotion — Complaint  of  Haskins  vs.  Ryan,   Illustrating  the  Technical 

Method  of  Discovering  a  New  Consolidation 489 

Steel  Rail  Pool 496 

Agreement  between  Deering  Harvester  Company  and  William   C.  Lane, 

July  28,  1902 .   499 


TABLE    OF   CONTENTS  xxi 

PAGE 

Supplemental  Agreement  between  Deering  Harvester  Company  and  Wil- 
liam C.  Lane,  August  11,  1902 508 

Agreement  Preliminary  to  the  Formation  of  the  American  Snuff  Company  511 
Agreement  Preliminary  to  the  Formation  of  the  American  Cigar  Company  516 

Consolidation  by  Sale  of  Assets 522 

Plan  for  the  Consolidation  of  the  Electric  Railway  Companies,  the  Gas 
and  Electric  Light  Companies  of  the  City  of  New  Orleans,  La.,  under 
the  Control  of  the  New  Orleans  Railways  Company,  a  Corporation 

Organized  under  the  Laws  of  the  State  of  New  Jersey 526 

Basis  of  Consolidation 536 

Agreement  to   Consolidate 538 

The  New  York  Central  &  Hudson  River  Railroad  Company's  Notices  Con- 
cerning Proposed  Consolidation  of  New  York  Central  Lines 542 

Purpose  and  Method  of  Consolidation — Report  of  The  Interstate  Commerce 

Commission  to  the  Senate  of  the  United  States 548 

Lease — West  End  Street  Railway 555 

Holding  Companies  in  the  Public  Utility  Field 570 

Partnership  between  Municipality  and  Public  Utility  Corporation 583 

The  Sherman  Anti-Trust  Law 590 

Clayton  Law  Supplementary  to  Sherman  Anti -Trust  Act 595 

Federal  Trade  Commission  Law 610 

What  an  Investor  Should  Know  Regarding  a  Public  Utility 620 

Forty-sixth  Report  of  the  Nippon  Yusen  Kaisha 622 

Income  Statement  of  the  Baltimore  &  Ohio  for  1908 625 

Annual  Report  Westinghouse  Electric  &  Manufacturing  Company,  March 

31,   1911    627 

Complete  Annual  Report  of  the  New  York,  New  Haven  &  Hartford  Rail- 
road Company,  1914 663 

Chicago,  Milwaukee  &  St.  Paul  Ry.  Analysis 753 

American  Smelting  &  Refining  Co.  Statements 759 

Bethlehem  Steel  Corp.  Analysis 761 

United  Light  &  Railway  Co.  Statement 764 

Midwest  Refining  Co.  Statement 766 

May  Dept.  Stores  Analysis 767 

Joint  Account  Letters  and  Forms 769 

Valuation  of  Public  Utility  Property — Complete  Report  on  the  Physical 

Valuation  of  the  Chicago  Telephones 783 

Divergent  Views  on  Depreciation  by  Engineering  Experts 899 

Form  of  Application  for  Loans  for  Corporations,  Adopted  by  the  New 

York  State  Bankers'  Association 902 

Note  Used  to  Protect  Overdrafts 904 

Collateral  Note 905 

Registration  of  Commercial  Paper — International  Paper  Company 907 

Assignment  of  Accounts  Receivable  by  Way  of  Discount 908 

The  Facts  Concerning  the  Recapitalization  of  the  Chicago  &  Alton  Rail- 
road Company , 910 


xxii  TABLE  OF  CONTENTS 

PAGE 

Condemnation  of  Chicago-Alton  Recapitalization 920 

Readjustment  of  Public  Utility 929 

Readjustment  of  Debt  of  Hudson  &  Manhattan  Railroad  Company 933 

Reorganization  of  the  Baltimore  &  Ohio  Railroad  Company 966 

The  Dissolution  of  the  Powder  Trust 1001 

Refunding  without  the  Aid  of  a  Banker 1009 

From  the  Certificate  of  Incorporation  of  the  Western  Maryland  Railway  Co. .  1011 
From  the  Certificate  of  Incorporation  of  American  International  Corpora- 
tion  1013 

Stockholders'  Rights — American  Telephone  and  Telegraph  Co 1014 

Stockholders'  Rights — Form  of  Warrant  of  American  Coal  Products  Co 1017 

Valuation  of  Dissenting  Stock—  Seaich  v.  Mason — Seaman  Transp.  Co. ...  1019 
Redemption  and  Sales  Prices  of  Short  Term  Notes — Bethlehem  Steel  Corp.  .1022 

Sinking  Fund  Computation 1023 

Interest,  Annuity  and  Sinking  Fund  Tables 1024 

Serial  Bond  Maturity  Table , 1026 


MATERIALS   OF  CORPORATION 
FINANCE 

ARTICLES   OF   CO-PARTNERSHIP 

Articles  of  Co-partnership,  made  this  first  day  of  June  in  the  year 
One  Thousand,  nine  hundred  and  ten,  by  and  between  William  H. 
Hull  and  Edward  T.  Moran,  both  of  the  Borough  of  Brooklyn,  City 
of  New  York. 

Witnesseth : 

That  the  said  parties  have  mutually  agreed  and  hereby  do  mutually 
agree  to  continue  a  co-partnership  heretofore  entered  into  by  and 
between  them  and  carried  on  at  Nos.  712-724  Bedford  Avenue,  in 
the  City  of  New  York,  Borough  of  Brooklyn,  for  the  manufacture 
of  carriages,  under  the  firm  name  and  style  of  Hull  &  Moran,  upon 
the  following  terms  and  conditions: 

First: 

Said  Co-partnership  shall  continue  until  the  same  shall  be  dis- 
solved by  the  mutual  consent  of  the  parties  hereto,  or  ended  in  pur- 
suance of  some  of  the  provisions  hereinafter  contained. 

Second: 

Each  partner  may  terminate  the  Co-partnership  by  giving  thirty 
(30)  days  written  notice  to  the  other  partner  of  his  intention  so  to  do. 

Third: 

The  Co-partnership  shall  be  dissolved  by  the  death  of  one  of  the 
partners;  and  in  that  case  the  surviving  partner  shall  liquidate  the 
business  and  pay  over  to  the  legal  representatives  of  the  deceased 
partner  within  six  months  or  sooner,  the  interest  of  such  deceased 
partner  in  said  business. 

Fourth  : 

All  losses  and  profits  shall  be  shared  equally. 

Fifth: 

The  business  shall  be  carried  on  under  the  firm  name  and  style  of 
Hull  &  Moran. 


2  MATERIALS    OF   CORPORATION   FINANCE 

Sixth: 

In  case  the  Co-partnership  be  dissolved  during  the  lifetime  of  both 
partners,  then  and  in  that  case,  both  partners  shall  act  as  liquidating 
partners  for  the  purpose  of  winding  up  the  business. 

Seventh: 

In  case  of  the  death  of  one  of  the  partners,  the  legal  representatives 
of  that  partner  shall  have  the  right  during  business  hours,  to  inspect 
the  books  of  the  firm,  and  to  make  an  inventory,  at  their  own  proper 
expense,  and  the  surviving  partner  shall  assist  them  in  every  way 
possible  by  giving  them  all  necessary  information  for  the  purpose  of 
ascertaining  the  exact  standing  of  the  firm  at  the  time  of  the  death 
of  such  deceased  partner. 

Eighth: 

The  assets,  which  are  to  constitute  the  working  capital  of  the 
firm,  shall  be  contributed  equally  by  the  partners  and  said  assets 
shall  be  the  present  business  assets  of  said  Firm,  which  shall  be  taken 
over  and  be  subject  to  this  agreement. 

Ninth : 

Each  partner  shall  be  entitled  to  draw  a  salary  of  sixty  dollars 
($60.00)  per  week. 

Tenth: 

It  is  further  agreed  that  a  certain  note  bearing  even  date  with 
these  presents  and  made  by  said  Edward  T.  Moran  to  the  order  of 
said  William  H.  Hull,  amounting  to  One  Thousand  Dollars,  shall  be 
paid  out  of  the  surplus  earnings  of  said  Moran  in  said  business,  over 
and  above  the  said  salary  of  $60.00  per  week  to  be  paid  to  him;  and 
all  such  surplus  earnings  shall  be  applied  in  payment  or  in  part 
payment  of  said  note  and  interest;  and  in  case  of  a  dissolution  of 
said  Firm,  the  share  of  said  Moran  in  the  undivided  profits  and 
assets  thereof,  shall  first  be  applied  in  payment  of  said  note,  and  the 
interest  of  said  Moran  in  said  Firm  shall  constitute  the  security 
for  said  note;  and  said  Hull  shall  at  all  times  have  a  lien  upon  the 
interest  of  said  Moran  in  said  Firm  to  the  extent  of  the  unpaid 
portion  of  said  note;  and  a  transfer  or  assignment  of  the  interest  of 
said  Moran  in  said  Firm  shall  be  subject  to  such  security  and  lien. 

Eleventh : 

Both  partners  shall  give  all  their  time  and  attention  to  the  prose- 
cution of  said  business  and  the  affairs  of  said  Firm  and  shall  not 


ARTICLES   OF   CO-PARTNERSHIP  3 

engage  in  any  other  business,  and  shall  not  make  any  accommodation 
notes  or  become  accommodation  endorsers,  or  become  surety  on  any 
bond  or  undertaking,  or  embark  in  any  speculation,  without  the  con- 
sent of  the  other  partner. 

Twelfth: 

True,  full  and  accurate  books  of  account  shall  be  kept  by  the  Firm 
of  all  dealings  and  transactions  by  it,  and  shall  be  accessible  and 
open  to  the  inspection  and  examination  of  both  partners  at  all  times. 

Thirteenth: 

Neither  party  shall  loan  or  use  the  funds  or  the  credit  of  the  Firm, 
or  the  Firm's  name,  for  any  purpose  whatsoever,  excepting  only  the 
business  of  the  Co-partnership 

Fourteenth: 

All  business  operations,  contracts,  bargains,  agreements,  purchases, 
sales  and  other  transactions  relating  to  the  co-partnership  business, 
shall  be  the  subject  of  mutual  consultation,  advice  and  agreement. 

IN  WITNESS  WHEREOF,  the  parties  hereto  have  hereunto  set 
their  respective  hands  and  seals  the  day  and  year  first  above  written 
In  presence  of  WILLIAM  H.  HULL 

EDITH  REARDON.  EDWARD  T.  MORAN. 

State  of  New  York,      1 

>  ss  ' 
County  of  New  York,  j 

On  this  first  day  of  June,  1910,  before  me  personally  came  William 
H.  Hull  and  Edward  T.  Moran,  both  to  me  personally  known  and 
known  to  me  to  be  the  same  individuals  described  in  and  who  executed 
the  foregoing  instrument,  and  they  severally  duly  acknowledged  to 
me  that  they  had  executed  the  same. 

CHARLES  E.  WALLACE, 
Commissioner  of  Deeds, 
New  York  City. 


4  MATEKIALS    OF   CORPOKATION   FINANCE 

CERTIFICATE  OF  LIMITED  PARTNERSHIP  IN  THE 
STATE   OF  NEW   YORK1 

We,  whose  names  are  severally  undersigned,  are  desirous  of  renew- 
ing and  continuing,  and  we  do  hereby  renew  and  continue,  beyond  the 
time  fixed  for  its  duration,  the  limited  partnership  which  was  hereto- 
fore formed  and  now  exists  between  us,  under  the  name  or  firm  of  Post 
&  Flagg,  by  making,  severally  signing  and  acknowledging,  and  causing 
to  be  filed  and  recorded  in  the  Clerk's  office  of  the  County  of  New 
York,  in  the  State  of  New  York,  this  certificate  by  which  such  part- 
nership is  renewed  and  continued,  pursuant  to  "An  Act  in  relation 
to  partnership,  constituting  chapter  thirty-nine  of  the  Consolidated 
Laws,"  and  we  do  hereby  certify  and  state: 

I.  That  the  name  or  firm  under  which  such  partnership  is  to  be 
conducted  is  Post  &  Flagg,  and  that  the  county  wherein  its  principal 
place  of  business  is  to  be  located  is  the  County  of  New  York. 

II.  That  the  general  nature  of  the  business  intended  to  be  trans- 
acted is  a  general  commission  and  brokerage  business,  including  the 
dealing  in  stocks,  bonds  and  other  securities,  as  generally  carried  on 
in  the  City  of  New  York. 

III.  That  the  names  of  all  the  general  and  special  partners  inter- 
ested therein  (all  of  whom  are  of  full  age)  and  their  respective  places 
of  residence  are  as  follows,  to  wit: 

George  B.  Post,  Jr.,  who  is  a  general  partner,  and  who  resides  at 
Bernardsville,  Somerset  County,  State  of  New  Jersey. 

Arthur  Turnbull,  who  is  a  general  partner,  and  who  resides  in  the 
City  and  County  of  New  York. 

Benson  B.  Sloan,  who  is  a  general  partner,  and  who  resides  in  the 
City  and  County  of  New  York. 

i  From  Gerstenberg's  Commercial  Law.  It  should  be  noticed  that  this  certifi- 
cate was  executed  for  the  purpose  of  renewing  and  continuing  an  old  partner- 
ship which  had  consisted  of  two  partners,  Post  and  Flagg.  Where  a  new 
partnership  is  formed  the  firm  name  should  contain  the  names  only  of  the 
general  partners.  Section  20  of  the  Partnership  Law  (Chapter  XXXIX  of 
the  Consolidated  Laws  of  the  State  of  New  York),  provides  in  part:  "Where 
any  limited  partnership  shall  hereafter  be  formed  under  the  laws  of  this 
State,  it  may  use  the  firm  or  corporate  name  of  any  general  or  limited  part- 
nership or  of  any  corporation,  domestic  or  foreign,  which  may  theretofore 
have  carried  on  its  business  within  this  State.  Where  said  general  or  limited 
partnership  or  corporation  is  discontinued  or  shall  be  about  to  discontinue 
its  business  within  the  State,  and  where  a  majority  of  the  partners,  general 
or  special,  in  either  of  such  last  mentioned  co-partnerships,  or  of  the  sur- 
vivors thereof,  shall  be  members  of  the  new  limited  co-partnership,  or  where 
a  majority  of  the  members  of  such  co-partnership  theretofore  existing,  or  of 
the  surviving  members  thereof,  or  where  stockholders  holding  a  majority  of 
the  stock  of  such  corporation  shall  consent  in  writing  to  the  use  of  such 
firm  or  corporate  name  by  such  new  co-partnership." 


CERTIFICATE   OF  LIMITED   PARTNERSHIP  5 

Alfred  L.  Dennis,  who  is  a  general  partner,  and  who  resides  in 
Newark,  Essex  County,  State  of  New  Jersey. 

Neville  G.  Higham,  who  is  a  general  partner,  and  who  resides  in 
the  City  and  County  of  New  York. 

Henry  Shaw,  who  is  a  general  partner,  and  who  resides  in  Morris- 
town,  Morris  County,  New  Jersey. 

Nathaniel  L.  McCready,  who  is  a  special  partner,  and  who  resides 
in  the  City  and  County  of  New  York. 

IV.  That  the  amount  of  capital  which  Nathaniel  It  McCready; 
the  special  partner,  has  heretofore  contributed  to  the  common  stock 
of  said  limited  partnership  is  the  sum  of  three  hundred  and  fifty 
thousand  dollars   ($350,000),  which  he  paid  in  cash,  and  that  the 
said   amount,   namely,   three  hundred   and   fifty   thousand    dollars 
($350,000)  has  been  contributed  by  the  said  special  partner  to  the 
common  stock  of  the  partnership  as  renewed  and  continued. 

V.  That  the  time  for  which  the  said  limited  partnership  is  to  be 
renewed  and  continued  is  five  (5)  years  from  December  31,  1910 — 
on  which  date  such  renewed  and  continued  partnership  is  to  begin — 
to  January  1,  1916,  and  that  the  time  at  which,  as  so  renewed  and 
continued,  it  is  to  end  is  December  31,  1915. 

In  witness  whereof,  we  have  hereunto  set  our  hands  and  seals  this 
thirtieth  day  of  December,  1910. 

GEORGE  B.  POST,  JR.  [L.  s.] 
ARTHUR  TURNBULL.  [L.  s.] 
BENSON  B.  SLOAN.  [L.  s.] 
HENRY  SHAW.  [L.  s.] 

NEVILLE  G.  HIOHAM.  [L.  s.] 
ALFRED  L.  DENNIS.  [L.  s.] 
N.  L.  MCCREADY.  [L.  s.] 

In  the  presence  of: 

CHARLES  A.  NEVILLE,  (Acknowledgments.) 

Clerk's  Office,  County  of  New  York,  ss.: 

Let  the  terms  of  the  foregoing  limited  partnership  be  published 
once  a  week  for  six  successive  weeks  in  the  New  York  Law  Jaurnal 
and  Mail  and  Express,  two  papers  published  and  having  a  circulation 
in  the  County  of  New  York. 

Dated  New  York,  December  31,  1910. 
[SEAL]  Wic.  F.  SCHNEIDER, 

Clerk. 

Certificate  of  Clerk  of  the  County  of  Essex,  showing  authority  of 
master  in  chancery,  attached. 

Marked,  filed  and  recorded  December  31,  1910,  9h.  25m. 


MATERIALS    OF   CORPORATION    FINANCE 


ARTICLES    OF    THE    PIERCE    FORDYCE    OIL    ASSOCIA- 
TION—A  JOINT-STOCK   COMPANY1. 

NAME 

We,  whose  names  are  hereto  subscribed,  do  hereby  form  a  Copart- 
nership Association  to  be  known  and  styled 

PIERCE  FORDYCE  OIL  ASSOCIATION 

which  shall  continue  in  existence  until  the  2nd  day  of  April,  1960, 
unless  sooner  dissolved  as  herein  provided. 

PURPOSES 

The  general  purpose  of  this  Copartnership  Association  is :  to  engage 
in  the  general  merchandise  of  petroleum  and  the  products  thereof 
and  other  such  articles  as  may  be  advantageously  sold  or  handled  in 
connection  therewith;  to  purchase,  own  and  mine  lands  supposed 
to  contain  or  containing  oils  or  other  minerals  and  to  construct  and 
operate  refineries  or  other  manufacturing  plants  for  refining  or  re- 
ducing such  oils  or  minerals  and  to  engage  in  any  other  industrial 
manufacturing,  mining  or  merchandising  enterprise  or  exploitation 
that  may  be  determined  by  the  Board  of  Managers  appointed  or 
chosen  as  hereinafter  provided. 

CAPITAL 

The  Capital  is  Three  Million  Dollars  divided  into  Thirty  Thousand 
Shares  of  One  Hundred  Dollars  each,  all  of  which  has  been  paid  in, 
by  the  subscribers  hereto.  The  Capital  may  be  increased  from  time 
to  time  by  increasing  the  number  of  shares  and  the  admission  of  new 
members,  as  may  be  determined  by  a  vote  of  the  majority  of  the  then 
shares  at  any  meeting  of  the  shareholders  called  pursuant  to  these 
articles  of  Association  or  such  By-Laws  as  may  be  adopted  hereafter 
by  a  majority  of  the  shares. 

SHARES 

The  Certificates  of  Membership  shall  be  issued  by  the  President  of 
the  Board  of  Managers  and  countersigned  by  the  Secretary  of  said 
Board  and  shall  be  in  substantially  the  following  form;  viz: 

PIERCE  FORDYCE  OIL  ASSOCIATION 

(Copartnership) 
Capital, 

$3,000,000,  or  Thirty  Thousand  Shares 

i  Eeprinted  from  Haney  's  Business  Organization  and  Combination. 


ARTICLES    OF   JOINT-STOCK    COMPANY  7 

MEMBER'S  CERTIFICATE  OF  INTEREST 

This  is  to  certify  that is  the  owner  of full  paid  shares 

of  beneficial  interest  in  the  Pierce  Fordyce  Oil  Association,  transfer- 
able on  the  books  of  the  Association  by  the  owner  thereof  in  person 
or  by  duly  authorized  attorney  upon  surrender  of  this  certificate 
properly  indorsed. 

This  certificate  of  interest  is  subject  to  the  provisions  and  covenants 
contained  in  the  Articles  of  Copartnership  of  the  Pierce  Fordyce 
Oil  Association  dated  the  Second  day  of  April,  1910,  and  any  amend- 
ment thereto  and  the  By  Laws  of  said  Association  and  the  provisions 
hereof.  No  member  of  said  Association  or  owner  or  holder  of  this 
certificate  shall  have  any  authority,  power  or  right  whatsoever  to  do  or 
transact  any  business  whatever  for,  on  behalf  of  or  binding  on  the 
Association  or  any  member  thereof,  and  no  member  of  this  Associa- 
tion shall  be  liable  for  any  debts,  covenants,  demands  or  torts  of  this 
Association  beyond  the  amount  of  his  shares. 

This  certificate  shall  be  the  sole  and  only  evidence  of  membership 
in  said  Association  and  shall  be  surrendered  upon  the  call  of  the 
Board  of  Governors  at  any  time  to  the  Association  upon  the  payment 
or  tender  of  payment  to  the  amount  of  its  face  or  par  value  and  a 
premium  of  fifteen  per  cent  thereof. 

IN  WITNESS  WHEREOF  the  said  Association  has  caused  this  certifi- 
cate to  be  signed  by  its  duly  authorized  officers  and  to  be  sealed  with 
the  seal  of  the  Association  this  —  day  of 19 


President. 


Secretary. 

DEATH  OF  MEMBER 

The  decease  or  insolvency  of  a  member  of  the  Association  shall 
not  work  a  dissolution  of  it  or  have  any  effect  upon  the  same,  its 
operation  or  mode  of  business;  nor  shall  it  entitle  his  legal  repre- 
sentatives or  heirs  or  assigns  voluntary  or  involuntary  to  any  account 
or  to  take  any  action  in  law  or  equity  or  otherwise  against  the 
Association,  its  members,  officers,  Board  of  Governors,  Trustees  or 
its  property  or  assets;  but  they  shall  simply  and  only  succeed  to  the 
right  of  the  deceased,  to  the  certificate  of  membership  and  the  shares 
it  represents,  subject  to  this  agreement,  the  amendments  thereto  and 
the  By  Laws  of  the  Association,  now  or  hereafter  adopted. 

BOARD  OF  GOVERNORS 

The  entire  affairs  of  this  Association  shall  be  managed  by  a  Board 
of  Governors,  consisting  of  .seven  members,  each  of  whom  shall  own 


8  MATEEIALS    OF   CORPORATION    FINANCE 

at  least,  certificate  or  certificates  for  not  less  than  ten  shares,  who 
shall  be  elected  by  a  majority  of  shares  held  by  members  at  a  regular 
annual  meeting  of  the  certificate  holders  every  two  years  after  the 
expiration  of  the  term  of  the  first  Board  of  Governors. 

The  first  Board  of  Governors  shall  be  composed  of  the  following 
named  persons,  viz: 

H.  C.  PIERCE, 
SAMUEL  W.  FORDYCE, 
SAMUEL  W.  FORDYCE,  Jr., 
GEORGE  T.  PRIEST, 
EGBERT  E.  MOLONEY, 
HENRY  W.  ALLEN,  and 
JOHN  H.  HOLLIDAY, 

who  shall  continue  for  the  period  of  five  years,  next  ensuing  the  date 
of  this  agreement. 

Each  Board  shall  elect  its  own  President,  Vice  President,  Secretary 
and  Treasurer  and  may  create  such  other  offices,  filling  them  by 
appointments  and  prescribing  the  duties  appertaining  thereto  as  they 
may  deem  wise,  necessary  or  convenient  to  carry  on  the  business  of 
the  Association  and  may  likewise  fill  any  vacancy  in  its  membership 
occasioned  by  death  or  resignation  until  the  next  election  of  a  Board 
of  Governors.  The  Board  may  also  fix  the  salaries  of  all  officers, 
including  its  own  members,  and  may  remove  any  officer  and  fill 
all  vacancies  which  may  occur  in  any  office. 

The  first  Board  of  Governors  shall  appoint  such  a  number  of  its 
members  as  it  may  deem  proper,  not  exceeding  three,  as  Trustees,  in 
whose  name  or  names  all  investments  and  title  to  all  property  are 
to  be  made  and  held  under  a  declaration  of  trust  for  and  on  behalf 
of  this  Association. 

The  Board  of  Govenors  shall  be  held  to  be  Trustees  for  and  on 
behalf  of  this  Association  and  may  in  that  capacity  be  sued  and  sue 
in  any  court  of  law  or  equity. 

The  Board  of  Governors  shall  have  full  power  and  authority  in  the 
conduct  of  the  business  of  the  Association  to  borrow  money  and  issue 
mortgage  debentures  therefor  if  deemed  advisable  and  any  debt  for 
money  so  borrowed  or  liability  created  shall  be  and  remain  until 
paid  a  lien  upon  all  funds,  moneys  and  properties  there  or  thereafter 
belonging  to  or  held  in  trust  for  this  Association  in  preference  to 
the  claims  or  claim  of  any  shareholders  as  such. 

(1)  The  Board  of  Governors  shall  have  no  power  to  bind  the 
shareholders  or  members  personally;  and  in  every  written  contract 
or  undertaking  they  shall  enter  into  relating  to  the  business  of  this 


ARTICLES    OF   JOINT-STOCK    COMPANY  9 

Association,  its  property  or  any  part  thereof,  reference  shall  be  made 
to  this  agreement;  and  the  person,  firm  or  corporation  so  contracting 
with  the  Board  of  Governors  shall  look  only  to  the  funds  and  property 
legal  and  equitable  of  this  Association  for  the  payment  of  any  debt, 
damage,  judgment  or  decree  or  of  any  money  that  may  become  due 
and  payable  in  any  way  by  reason  of  the  contract  or  undertaking ;  and 
neither  the  Board  of  Governors  nor  the  shareholders  or  members 
present  or  future  shall  be  personally  liable  therefor  or  for  any  debt 
incurred  or  engagement  or  contract  made  by  said  Board  of  Governors. 

(2)  The  Board  of  Governors  may  fix  and  regulate  their  own  time 
and  place  of  meeting  and  a  majority  thereof  shall  constitute  a  quorum 
and  possess  and  exercise  all  the  powers  of  a  full  Board. 

(3)  The  Board  of  Governors  shall  whenever  they  may  be  so 
minded  convene  all  of  the  registered  share  or  certificate  holders  in 
general  meeting  without  specifying  the  purpose  thereof  upon  notice 
to  that  effect  deposited  in  the  Post  Office  at  the  place  of  the  general 
offices  of  the  Association  addressed  to  each  shareholder  at  his  registered 
Post  Office  address,  ten  days  before  the  date  of  the  proposed  meeting ; 
and  the  majority  of  the  shares  present  or  represented  at  any  such 
meeting   so  called,   shall  have   and  exercise  the  right,   power   and 
authority  of  the  entire  body  of  share  or  certificate  holders. 

(4)  The  share  or  certificate  holders  shall  meet  annually  on  the 
second  Tuesday  of  each  year  without  further  notice  to  consider  the 
affairs  of  the  Association  and  transact  such  business  as  may  then  be 
inaugurated  by  them  or  that  may  be  submitted  for  their  consideration 
by  the  Board  of  Governors.    At  each  meeting  of  the  share  or  certifi- 
cate holders,  each  member  present  or  represented  by  duly  accredited 
agent  or  attorney  shall  be  entitled  to  cast  as  many  votes  upon  any 
proposition  as  he  may  have  shares  of  membership  interest. 

(5)  At  any  meeting  of  members,  By  Laws  may  be  passed  or 
amended  by  a  majority  of  those  present  or  represented;  and  any 
amendment  may  be  made  to  this  agreement  by  a  vote  of  three-fourths 
of  those  present  or  represented. 

(6)  The  Board  of  Governors  may  from  time  to  time  declare  and 
pay  such  dividends  from  the  earnings  of  the  Association  as  they 
deem  expedient. 

OFFICERS  AND  THEIR  DUTIES 

PRESIDENT  AND  VICE  PRESIDENT 

The  President  or  in  his  absence  the  Vice  President  shall  sign  all 
certificates  of  membership,  preside  at  all  meetings  of  the  members 
of  the  Board  of  Governors  and  shall  do  and  perform  and  render  such 


10  MATERIALS    OF    CORPORATION    FINANCE 

acts  and  services  as  the  Board  of  Governors  shall  prescribe  and  require 
and  shall  receive  such  compensation  for  services  as  may  from  time 
to  time  be  fixed  upon  by  the  Board  of  Governors. 

SECRETARY 

The  Secretary  shall  countersign  all  certificates  of  membership 
and  shall  keep  such  minutes,  records  and  books  as  the  Board  of 
Governors  may  require,  attend  all  meetings  of  the  Board  of  Governors 
and  render  such  services  as  may  be  imposed  upon  him. 

TREASURER 

The  Treasurer  shall  perform  such  duties  as  the  Board  of  Governors 
may  impose  upon  him. 

TITLE  TRUSTEES 

The  members  of  the  Board  of  Governors  appointed  to  hold  the 
title  to  all  property  of  the  Association  shall  at  all  times  be  subject 
to  the  orders  of  the  Board  of  Governors  who  may  any  time  and  for 
any  cause  remove  any  or  all  of  them  from  office  and  appoint  and 
devolve  upon  other  members  of  the  Board  of  Governors  the  duties 
and  functions  of  the  office.  In  the  case  of  the  death,  resignation  or 
other  disability  of  any  such  Trustee,  the  Board  of  Governors  may 
fill  the  vacancy  caused  thereby. 

DISSOLUTION 

This  Association  shall  continue  for  a  period  of  Fifty  years  from 
the  date  of  the  execution  thereof  unless  sooner  dissolved  by  the  vote 
of  the  majority  of  membership  certificates  or  shares. 

IN  WITNESS  WHEREOF  we  have  hereunto  set  our  respective  signa- 
tures and  attached  our  several  seals,  this  the  2nd  day  of  April,  1910. 
HENRY  C.  PIERCE,  (seal) 

S.  W.  FORDYCE,  (seal) 

SAMUEL  W.  FORDYCE,  Jr.,  (seal) 

GEORGE  T.  PRIEST,  (seal) 

ROBT.  E.  MOLONEY,  (seal) 

HENRY  W.  ALLEN,  (seal) 

JOHN  H.  HOLLIDAY,  (seal) 


MASSACHUSETTS    TRUST  11 


FORM  OF  DECLARATION   OF  TRUST  ESTABLISHING  A 
HOLDING  COMPANY1 

AGREEMENT   AND    DECLARATION    OP    TRUST    OF   THB 

MASSACHUSETTS    ELECTRIC    COMPANIES 
Dated  June  29,  1899. 

THIS  AGREEMENT,  made  this  twenty-ninth  day  of  June,  A.  D. 
1899,  by  and  between  E.  Rollins  Morse,  Henry  Russell  Shaw,  Robert 
W.  Emmons,  2d,  and  George  W.  Parker,  co-partners  under  the  firm 
name  of  E.  Rollins  Morse  and  Brother,  and  William  A.  Tucker, 
S.  Reed  Anthony,  Philip  L.  Saltonstall  and  Nathan  Anthony,  co- 
partners under  the  firm  name  of  Tucker,  Anthony  and  Company, 
together  with  their  assigns,  herein  designated  as  the  "SUBSCRIBERS," 
and  Gordon  Abbott,  Charles  Francis  Adams,  2d,  S.  Reed  Anthony, 
John  N.  Beckley,  Amos  F.  Breed,  Everett  W.  Burdett,  Charles  E. 
Cotting,  Eugene  N.  Foss,  Walter  Hunnewell,  Stillman  F.  Kelley, 
E.  Rollins  Morse,  Richard  Olney,  Percy  Parker,  S.  Endicott  Pea^ 
body,  and  Philip  L.  Saltonstall,  together  with  their  successors,  herein 
designated  as  the  "TRUSTEES/'  witnesseth:  That 

WHEREAS  the  subscribers  propose  to  transfer,  assign,  and  deliver 
to  the  Trustees,  under  the  designation  of  "MASSACHUSETTS  ELECTRIC 
COMPANIES,"  certain  shares  of  the  capital  stock  and  other  securities 
of  sundry  street  railways  and  other  companies  and  contracts  to 
purchase  the  same  and  also  other  property,  as  shown  in  a  schedule 
identified  by  the  signatures  of  the  parties  hereto  and  filed  with  the 
Trustees;  and  the  Trustees  for  the  purpose  of  defining  the  interests 
of  the  Subscribers  and  their  assigns  in  such  property,  have  agreed  to 
issue  to  the  Subscribers  negotiable  certificates  for  two  hundred  and 
forty  thousand  (240,000)  shares,  of  which  one  hundred  and  twenty 
thousand  (120,000)  shall  be  preferred  and  one  hundred  and  twenty 
thousand  (120,000)  shall  be  common,  each  share  to  be  expressed  of 
the  par  value  of  one  hundred  ($100)  dollars,  and  all  of  said  shares 
to  be  issued  to  the  Subscribers  in  the  following  proportions,  viz.: 

To  said  E.  Rollins  Morse  and  Brother,  or  order,  60,000  preferred 
shares  and  60,000  common  shares;  to  said  Tucker,  Anthony  & 
Company,  or  order,  60,000  preferred  shares  and  60,000  common  shares. 

Now,  THEREFORE,  the  Trustees  hereby  declare  that  they  will  hold 
said  property  so  to  be  transferred  to  them,  as  well  as  all  other  prop- 

1  Quoted  from  Trust  Estates  CM  Business  Companies,  by  John  H.  Scars. 
2 


12  MATERIALS    OF    CORPORATION    FINANCE 

erty  which  they  may  acquire  as  such  Trustees,  together  with  the 
proceeds  thereof,  in  trust,  to  manage  and  dispose  of  the  same  for 
the  benefit  of  the  holders,  from  time  to  time,  of  the  certificates  of 
shares  issued  hereunder,  according  to  the  priorities  expressed  in  said 
certificates,  and  in  the  manner  and  subject  to  the  stipulations  herein 
contained,  to  wit: 

First. — The  Trustees,  in  their  collective  capacity,  shall  be  desig- 
nated, so  far  as  practicable,  as  the  "MASSACHUSETTS  ELECTRIC  COM- 
PANIES," and  under  that  name  shall,  so  far  as.  practicable,  conduct 
all  business  and  execute  all  instruments  in  writing,  in  performance 
of  their  trust. 

Second. — The  Trustees  shall  always  be  fifteen  in  number,  and  of 
the  Trustees  herein  mentioned  by  name,  S.  Reed  Anthony,  Everett 
W.  Burdett,  E.  Rollins  Morse,  S.  Endicott  Peabody,  and  Philip  L. 
Saltonstall,  shall  hold  office  until  the  first  annual  meeting  of  the 
shareholders;  Gordon  Abbott,  John  N.  Beckley,  Amos  F.  Breed, 
Walter  Hunnewell,  and  Stillman  F.  Kelley,  shall  hold  office  until 
the  second  annual  meeting  of  the  shareholders;  and  Charles  Francis 
Adams,  2d,  Charles  E.  Getting,  Eugene  N.  Foss,  Richard  Olney, 
and  Percy  Parker,  shall  hold  office  until  the  third  annual  meeting  of 
the  shareholders;  except  that  said  Trustees,  as  well  as  any  Trustees 
hereafter  elected,  shall  in  all  cases  hold  office  until  their  successors 
have  been  elected  and  accepted  this  trust. 

The  shareholders  shall,  at  each  annual  meeting,  or  adjournment 
thereof,  elect  five  Trustees  to  serve  for  the  term  of  three  years  next 
ensuing.  In  case  of  death,  resignation,  or  inability  to  act  of  any  of 
said  Trustees,  the  remaining  Trustees  shall  accept  any  resignation 
and  fill  any  vacancy  for  the  unexpired  term.  As  soon  as  any  Trus- 
tees elected  by  the  shareholders  or  by  the  remaining  Trustees  to  fill 
a  vacancy  have  accepted  this  trust,  the  trust  estate  shall  rest  in  the 
new  Trustees  or  Trustee,  together  with  the  continuing  Trustees, 
without  any  further  act  or  conveyance. 

Third. — The  Trustees  shall  hold  the  legal  title  to  all  property  at 
any  time  belonging  to  their  trust,  and  shall  have  and  exercise  the 
exclusive  management  and  control  of  the  same;  they  shall  assume  all 
contracts  for  and  obligations  and  liabilities  in  connection  with  or 
growing  out  of  the  purchase  of  the  stock  or  securities  assigned  to 
them  by  the  Subscribers  and  mentioned  in  the  annexed  schedule,  and 
to  the  extent  and  value  of  such  stock  and  securities,  but  not  person- 
ally, shall  agree  to  hold  the  Subscribers  and  any  person  associated 
or  acting  with  them  harmless  and  indemnified  from  and  against  any 
loss,  cost,  expense,  or  liability  upon,  by  reason  of,  or  in  connection 
with,  any  such  contract,  obligation  or  liability;  they  may  adopt  and 


MASSACHUSETTS   TRUST  13 

use  a  common  seal;  they  shall  have  power  to  vote  in  person  or  by 
proxy  upon  all  shares  of  stock  at  any  time  belonging  to  the  trust, 
and  to  collect,  receive,  and  receipt  for  the  dividends  thereon,  and 
may  contract  with  each  or  any  of  the  controlled  companies  in  respect 
of  any  matter  or  matters  relating  to  the  operation  of  the  road  or  the 
conduct  of  the  business  of  any  such  company  or  companies,  to  col- 
lect, sue  for,  receive  and  receipt  for  all  sums  of  money  at  any  time 
coming  due  to  said  trust;  to  employ  counsel  to  begin,  prosecute, 
defend  and  settle  suits  at  law,  in  equity  or  otherwise,  and  to  com- 
promise or  refer  to  arbitration  any  claims  in  favor  of  or  against  the 
trust;  they  may  also,  with  the  consent  of  not  less  than  ten  of  their 
number  given  at  a  meeting  called  for  that  purpose,  but  not  other- 
wise, exchange,  upon  such  terms  as  may  be  agreed  upon,  the  stock 
or  securities  held  by  them  in  any  corporation  for  the  stock  or  securi- 
ties of  any  other  corporation,  taking  over  the  property  of  such  cor- 
poration by  consolidation  or  otherwise;  and  with  such  consent,  but 
not  otherwise,  may  loan  money  to  any  corporation  of  which  they 
may  own  a  majority  of  the  capital  stock,  and  may  subscribe  for  or 
acquire  additional  stock  or  the  securities  or  obligations  of  such  cor- 
porations; and  with  such  consent,  but  not  otherwise,  may  subscribe 
for,  purchase,  and  acquire  shares  in  the  capital  stock  of  any  corpo- 
ration (1)  owning  or  operating  railways  or  railroads,  or  engaged  in 
the  business  of  transporting  merchandise,  mails  or  express  matter, 
or  (2)  engaged  in  whole  or  in  part  in  supplying  light,  heat,  power 
or  other  public  service,  or  (3)  manufacturing,  selling  or  repairing 
machines,  equipments,  supplies  or  other  articles  used  by  corporations 
of  either  or  both  the  classes  above  named,  or  (4)  engaged  in  the 
business  of  insuring  corporations  of  any  or  all  of  the  foregoing  classes 
against  loss  by  fire  or  casualty,  or  (5)  engaged  in  the  business  of 
advertising  in  the  cars  or  upon  the  premises  of  railways,  or  railroad 
companies;  and  with  such  consent,  but  not  otherwise,  may  borrow 
money  for  any  of  the  purposes  aforesaid.  With  the  consent  of  the 
holders  of  at  least  two-thirds  of  each  class  of  shares  outstanding, 
at  a  meeting  called  for  that  purpose,  but  not  otherwise  except  as 
herein  otherwise  provided,  the  Trustees  may  sell,  mortgage,  pledge, 
encumber,  or  dispose  of  any  shares  or  stock  securities  or  other  prop- 
erty from  time  to  time  held  by  them  upon  such  terms  and  for  such 
purposes  as  the  shareholders  at  such  meeting  may  approve. 

So  far  as  strangers  to  this  trust  are  concerned,  a  resolution  of 
the  Trustees  authorizing  a  particular  act  to  be  done  shall  be  con- 
clusive evidence  in  favor  of  such  strangers  that  such  act  is  within 
the  powers  of  the  Trustees,  and  no  purchaser  from  the  Trustees  shall 
be  bound  to  see  the  application  of  the  purchase  money  or  other  con- 


14  MATERIALS    OF    CORPORATION    FINANCE 

sideration  paid  or  delivered  by  or  for  said  purchaser  to  or  for  said 
Trustees. 

Fourth. — Stated  meetings  of  the  Trustees  shall  be  held  at  least 
once  a  month,  and  other  meetings  shall  be  held  from  time  to  time 
upon  the  call  of  the  President  or  any  three  of  the  Trustees.  A 
majority  of  the  Board  constitutes  a  quorum,  and  the  concurrence  of 
all  the  Trustees  shall  not  be  necessary  to  the  validity  of  any  action 
done  by  them,  but  the  wish  of  a  majority  of  the  Trustees  present  and 
voting  at  any  meeting  shall  be  conclusive  except  as  hereinbefore 
specifically  provided.  The  Trustees  may  make,  adopt,  amend,  or 
repeal  such  by-laws,  rules,  and  regulations,  not  inconsistent  with  the 
terms  of  this  instrument,  as  they  may  be  deemed  necessary  or  desir- 
able for  the  conduct  of  their  business  and  for  the  government  of 
themselves  and  their  agents,  servants,  and  representatives. 

Fifth. — The  Trustees  shall  annually  elect  from  among  their  num- 
ber a  President  and  Vice-President  of  the  Board,  and  shall  also 
annually  elect  a  Treasurer  and  Secretary,  and  they  shall  have  author- 
ity to  appoint  such  other  officers,  agents,  and  attorneys  as  they  may 
from  time  to  time  deem  necessary  or  expedient  for  the  conduct  of 
their  business.  They  shall  have  authority  to  accept  resignations  and 
to  fill  any  vacancy  in  the  office  of  President,  Vice-President,  Treas- 
urer, or  Secretary,  for  the  unexpired  term;  and  shall  likewise  have 
authority  to  elect  temporary  officers  to  serve  during  the  absence  or 
disability  of  regular  officers.  The  President,  Vice-President,  Treas- 
urer, and  Secretary  shall  have  the  authority  and  shall  perform  the 
duties  usually  incident  to  those  offices  in  the  case  of  corporations, 
so  far  as  applicable  thereto,  and  shall  have  such -other  authority  and 
perform  such  other  duties  as  may  from  time  to  time  be  determined 
by  the  Trustees.  The  Trustees  shall  fix  the  compensation  of  any, 
or  all  officers  and  agents  whom  they  may  appoint,  and  are  likewise 
authorized  to  pay  to  themselves  such  compensation  for  their  own 
services  as  they  may  deem  reasonable.  The  Trustees  shall  also 
appoint  from  among  their  number  an  Executive  Committee  of  three 
or  five  persons,  to  whom  they  may  delegate  such  of  the  powers 
herein  conferred  upon  the  Trustees  as  they  may  deem  expedient, 
except  ao  far  as  those  matters  are  concerned  in  which  the  concurrent 
action  of  at  least  ten  Trustees  is  required. 

The  Trustees  shall  not  be  liable  for  errors  of  judgment  either  in 
holding  property  originally  conveyed  to  them  or  in  acquiring  and 
afterward  holding  additional  property,  nor  for  any  loss  arising  out 
of  any  investment,  nor  for  any  act  or  omission  to  act  performed  or 
omitted  by  them  in  the  execution  of  this  trust  in  good  faith,  nor 
shall  they  be  liable  for  the  acts  or  omissions  of  each  other  or  of  any 


MASSACHUSETTS   TRUST  15 

officer,  agent,  or  servant  appointed  by  or  acting  for  them,  and  thej 
shall  not  be  obliged  to  give  any  bond  to  secure  the  due  performance 
of  this  trust  by  them. 

Sixth. — Shares  hereunder  shall  be  of  the  par  value  of  one  hun- 
dred ($100.00)  dollars  each,  and  shall  be  divided  into  preferred  and 
common  shares.  The  preferred  shares  shall  entitle  the  holder  to 
accumulative  semi-annual  dividends  at  the  rate  of  4  per  centum  per 
annum,  and  no  more,  the  same  to  be  paid  or  set  apart  before  any 
dividend  shall  be  paid  or  set  apart  for  the  common  shares;  and  in 
case  of  liquidation,  the  proceeds  of  the  liquidation  shall  be  first 
applied  to  the  payment  to  the  holder  or  preferred  shares,  of  the  sum 
of  one  hundred  dollars  per  share  and  any  accrued  and  unpaid  divi- 
dends thereon,  and  the  balance  remaining  thereafter  shall  be  divided 
among  the  holders  of  common  shares  in  proportion  to  their  holdings. 
As  evidence  of  the  ownership  of  said  shares,  the  Trustees  shall  cause 
to  be  issued  to  each  shareholder  a  negotiable  certificate  or  certifi- 
cates, which  certificates  shall  be  in  form  following,  to  wit : 

(Form  of  Certificate  of  Common  Stock.) 

MASSACHUSETTS    ELECTRIC    COMPANIES. 

No.  Shares. 

Not  subject  to  assessment. 

This   certifies   that 

is  the  holder  of common  shares  in  the 

MASSACHUSETTS  ELECTRIC  COMPANIES,  which  he  holds  subject  to  an 
Agreement  and  Declaration  of  Trust,  dated  June  29,  1899,  and  on 
file  with  the  Old  Colony  Trust  Company,  which  is  hereby  referred 
to  and  made  a  part  of  this  certificate. 

The  shares  in  said  Massachusetts  Electric  Companies  are  divided 
into  two  classes,  known  as  preferred  and  common,  and  the  holders 
of  the  preferred  shares  are  entitled  to  receive  semi-annual  dividend- 
out  of  the  net  earnings  of  the  Companies,  at  the  rate  of  four  per 
centum  per  annum,  and  no  more,  payable  semi-annually,  on  the  liret 
days  of  January  and  July  in  each  year,  which  shall  be  paid  or  set 
apart  before  any  dividends  shall  be  paid  or  set  apart  on  the  common 
shares. 

The  dividends  on  the  preferred  shares  are  cumulative,  and  if,  in 
any  period  of  six  months,  semi-annual  dividends  at  the  rate  of  four 
per  centum  per  annum  are  not  paid  on  said  preferred  shares,  the 
accrued  and  unpaid  dividends  are  a  charge  on  the  net  earnings  of 
the  Companies,  payable  subsequently  before  any  dividends  are  paid 
upon  the  common  shares. 

In  the  event  of  liquidation,  the  proceeds  of  liquidation  will   ho 


16  MATERIALS    OF    CORPORATION    FINANCE 

first  applied  to  the  payment  to  the  holders  of  preferred  shares  of 
the  'sum  of  one  hundred  dollars  ($100)  per  share  and  any  accrued 
and  unpaid  dividends  thereon;  and  the  balance  remaining  thereafter 
will  be  divided  among  the  holders  of  common  shares  in  proportion 
to  their  holdings. 

The  holders  of  preferred  and  common  shares  are  entitled  to  equal 
voting  powers. 

This  certificate  will  not  be  valid  until  countersigned  by  the  Old 
Colony  Trust  Company,  Transfer  Agent,  and  the  American  Trust 
Company,  Agent  to  Register  Transfers;  and  no  transfer  hereof  will 
be  of  any  effect  as  regards  the  Massachusetts  Electric  Companies 
until  this  certificate  has  been  surrendered  and  the  transfer  recorded 
upon  their  books. 

IN  WITNESS  WHEREOF,  The  Trustees  under  said  Declaration  of 
Trust,  herein  designated  as  the  Massachusetts  Electric  Companies, 
have  caused  their  common  seal,  to  be  hereto  affixed  and  this  certificate 
to  be  executed  in  their  name  and  behalf,  by  their  Treasurer,  thereto 
duly  authorized. 

MASSACHUSETTS    ELECTRIC    COMPANIES. 

By Treasurer. 

Countersigned : 

Old  Colony  Trust  Company,  Transfer  Agent. 

By Assistant  Secretary. 

By Transfer  Clerk. 

Countersigned : 
American  Trust  Company,  Agent  to  Register  Transfers. 

By Assistant  Secretary. 

(Form  of  Transfer.) 
For  value  received,   I   hereby  sell,   assign,  transfer,  and   deliver 

to of  the  within-named 

shares  of  the  MASSACHUSETTS  ELECTRIC  COMPANIES,  and  I  hereby 
request  that  said  transfer  be  recorded  on  the  books  of  said  Companies. 

Witness  my  hand,  this day  of 19 .. 

Witness : 

(Form  of  Certificate  of  Preferred  Shares.) 

MASSACHUSETTS    ELECTRIC    COMPANIES. 

No.  Shares. 

Not  subject  to  assessment. 

This  certifies  that is  the  holder 

of preferred  shares,  in  the 

MASSACHUSETTS  ELECTRIC  COMPANIES,  which  he  holds  subject  to  an 
Agreement  and  Declaration  of  Trust,  dated  June  29,  1899,  and  on 


MASSACHUSETTS   TRUST  17 

file  with  the  Old  Colony  Trust  Company,  which  is  hereby  referred 
to  and  made  a  part  of  this  certificate. 

The  shares  in  said  Massachusetts  Electric  Companies  are  divided 
into  two  classes,  known  as  preferred  and  common,  and  the  holders  of 
the  preferred  shares  are  entitled  to  receive  semi-annual  dividends  out 
of  the  net  earnings  of  the  Companies,  at  the  rate  of  four  per  centum 
per  annum,  and  no  more,  payable  semi-annually,  on  the  first  days  of 
January  and  July  in  each  year,  which  shall  be  paid  or  set  apart 
before  any  dividends  shall  be  paid  or  set  apart  on  the  common  shares. 

The  dividends  on  the  preferred  shares  are  cumulative,  and  if,  in 
any  period  of  six  months,  semi-annual  dividends  at  the  rate  of  four 
per  centum  per  annum  are  not  paid  on  said  preferred  shares,  the 
accrued  and  unpaid  dividends  are  a  charge  on  the  net  earnings  of  the 
Companies,  payable  subsequently  before  any  dividends  are  paid  upon 
the  common  shares. 

In  the  event  of  liquidation,  the  proceeds  of  liquidation  will  be 
first  applied  to  the  payment  to  the  holders  of  preferred  shares  of 
the  sum  of  one  hundred  dollars  ($100)  per  share  and  any  accrued 
and  unpaid  dividends  thereon;  and  the  balance  remaining  thereafter 
will  be  divided  among  the  holders  of  common  shares  in  proportion 
to  their  holdings. 

The  holders  of  preferred  and  common  shares  are  entitled  to  equal 
voting  powers. 

This  certificate  will  not  be  valid  until  countersigned  by  the  Old 
Colony  Trust  Company,  Transfer  Agent,  and  the  American  Trust 
Company,  Agent  to  Register  Transfers;  and  no  transfer  hereof  will 
be  of  any  effect  as  regards  the  Massachusetts  Electric  Companies 
until  this  certificate  has  been  surrendered  and  the  transfer  recorded 
upon  their  books. 

IN  WITNESS  WHEREOF,  the  Trustees  under  said  Declaration  of 
Trust,  herein  designated  as  the  Massachusetts  Electric  Companies, 
have  caused  their  common  seal  to  be  hereto  affixed,  and  this  certifi- 
cate to  be  executed  in  their  name  and  behalf,  by  their  Treasurer, 
thereto  duly  authorized. 

MASSACHUSETTS    ELECTRIC    COMPANIES.. 

By   Treasurer. 

Countersigned : 

Old  Colony  Trust  Company,  Transfer  Agent. 

By  Wi-tant  Secretary. 

By  Transfer  ( 'Vrk. 

Countersigned : 
American  Trupt  Company,  Agent  to  Register  Tran<fi-rs. 

By  Assistant  Secretary. 


18  MATERIALS    OF    CORPORATION    FINANCE 

(Form  of  Transfer.) 

For  value  received,  I  hereby  sell,  assign,  transfer  and  deliver 

to of  the  within-named  shares  of 

the  Massachusetts  Electric  Companies ;  and  I  hereby  request  that  said 
transfer  be  recorded  on  the  books  of  the  Companies. 

Witness  my  hand,  this day  of 19 .. 

Witness : 

Seventh. — In  addition  to  the  shares  to  be  originally  issued  to 
the  subscribers  as  hereinbefore  provided,  the  Trustees  shall  issue 
and  sell,  at  public  or  private  sale,  upon  such  terms  and  for  such 
prices  as  they  may  deem  expedient,  such  additional  preferred  or 
common  shares,  or  both,  as  may  be  necessary  to  provide  means  to  pay 
for  the  stock  of  the  New  Bedford,  Middleborough,  and  Brockton 
Street  Railway  Company,  the  contract  for  the  purchase  of  which  is  to 
be  assigned  to  and  assumed  by  the  Trustees. 

Except  as  aforesaid,  no  share  shall  be  issued  by  the  Trustees  in 
excess  of  the  amount  to  be  originally  issued  to  the  Subscribers  as 
hereinbefore  stated.  But  the  Trustees  may  from  time  to  time,  for 
the  purpose  of  acquiring  means  for  the  acquisition  of  additional 
property  or  otherwise  accomplishing  the  purpose  of  this  trust,  with 
the  consent  of  at  least  two-thirds  of  the  preferred  stockholders  and 
two-thirds  of  the  common  shareholders,  present  and  voting,  at  any 
meeting  called  for  that  purpose,  issue  and  dispose  of  additional  shares 
upon  such  terms,  in  such  manner  as  the  shareholders  at  such  meet- 
ing may  determine. 

In  case  of  the  loss  or  destruction  of  any  certificates  of  shares  issued 
by  the  Trustees,  the  Trustees  may,  under  such  condition  as  they  may 
deem  expedient,  issue  a  new  certificate  or  certificates  in  the  place  of 
the  one  lost  or  destroyed. 

Eighth. — The  Trustees  may  from  time  to  time  declare  and  pay 
dividends  out  of  the  net  earnings  from  time  to  time  received  by 
them,  but  the  amount  of  such  dividends  and  the  payment  of  them 
shall  be  wholly  in  the  discretion  of  the  Trustees;  except  that  the 
dividends  on  the  preferred  shares  shall  be  payable  semi-annually  on 
'the  first  days  of  January  and  July  in  each  year,  at  the  rate  of 
4  per  cent,  per  annum,  and  no  more,  and  shall  be  cumulative,  and 
said  semi-annual  dividends  shall  be  paid  or  set  apart  before  any  divi- 
dends are  paid  on  the  common  shares. 

Ninth. — The  fiscal  year  of  the  Trustees  shall  end  on  the  thir- 
tieth day  of  September  in  each  year.  Annual  meetings  for  the  elec- 
tion of  five  Trustees  and  for  the  transaction  of  other  business,  shall 
be  held  in  Boston,  on  the  Wednesday  following  the  first  Monday  of 
November,  in  each  year,  beginning  with  the  year  1900,  of  which 


MASSACHUSETTS   TRUST  19 

meeting  notice  shall  be  given  by  the  Secretary,  by  mail,  to  each 
shareholder,  at  his  registered  address,  at  least  ten  days  before  said 
meeting. 

Special  meetings  of  the  shareholders  may  be  called  at  any  time, 
upon  seven  days'  notice  given  as  above  stated,  when  ordered  by  the 
President  or  Trustees.  At  all  meetings  of  the  shareholders,  each 
holder  of  shares,  whether  preferred  or  common,  shall  be  entitled  to 
one  vote  for  each  share  held  by  him,  and  any  shareholder  may  vote 
by  proxy. 

No  business  shall  be  transacted  at  any  special  meeting  of  the 
shareholders  unless  notice  of  such  business  has  been  given  in  the  call 
for  the  meeting. 

No  business  except  to  adjourn  shall  be  transacted  at  any  meeting 
of  the  shareholders  unless  the  holders  of  a  majority  of  all  the  shares 
outstanding  are  present  in  person  or  by  proxy. 

Tenth. — The  death  of  a  shareholder  or  Trustee  during  the  con- 
tinuance of  this  trust  shall  not  operate  to  determine  the  trust,  nor 
shall  it  entitle  the  legal  representative  of  the  deceased  shareholder 
to  an  accounting,  or  to  take  any  action  in  the  courts,  or  elsewhere, 
against  the  Trustees;  but  the  executors,  administrators,  or  assigns 
of  any  deceased  shareholder  shall  succeed  to  the  rights  of  said  dece- 
dent under  this  trust,  upon  surrender  of  the  certificate  for  the  shares 
owned  by  him. 

The  ownership  of  shares  hereunder  shall  not  entitle  the  share- 
holders to  any  title  in  or  to  the  trust  property  whatsoever,  or  right 
to  call  for  a  partition  or  division  of  the  same,  or  for  an  accounting. 

Eleventh. — The  Trustees  shall  have  no  power  to  bind  the 
shareholders  personally,  and  the  subscribers  and  their  assigns  and  all 
persons  or  corporations  extending  credit  to,  contracting  with,  or 
having  any  claim  against  the  Trustees  shall  look  only  to  the  funds 
and  property  of  the  trust  for  payment  under  such  contract  or  claim, 
or  for  the  payment  of  any  debt,  damage,  judgment,  or  decree,  or  for 
any  money  that  may  otherwise  become  due  or  payable  to  them  from 
the  Trustees,  so  that  neither  the  Trustees  nor  the  shareholders,  pres- 
ent or  future,  shall  be  personally  liable  therefor. 

In  every  written  order,  contract,  or  obligation  which  the  Trustees 
shall  give  or  enter  into,  it  shall  be  the  duty  of  the  Trustees  to  stipu- 
late that  neither  the  Trustees  nor  the  shareholders  shall  be  held  to 
any  personal  liability  under  or  by  reason  of  such  order,  contract  or 
obligation. 

Twelfth. — This  trust  shall  continue  for  the  term  of  twenty- 
one  years,  at  which  time  the  then  Board  of  Trustees  shall  proceed  to 
wind  up  its  affairs,  liquidate  its  assets,  and  distribute  the  same 


20  MATERIALS    OF    CORPORATION    FINANCE 

among  the  holders  of  preferred  and  common  shares  according  to  the 
priorities  hereinbefore  expressed,  PROVIDED,  HOWEVER,  that  if  prior 
to  the  expiration  of  said  period,  the  holders  of  at  least  two-thirds  of 
the  shares  then  outstanding  shall,  at  a  meeting  called  for  that  pur- 
pose, vote  to  terminate  or  to  continue  this  trust,  then  said  trust  shall 
either  terminate  or  continue  in  existence  for  such  further  period  as 
may  then  be  determined. 

For  the  purpose  of  winding  up  their  affairs  and  liquidating  the 
assets  of  the  trust,  the  then  Board  of  Trustees  shall  continue  in  office 
until  such  duties  have  been  fully  performed. 

This  agreement  and  declaration  of  trust  may  be  amended  or 
altered  except  as  regards  the  liabilities  of  the  Trustees  at  any  annual 
or  special  meeting  of  the  shareholders  with  the  consent  of  the  holders 
of  at  least  two-thirds  of  the  shares  of  each  class  then  outstanding; 
provided  notice  of  the  proposed  amendment  or  alteration  shall  have 
been  given  in  the  call  for  the  meeting;  and  in  case  of  such  alteration 
or  amendment,  the  same  shall  be  attached  to  and  made  a  part  of  this 
agreement,  and  a  copy  thereof  shall  be  filed  with  the  OLD  COLONY 
TRUST  COMPANY. 

IN  WITNESS  WHEREOF,  the  said  Gordon  Abbott,  Charles  Francis 
Adams,  2d,  S.  Reed  Anthony,  John  N.  Beckley,  Amos  F.  Breed, 
Everett  W.  Burdett,  Charles  E.  Cotting,  Eugene  N.  Foss,  Walter 
Hunnewell,  Stillman  F.  Kelley,  E.  Rollins  Morse,  Richard  Olney, 
Percy  Parker,  S.  Endicott  Peabody,  and  Philip  L.  Saltonstall,  Trus- 
tees, hereinbefore  mentioned,  have  hereunto  set  their  hands  and  seals, 
in  token  of  their  acceptance  of  the  trust  hereinbefore  mentioned,  for 
themselves  and  their  successors,  and  the  said  E.  Rollins  Morse,  Henry 
Russell  Shaw,  Robert  W.  Emmons,  2d,  and  George  W.  Parker,  as 
co-partners  under  the  firm  name  of  E.  Rollins  Morse  and  Brothers, 
and  William  A.  Tucker,  S.  Reed  Anthony,  Philip  L.  Saltonstall,  and 
Nathan  Anthony,  as  co-partners  under  the  firm  name  of  Tucker, 
Anthony  and  Company,  Subscribers,  have  hereunto  set  their  hands 
and  seals,  in  token  of  their  assent  to  and  approval  of  said  terms  of 
trust,  for  themselves  and  their  assigns,  the  day  and  year  first  above 
written. 

(Signed) 

E.  Rollins  Morse,  -\ 

Henry  Russell  Shaw,        I  CO-PARTNERS  UNDER  THE  FIRM  NAME 
Robert  W.  Emmons,  2d,  |     OF  E.  ROLLINS  MORSE  &  BROTHERS. 
George  W.  Parker, 
William  A.  Tucker, 


S.  Reed  Anthony, 
Philip  L.  Saltonstall, 
Nathan  Anthony, 


CO-PARTNERS  UNDER  THE  FIRM  NAME 
OF  TUCKER,  ANTHONY  &  COMPANY. 


MASSACHUSETTS   TRUST  21 

Gordon  Abbott,  Richard  Olney, 

Charles  F.  Adams,  2d,  Percy  Parker, 

S.  Reed  Anthony,  Everett  W.  Burdett, 

John  N.  Beckley,  Charles  E.  Cotting, 

Amos  F.  Breed,  Eugene  N.  Foss, 

Walter  Hunnewell,  S.  E.  Peabody, 

Stillman  F.  Kelley,  Philip  L.  Saltonstall. 
E.  Rollins  Morse, 

Agreement  and 

Declaration  of  Trust  of  the 

MASSACHUSETTS    ELECTRIC    COMPANIES. 

For  three  years: 

Richard  Olney,  Eugene  N.  Foss, 

Charles  E.  Cotting,  Percy  Parker, 

Charles  Francis  Adams,  2d. 

For  two  years : 

Gordon  Abbott,  John  N.  Beckley, 

Amos  F.  Breed,  Stillman  F.  Kelley, 

Walter  N".  Hunnewell. 

For  one  year: 

S.  Endicott  Peabody,  Everett  W.  Burdett, 

S.  Reed  Anthony,  Philip  L.  Saltonstall, 

E.  Rollins  Morse. 

OFFICERS  : 

President — Amos  F.  Breed. 
Vice-President — Charles   E.   Cotting. 
Secretary — Everett  W.  Burdett. 
Treasurer — Joseph  H.  Goodspeed. 
General  Manager — P.  F.  Sullivan. 

Executive   Committee : 
Gordon  Abbott,  Chairman. 
Charles  F.  Adams,  2d,  Percy  Parker, 

Eugene  N.  Foss,  Philip  L.  Saltonstall. 


22 


MATERIALS    OF   CORPORATION   FINANCE 


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24  MATERIALS    OF    COEPORATION    FINANCE 


CLASSIFICATION    AND   DEFINITIONS    OF 
CORPORATIONS  1 

§     2.  Classification  of  corporations.   A  corporation  shall  be  either, 

1.  A  municipal  corporation, 

2.  A  stock  corporation,  or 

3.  A  non-stock  corporation. 

A  stock  corporation  shall  be  either, 

1.  A  moneyed  corporation, 

2.  A  railroad  or  other  transportation  corporation,  or 

3.  A  business  corporation. 

A  non-stock  corporation  shall  be  either, 

1.  A  religious  corporation, 

2.  A  membership  corporation,  or 

3.  Any  corporation  other  than  a  stock  corporation. 

A  reference  in  a  general  law  to  a  class  of  corporations  described  in 
accordance  with  this  classification  shall  include  all  corporations  there- 
tofore formed  belonging  to  such  class. 

§  3.  Definitions.  1.  A  "municipal  corporation"  includes  a 
county,  town,  school  district,  village  and  city  and  any  other  territorial 
division  of  the  state  established  by  law  with  powers  of  local  govern- 
ment. 

2.  A  "stock  corporation"  is  a  corporation  having  a  capital  stock 
divided  into  shares,  and  which  is  authorized  by  law  to  distribute  to 
the  holders  thereof  dividends  or  shares  of  the  surplus  profits  of  the 
corporation.     A  corporation  is  not  a  stock  corporation  because  of 
having  issued  certificates  called  certificates  of  stock,  but  which  are 
in  fact  merely  certificates  of  membership,  and  which  is  not  authorized 
by  law  to  distribute  to  its  members  any  dividends  or  share  of  profits 
arising  from  the  operations  of  the  corporation. 

3.  The  term  "non-stock  corporation"  includes  every  corporation 
other  than  a  stock  corporation. 

4.  A  "moneyed  corporation"  is  a  corporation  formed  under  or 
subject  to  the  banking  or  the  insurance  law. 

5.  A  "domestic  corporation"  is  a  corporation  incorporated  by  or 
under  the  laws  of  the  state  or  colony  of  New  York.     Every  corpora- 
tion which  is  not  a  domestic  corporation  is  a  foreign  corporation, 
except  as  provided  by  the  code  of  civil  procedure  for  the  purpose  of 
construing  such  code. 

i  From  General  Corporation  Law  of  New  York.  Laws  of  1909,  Chapter  28, 
Entitled:  "An  Act  Relating  to  Corporations  Generally,  Constituting  Chapter 
Twenty-three  of  the  Consolidated  Laws,"  with  Amendments.  General  Cor- 
poration Laws,  Article  1,  Section  2  and  3. 


CLASSIFICATION    OF   CORPORATIONS  25 

6.  The  term  "directors,"  when  used  in  relation  to  corporations 
shall  include  trustees  or  other  persons,  by  whatever  name  known, 
duly  appointed  or  designated  to  manage  the  affairs  of  the  corpora- 
tion. 

7.  The  term  "certificate  of  incorporation"  shall  include  articles 
of  association  or  any  other  written  instruments  required  by  law  to  be 
filed,  to  effect  the  incorporation  of  a  corporation,  including  a  certified 
copy  of  an  original  certificate  of  incorporation  filed  for  such  purpose 
in  pursuance  of  law. 

8.  The  term  "member  of  a  corporation"  shall  include  every  per- 
son having  a  right  to  vote  'at  a  meeting  of  the  corporation  for  the 
election  of  directors,  other  than  a  person  having  a  right  to  vote  only 
upon  a  proxy. 

9.  The  term  "office  of  a  corporation"  means  its  principal  office 
within  the  state,  or  principal  place  of  business  within  the  state  if  it 
has  no  principal  office  therein. 

10.  The  term  "business  of  a  corporation,"  when  used  with  refer- 
ence to  a  non-stock  corporation,  includes  the  operations  for  the  con- 
duct of  which  it  is  incorporated. 

11.  The  term  "corporate  law"  or  "laws,"  when  used  in  any  law 
forming  a  part  of  the  consolidation  of  the  general  laws  of  the  state 
of  which  this  chapter  is  a  part,  means  the  general  statutes  of  this 
state  relating  to  corporations  included  in  such  consolidation. 


26  MATEEIALS    OF    CORPORATION    FINANCE 


AN   ACT   TO   INCORPORATE   THE    GENERAL    ELECTRIC 

COMPANY * 

The  People  of  the  State  of  New  York,  represented  in  Senate  and 
Assembly,  do  enact  as  follows:  SECTION  1.  Joseph  P.  Ord,  S.  Endi- 
cott  Peabody,  Frank  S.  Hastings,  James  Jackson,  S.  Dana  Greene 
and  Eugene  Griffin,  their  associates  and  successors  and  assigns,  are 
hereby  constituted  a  body  corporate  under  the  name  of  "General 
Electric  Company,"  and,  as  such,  are  authorized  to  carry  on  business 
for  the  following  purposes,  or  any  of  them:  The  manufacturing, 
buying,  selling,  leasing  and  using  of  machinery,  generators,  motors, 
lamps,  apparatus,  devices,  supplies,  and  articles  of  every  kind  apper- 
taining to  or  in  any  wise  connected  with  the  production,  use,  distri- 
bution, regulation,  control  or  application  of  electricity  or  electrical 
apparatus  for  the  purpose  of  light,  heat,  power,  locomotion,  telephony, 
telegraphy,  metallurgy,  or  for  any  other  use  or  purpose ;  of  construct- 
ing, acquiring,  using,  selling,  buying,  or  leasing  any  works,  construc- 
tion or  plant,  or  part  thereof,  connected  with  or  involving  such  use, 
distribution,  regulation,  control  or  application  of  electricity,  or  the 
control  or  use  of  electrical  apparatus,  for  any  purpose;  and  of  pro- 
ducing, furnishing  and  supplying  electricity  or  electrical  apparatus 
in  any  form  and  for  any  purpose  whatsoever,  and  generally  to  manu- 
facture, buy,  sell,  lease  and  use  machines,  engines,  mechanical  devices 
and  articles  of  every  other  character,  and  to  carry  on  a  general  manu- 
facturing business.  Of  acquiring  by  purchase  or  otherwise,  and  of 
owning,  using,  selling,  granting,  assigning  and  licensing  others  to 
use,  letters  patent,  patent  rights,  inventions,  processes  and  con- 
trivances relating  to  electrical  apparatus,  and  the  production  or 
application  of  electricity  for  the  purpose  of  light,  heat,  power,  loco- 
motion, telegraphy,  telephony,  metallurgy  or  any  other  purpose,  or 
any  such  letters  patent  or  patent  rights,  inventions,  processes  or 
contrivances  which  may  be  used  or  employed  in  connection  with  any 
such  use  or  application  of  electricity  or  electrical  apparatus;  and  in 
consideration  of  any  such  license,  sale,  grant  or  assignment,  of 
receiving  royalties,  shares  of  the  capital  stock,  bonds  or  other  securi- 
ties of  any  other  corporation,  or  any  other  consideration,  and  of 
contracting  therefor.  Of  acquiring,  owning,  holding,  buying,  selling, 
pledging  and  disposing  of  shares  in  the  capital  stock  and  the  bonds 
or  other  securities  of  any  corporation  owning,  leasing,  using  or  em- 
ploying any  letters  patent  or  patent  rights  relating  to  or  in  any  way 
connected  with  electrical  apparatus,  or  the  application  or  use  of 

i  Laws  of  the  State  of  New  York,  1892,  Chapter  323. 


CHARTER   OF   GENERAL   ELECTRIC   COMPANY        27 

electricity  in  any  form,  or  suitable  for  any  portion  of  the  business 
of  this  Company,  and  the  stocks,  bonds  and  other  securities  of  any 
corporation  owning,  leasing,  manufacturing,  purchasing,  using  or 
employing  any  machinery,  apparatus,  devices,  materials  or  other 
property  of  any  kind  relating  to  electrical  apparatus,  or  the  use, 
distribution  or  application  of  electricity  for  any  purpose,  or  for  use 
in  connection  therewith,  or  necessary  for  the  business  of  this  Com- 
pany ;  and  in  respect  of  such  shares  of  capital  stock,  of  exercising  all 
the  rights,  powers  and  privileges  which  a  holder,  being  a  natural 
person,  might  have  or  exercise.  Of  constructing,  purchasing,  operat- 
ing, leasing  and  selling  for  itself  or  others,  manufactories  or  other 
properties  suitable  for  any  of  the  foregoing  objects;  of  acquiring, 
holding,  using  and  conveying  in  this  State,  and  in  any  and  every 
State,  Territory,  district  or  country  in  which  the  corporation  may 
carry  on  business,  such  real  and  personal  estate,  property,  rights, 
privileges,  consents  and  franchises  as  the  purposes  of  the  Company, 
or  the  convenient  transaction  of  its  business  may  require;  of  invest- 
ing the  funds  of  the  Company  in  stocks,  bonds  or  securities  of  any 
other  corporation  owning  any  such  lands  or  other  property;  and  to 
mortgage  any  part  of  its  real  or  personal  estate  with  or  without  its 
franchises,  to  secure  the  payment  of  any  debts,  obligations  or  liabilities 
incurred  by  it  in  its  business,  as  its  Board  of  Directors  may  direct, 
under  and  pursuant  and  subject  to  the  provisions  of  its  by-laws  made 
in  relation  thereto.  Said  Company  may  borrow  money,  incur  debts 
and  liabilities  and  issue  its  bonds  or  obligations  therefor,  to  such 
amounts,  at  such  rates,  and  on  such  terms  as  its  Board  of  Directors 
may  from  time  to  time  direct,  and  secure  the  payment  of  the  same 
as  above  provided.  Nothing  in  this  act  contained  shall  be  construed 
to  confer  upon  the  corporation  hereby  created  any  authority  to  con- 
struct, maintain  or  operate  any  telegraph  or  telephone  lines  or  lines 
for  the  use,  distribution  or  application  of  electricity  for  any  purpose 
in  any  of  the  streets  or  highways  within  the  limits  of  this  State,  or 
right  to  use  said  streets  or  highways  for  any  purpose  whatsoever. 

SEC.  2.  The  rights,  powers  and  privileges  herein  granted  to  said 
corporation  shall  not  be  controlled,  limited  or  restricted  by  any  exist- 
ing statute  or  law  of  this  State ;  but  so  far  as  such  statute  or  statutes 
or  law  are,  or  might  otherwise  be  inconsistent  with  the  provisions  of 
this  act,  or  any  of  them,  they  are  and  shall  be  deemed  to  be  altoml 
and  amended  so  far  as  they  are  or  might  be  applicable  to  said  cor- 
poration, so  as  to  conform  to  the  provisions  of  this  act,  which  pro- 
visions shall  be  in  lieu  of  all  provisions  in  said  statutes  relating  to 
the  same  subject  matters.  Except  as  last  above  provided,  and  except 
upon  subjects  or  matters  relating  to  which  special  provision  is  made 


28 

in  this  act,  the  said  corporation  shall  be  subject  to  and  governed  by 
the  general  provisions  of  the  law  of  this  State  applicable  thereto. 

SEC.  3.  The  capital  stock  with  which  said  Company  shall  com- 
mence business  shall  be  one  hundred  thousand  dollars,  divided  into 
one  thousand  shares,  each  of  one  hundred  dollars.  The  said  capital 
stock  may  be  increased  from  time  to  time  by  the  vote  of  the  holders 
of  two-thirds  of  the  then  existing  capital  stock,  in  person  or  by  proxy, 
at  a  meeting  of  the  stockholders  duly  called  for  that  purpose,  to 
such  an  amount  as  may  be  determined  necessary  for  the  Company's 
business;  any  such  meeting  to  be  held  upon  a  notice  given  to  the 
several  stockholders  not  less  than  ten  days  before  the  day  of  the 
meeting,  by  delivering  the  same  personally  or  mailing  the  same, 
postage  prepaid,  to  the  respective  stockholders  at  their  last  known 
residence  or  place  of  business,  provided  a  certificate  of  such  increase, 
signed  and  sworn  to  by  a  majority  of  the  directors,  and  the  president 
and  secretary  of  said  corporation,  shall  be  filed  in  the  office  of  the 
Secretary  of  State,  and  a  duplicate  thereof  in  the  office  of  the  Clerk 
of  the  City  and  County  of  New  York.  Said  corporation  may  issue  a 
portion  of  its  original  or  increased  capital  stock,  not  exceeding  one- 
fifth  part  thereof,  as  preferred  stock,  such  preferred  stock  to  entitle 
the  holders  thereof  to  a  cumulative  preferential  dividend  out  of  sur- 
plus earnings,  not  exceeding  seven  per  centum  per  annum,  but  with- 
out any  other  preferential  right.  The  amount  of  preferred  stock  to 
be  issued  from  time  to  time  within  the  limit  above  fixed,  and  the 
manner  of  issuing  thei  same  may  be  determined  and  directed  by  the 
.  Board  of  Directors  of  such  corporation.  Each  share  of  stock,  whether 
preferred  or  common,  shall  entitle  the  holder  thereof  to  one  vote  at 
all  meetings  of  stockholders  and  at  all  elections  of  the  Company.  The 
capital  stock  of  said  corporation  may  be  issued  or  caused  to  be  issued 
by  its  directors,  for  money,  labor  done,  or  property  actually  received 
for  the  use  and  lawful  purposes  of  such  corporation,  at  its  fair  value, 
subject  to  such  restrictions  as  may  be  provided  in  the  by-laws  of  said 
Company.  The  holders  of  any  stock  so  issued  shall  not  be  subject 
to  any  liability  upon  the  same,  or  by  reason  of  being  such  stock- 
holders; except  that  such  stockholders  shall  jointly  and  severally  also 
be  personally  liable  for  all  debts  due  and  owing  to  any  of  its  laborers, 
servants  or  employees  other  than  contractors,  for  services  performed 
by  them  for  such  corporation.  Before  such  laborer,  servant  or  em- 
ployee shall  charge  such  stockholder  for  such  services,  he  shall  give 
him  notice  in  writing  within  thirty  days  after  the  termination  of 
such  services  that  he  intends  to  hold  him  liable,  and  shall  commence 
action  therefor  within  thirty  days  after  the  return  of  an  execution 
unsatisfied  against  the  corporation  upon  a  judgment  recovered  against 


CHARTER  OF  GENERAL  ELECTRIC   COMPANY       29 

it  for  such  services.  No  person  holding  stock  in  said  corporation  as 
collateral  security,  or  as  executor,  administrator,  guardian  or  trustee, 
unless  he  shall  have  voluntarily  invested  the  trust  funds  in  such 
stock,  shall  be  personally  subject  to  liability  as  stockholder;  and  no 
stockholder  of  said  corporation  shall  be  liable  for  any  such  debt  due 
to  a  laborer,  servant  or  employee,  if  he  shall  neglect  to  bring  suit 
against  the  corporation  for  such  debt  within  three  months  after  the 
termination  of  such  services. 

SEO.  4.  The  stock,  property  and  affairs  of  said  corporation  shall 
be  managed  by  a  Board  of  Directors  consisting  of  not  less  than  three 
nor  more  than  thirteen,  as  may  be  provided  by  the  by-laws  to  be 
adopted  by  said  corporation.  All  vacancies  happening  in  such  board 
may  be  filled  as  may  be  provided  in  such  by-laws. 

SEC.  5.  The  persons  first  above  named,  and  such  other  persons 
as  shall  be  elected  or  appointed  in  accordance  with  the  by-laws  of 
said  corporation  shall  be  the  first  directors  of  said  corporation,  and 
their  term  of  office  shall  continue  until  the  first  day  of  February, 
eighteen  hundred  and  ninety-three,  and  until  others  shall  be  chosen 
in  their  place.  On  or  after  the  said  first  day  of  February,  eighteen 
hundred  and  ninety-three,  the  Board  of  Directors  of  said  corporation 
shall  be  elected  annually  at  a  meeting  of  the  stockholders  thereof  to 
be  held  at  such  time  and  place  as  the  corporation  by  its  by-laws 
may  appoint. 

SEC.  6.  The  said  Board  of  Directors  appointed  by  and  under 
the  provisions  of  this  act  for  the  first  year,  may  adopt  by-laws  not 
inconsistent  with  this  act,  or  with  the  laws  of  this  State  for  the 
regulation  of  a  <x>rporation.  The  said  by-laws  may  be  altered, 
amended  or  repealed  by  a  vote  of  the  holders  of  a  majority  of  the 
stock,  represented  in  person  or  by  proxy,  at  any  meeting  of  said 
stockholders  duly  called. 

SEC.  7.  The  annual  report,  if  any,  at  any  time  required  to  be 
filed  by  such  corporation  under  the  general  laws  of  this  State,  or  any 
of  them,  shall  state: 

1.  The  amount  of  its  capital  stock  actually  issued. 

2.  The  amount  of  its  debts,  or  an  amount  which  they  shall  not 
exceed. 

3.  The  amount  of  its  assets,  or  an  amount  which  its  assets  shall 
at  least  equal.     Such  report  shall  be  signed,  verified  and  filed  in  the 
manner  and  within  the  period  required  by  the  general  laws  applicable 
thereto.    In  case  the  directors  shall  fail  so  to  file  any  such  required 
report,  the  directors  who  shall  have  neglected  or  refused  to  make 
and  file  the  same  and  who  shall  also  have  neglected  or  refused  to 
make  or  file  any  alternative  individual  report,  as  permitted  by  gen- 


30          MATEEIALS    OF   COKPOEATION    FINANCE 

eral  law,  shall  be  jointly  and  severally  liable,  as  provided  by  general 
law,  and  every  officer  and  director  of  such  corporation  signing  any 
certificate,  report  or  public  notice  required  by  law  which  shall  be 
false  in  any  material  representation,  shall  jointly  and  severally  be 
personally  liable  to  the  creditors  of  the  Company  for  any  damages 
caused  to  them  thereby.  There  shall  be  a  president,  secretary  and 
treasurer  of  such  corporation,  and  such  other  officers  as  shall  be  pro- 
vided by  its  by-laws.  The  president  shall  be  selected  by,  and  from, 
the  directors.  The  other  officers  shall  be  elected  or  appointed,  and 
have  such  qualifications  as  may  be  provided  by  the  by-laws  of  the 
corporation.  The  directors  of  said  corporation  shall  keep,  or  cause 
to  be  kept,  at  its  office,  books  of  account  of  its  business  and  transac- 
tions, and  a  book  to  be  known  as  the  "stock-book,"  containing  the 
names,  alphabetically  arranged,  of  all  persons  who  are,  or  within 
two  years  have  been  stockholders  of  the  corporation,  showing  their 
places  of  residence,  the  number  of  shares  of  stock  held  by  them 
respectively,  and  the  time  when  they  respectively  became  the  owners, 
and  the  time  when  the  same  was  transferred  to  them  respectively  on 
the  books  of  the  Company.  The  stock-book  of  such  corporation  shall 
be  open  daily  during  business  hours  for  the  inspection  of  its  stock- 
holders and  creditors,  who  may  make  extracts  therefrom. 

SEC.  8.  The  directors  of  said  corporation  may  declare  and  cause 
to  be  paid  dividends  in  money  or  property,  but  only  from  the  net 
profits  of  its  business. 

SEO.  9.  The  said  corporation  may  go  into  liquidation,  and  may 
wind  up  its  affairs  and  business,  and  may  sell,  convey  and  dispose 
of  all  its  property  upon  the  consent  thereto  of  its  stockholders  hold- 
ing two-thirds  of  all  its  capital  stock,  such  consent  to  be  given  at  a 
meeting  of  said  stockholders  duly  held  for  that  purpose;  and  the 
Board  of  Directors,  or  such  other  officers  or  persons  as  may  be  author- 
ized and  directed  by  a  vote  of  its  stockholders  owning  two-thirds  of 
its  capital  stock  shall  be  duly  authorized  as  trustees  to  so  dispose  of 
the  property  of  said  corporation,  and  liquidate  and  wind  up  its  affairs 
and  business. 

SEC.  10.  The  said  corporation  shall  not  commence  business  until 
it  shall  have  paid  to  the  Treasurer  of  this  State  the  sum  of  ten  thou- 
sand dollars  as  a  franchise  tax,  and  it  shall  thereafter,  from  time  to 
time,  pay  such  further  sum  to  the  said  State  Treasurer  as  shall  make 
the  aggregate  sum  so  paid  by  it  to  the  State  Treasurer,  equal  at  all 
times  to  one-twentieth  part  of  one  per  centum  upon  its  existing 
capital  stock.  This  act  shall  not  be  construed  as  granting  to  the 
corporation  hereby  created  the  right  to  create  or  maintain  any  mo- 
nopoly, or  unlawful  combination  in  restraint  of  trade. 

SEC.  11.     This  act  shall  take  effect  immediately. 


FIRST  GENERAL  CORPORATION  LAW  31 


An   act   relative   to   incorporations   for   manufacturing   purposes. 
Passed  March  22,  1811. 

1.  Be  it  enacted  by  the  people  of  the  State  of  New  York  repre- 
sented in  Senate  and  Assembly,  That  at  any  time  within  five  years 
hereafter,  any  five  or  more  persons  who  shall  be  desirous  to  form  a 
company  for  the  purpose  of  manufacturing  woolen,  cotton  or  linen 
goods,  or  for  the  purpose  of  making  glass,  or  for  the  purpose  of  mak- 
ing from  ore  bar-iron,  anchors,  mill  irons,  steel,  nail  rods,  hoop  iron 
and  iron  mongery,  sheet  copper,  sheet  lead,  shot,  white  lead  and  red 
lead,  may  make,  sign  and  acknowledge,  before  a  justice  of  the  Supreme 
Court,  a  judge  of  the  Court  of  Common  Pleas,  or  a  master  in  Chan- 
cery, and  file  in  the  office  of  the  Secretary  of  State  a  certificate  in 
writing  in  which  shall  be  stated  the  corporate  name  of  the  said  com- 
pany, and  the  objects  for  which  the  company  is  formed,  the  amount 
of  the  capital  stock  of  the  said  company,  the  number  of  shares  of 
which  the  said  stock  shall  consist,  the  number  of  trustees  and  their 
names  who  shall  manage  the  concerns  of  the  said  company  for  the 
first  year  and  the  names  of  the  town  and  county  in  which  the  manu- 
facturing operations  of  the  said  company  are  to  be  carried  on. 

2.  And  be  it  further  enacted,  That  as  soon  as  such  certificate  shall 
be  filed  as  aforesaid,  the  persons  who  shall  have  signed  and  acknowi 
edged  the  said  certificate  and  their  successors,  shall  for  the  term  of 
twenty  years  next  after  the  day  of  filing  such  certificate,  be  a  body 
corporate  and  politic,  in  fact  and  name,  by  the  name  stated  in  such 
certificate,  and  by  that  name  they  and  their  successors  shall  and  may 
have  continual  succession,  and  shall  be  persons  in  law  capable  of 
suing  and  being  sued,  pleading  and  being  impleaded,  answering  or 
being  answered  unto,  defending  and  being  defended,  in  all  courts  and 
places  whatsoever,  in  all  manner  of  actions,  suits,  complaints,  mat- 
ters and  causes  whatsoever;  and  they  and  their  successors  may  have 
a  common  seal,  and  the  same  may  make,  alter  and  change  at  their 
pleasure,  and  that  they  and  their  successors,  by  their  corporate  name, 
shall  in  law  be  capable  of  buying,  purchasing,  holding  and  conveying 
any  lands,  tenements,  hereditaments,  goods,  wares  and  merchandise 
whatever,  necessary  to  enable  the  said  company  to  carry  on  their 
manufacturing  operations  mentioned  in  such  certificate. 

3.  And  be  it  further  enacted,  That  the  stock,  property  and  con- 
cerns of  such  company  shall  be  managed  and  conducted  by  trustees 
who,  except  those  for  the  first  year,  shall  be  elected  at  such  time  and 

i  This  is  the  first  General  Corporation  Law  ever  passed  by  any  legislative 
body. 


32  MATEKIALS   OF   CORPORATION    FINANCE 

place  as  shall  be  directed  by  the  laws  of  the  said  company,  and  public- 
notice  shall  be  given  of  the  time  and  place  of  holding  such  election, 
not  less  than  ten  days  previous  thereto,  in  the  newspaper  printed 
nearest  to  the  place  where  the  manufacturing  operations  of  the  said 
company  shall  or  are  to  be  carried  on,  and  the  election  shall  be  made 
by  such  of  the  stockholders  as  shall  attend  for  that  purpose,  either  in 
person  or  by  proxy,  and  all  elections  shall  be  by  ballot,  and  each  stock- 
holder shall  be  entitled  to  as  many  votes  as  he  owns  shares  of  stock 
of  the  said  company,  and  the  persons  having  the  greatest  number 
of  votes  shall  be  trustees;  and  wherever  any  vacancy  shall  happen 
among  trustees  by  death,  resignation  or  removal  out  of  the  State, 
such  vacancy  shall  be  filled  for  the  .remainder  of  the  year  in  such 
manner  as  shall  be  provided  by  the  laws  of  the  said  company;  Pro- 
vided always,  That  the  number  of  trustees  shall  not  exceed  nine,  and 
that  they  shall  respectively  be  stockholders  in  such  company. 

4.  And  be  it  further  enacted,  That  in  case  it  shall  at  any  time 
happen  that  an  election  of  trustees  be  not  made  on  the  day  when  by 
the  by-laws  of  the  said  company  it  ought  to  have  been  done,  the  said 
company  for  that  cause  shall  not  be  dissolved,  but  it  shall  and  may 
be  lawful  on  any  other  day  to  hold  an  election  for  trustees,  in  such 
manner  as  shall  be  directed  by  the  by-laws  of  such  company. 

5.  And  be  it  further  enacted,  That  the  capital  stock  of  such  com- 
pany shall  not  exceed  one  hundred  thousand  dollars ;  and  it  shall  be 
lawful  for  the  trustees  to  call  and  demand  from  the  stockholders 
respectively  all  such  sums  of  money  by  them  subscribed  at  such  time 
and  in  such  proportions  as  they  shall  deem  proper,  under  pain  of 
forfeiting  the  shares  of  the  said  stockholders  and  all  previous  pay- 
ments made  thereon,  if  such  payments  shall  not  be  made,  within 
sixty  days  after  a  notice  requiring  such  payment  shall  have  been  pub- 
lished in  such  newspaper  as  aforesaid. 

6.  And  be  it  further  enacted,  That  the  trustees  of  such  company 
for  the  time  being  shall  have  power  to  make  and  prescribe  such  by- 
laws, rules  and  regulations  as  they  shall  deem  proper  respecting  the 
management  and  disposition  of  the  stock,  property  and  estate  of  such 
company,  the  duties  of  the  officers,  artificers  and  servants  by  them  to 
be  employed,  the  election  of  trustees,  and  all  such  matters  as  apper- 
tain to  the  concerns  of  the  said  company  to  appoint  such  and  so  many 
officers,  clerks  and  servants  for  carrying  on  the  business  of  the  said 
company,  and  with  such  wages  as  to  them  shall  seem  reasonable; 
Provided,  That  such  by-laws  be  not  inconsistent  with  the  Constitution 
and  Laws  of  this  State  and  of  the  United  States. 

7.  And  be  it  further  enacted,  That  the  stock  of  such  company 
shall  be  deemed  personal  estate,  and  be  transferable  in  such  manner 


FIRST  GENERAL  CORPORATION  LAW  33 

as  shall  be  prescribed  by  the  laws  of  the  company;  and  that  for  all 
debts  which  shall  be  due  and  owing  by  the  company  at  the  time  of  its 
dissolution,  the  persons  then  composing  such  company  shall  be  indi- 
vidually responsible  to  the  extent  of  their  respective  shares  of  stock 
in  the  said  company,  and  no  further;  and  that  it  shall  not  be  lawful 
for  such  company  to  use  their  funds,  or  any  part  thereof,  in  any 
banking  transactions,  or  in  the  purchase  of  any  stock  of  any  bank, 
or  in  the  purchase  of  any  public  stock  whatever,  or  for  any  other 
purpose  than  those  specified  in  such  instrument  as  aforesaid. 

8.  And  be  it  further  enacted,  That  the  copy  of  any  certificate  filed 
in  pursuance  of  this  act,  and  certified  to  be  a,  true  copy  by  the  Secre- 
tary of  this  State,  or  his  deputy,  shall  together  with  this  act,  be 
received  in  all  courts  and  places  as  legal  evidence  of  the  incorporar 
tion  of  such  company. 


34  MATERIALS    OF    CORPORATION    FINANCE 


GENERAL  CORPORATION  LAW.1 

AN  ACT  concerning  Corporations.    [Approved  April  18,  1872,  in  -force 
July  1,  1872,  and  amendments  thereto  in  force  July  1,  1905. 

SECTION  1.  Be  it  enacted  by  the  People  of  the  State  of  Illinois, 
represented  in  the  General  Assembly:  That  corporations  may  be 
formed  in  the  manner  provided  by  this  Act,  for  any  lawful  purpose 
except  banking,  insurance,  real  estate  brokerage,  the  operation  of 
railroads  and  the  business  of  loaning  money:  Provided,  that  horse 
and  dummy  railroads,  and  organizations  for  the  purchase  and  sale  of 
real  estate,  for  burial  purposes  only,  may  be  organized  and  conducted 
under  the  provisions  of  this  act:  And,  provided,  further,  that  corpor- 
ations formed  for  the  purpose  of  constructing  railroad  bridges  shall 
not  be  held  to  be  railroad  corporations.  [As  amended  by  act  approved 
April  19,  1879,  in  force  July  1,  1879. 

§  2.  Whenever  any  number  of  persons  not  less  than  three,  nor 
more  than  seven,  shall  propose  to  form  a  corporation  under  this  act, 
they  shall  make  a  statement  to  that  effect  under  their  hands  and  duly 
acknowledged  before  some  officer  in  the  manner  provided  for  the 
acknowledgment  of  deeds,  setting  forth  the  name  of  the  proposed 
corporation,  the  object  for  which  it  is  to  be  formed,  its  capital  stock, 
the  number  of  shares  of  which  such  stock  shall  consist,  the  location 
of  the  principal  office  and  the  duration  of  the  corporation,  not  to 
exceed  ninety-nine  years,  which  statement  shall  be  filed  in  the  office  of 
the  Secretary  of  State.  If  the  object  for  which  said  corporation  is 
proposed  to  be  organized  is  clearly  and  definitely  stated,  and  is  a  law- 
ful object,  the  Secretary  of  State  shall  thereupon  issue  to  such  per- 
sons a  license  as  commissioners  to  open  books  for  subscription  to  the 
capital  stock  of  said  corporations  at  such  times  and  places  as  they  may 
determine;  but  no  license  shall  be  issued  to  two  companies  having 
the  same  or  a  similar  name,  nor  shall  any  foreign  corporation  having 
the  same  or  a  similar  name  as  any  domestic  corporation  be  admitted 
to  this  State  under  any  foreign  corporation  law  and  no  domestic  cor- 
poration shall  hereafter  be  organized  with  the  same  or  a  similar  name 
as  any  foreign  corporation  previously  admitted  to  do  business  in  this 
State.  Upon  the  filing  of  any  statement  with  the  Secretary  of  State 
for  the  purpose  of  obtaining  a  license  to  incorporate,  he  may  propound 
such  interrogatories  as  he  shall  deem  necessary  to  ascertain  the  true 

i  The  Illinois  Act  is  quoted  on  account  of  its  brevity.  A  full  and  complete 
digest  of  the  statutory  provisions  relating  to  corporations  in  the  United 
States  is  to  be  found  in  "The  Corporation  Manual,"  published  bi-annually 
by  the  Corporation  Manual  Company,  New  York  City. 


GENERAL    CORPORATION    LAW  35 

object :  Provided,  that  the  Attorney  General  may  file  a  bill  in  chan- 
cery in  the  name  of  the  People  of  the  State  of  Illinois,  against  any 
corporation  authorized  to  confer  degrees,  diplomas  or  other  certificate 
or  certificates  of  qualification  in  the  science  of  medicine,  pharmacy  or 
dentistry  which  conducts  a  fraudulent  business  or  abuses,  misuses  or 
violates  the  terms  of  its  charter,  in  any  court  having  jurisdiction  of 
the  corporation  and  subject-matter  of  such  bill,  for  an  injunction  to 
restrain  said  corporation  from  conducting  its  business  fraudulently  or 
abusing,  misusing  or  violating  the  terms  of  its  charter  and  also  for 
the  dissolution  of  said  corporation,  and  thereupon  it  shall  be  the  duty 
of  the  court  in  which  said  bill  is  filed  to  grant  such  injunction  and  to 
hear  and  determine  the  same  as  in  other  cases  in  chancery :  And  pro- 
vided, further,  that  this  act  shall  apply  to  schools,  colleges  or  univer- 
sities which  now  are,  or  may  hereafter  be,  licensed  in  this  State,  not- 
withstanding any  provisions  that  may  exist  in  their  charters.  [As 
amended  by  act  approved  May  16,  1905;  in  force  July  1,  1905. 

§  3.  As  soon  as  may  be,  after  the  capital  stock  shall  be  fully  sub- 
scribed, the  commissioners  shall  convene  a  meeting  of  the  subscribers, 
for  the  purpose  of  electing  directors  or  managers,  and  the  transaction 
of  such  other  business  as  shall  come  before  them.  Notice  thereof 
shall  be  given  by  depositing  in  the  postoffice,  properly  addressed  to 
each  subscriber,  at  least  ten  days  before  the  time  fixed,  a  written  or 
printed  notice,  stating  the  object,  time  and  place  of  such  meeting.  In 
all  elections  for  directors  or  managers  of  corporations  organized  under 
this  Act,  every  subscriber  or  stockholder  shall  have  the  right  to  vote 
in  person,  or  by  proxy,  for  the  number  of  shares  owned  or  subscribed 
by  him,  for  as  many  persons  as  there  are  directors  or  managers  to  be 
elected,  or  to  cumulate  such  shares  and  give  one  candidate  as  many 
votes  as  the  number  of  directors  or  managers  multiplied  by  the  number 
of  his  shares  of  stock  shall  equal,  or  to  distribute  them  on  the  same 
principle  among  as  many  candidates  as  he  shall  think  fit;  and  such 
directors  or  managers  shall  not  be  elected  in  any  other  manner.  It 
shall  be  lawful  for  any  such  corporation,  by  resolution  of  the  stock- 
holders, to  divide  its  board  of  directors  or  managers  into  three  classes, 
numbered  consecutively,  the  term  of  office  of  the  first  class  to  expire 
on  the  day  of  the  annual  election  of  said  company  then  next  ensuing ; 
the  second  class  one  year  thereafter,  and  the  third  class  two  years 
thereafter.  At  each  annual  election,  after  such  classification,  the 
stockholders  of  such  company  shall  elect,  for  a  term  of  three  years,  a 
number  of  directors  or  managers  equal  to  the  number  in  the  class 
whose  term  expires  on  the  day  of  such  election.  All  other  vacancies 
to  be  filled  in  accordance  with  the  by-laws  of  the  corporation. 

§  4.     The  commissioners  shall  make  a  full  report  of  their  proceed- 


36  MATEKIALS    OF   CORPOKATION    FINANCE 

ings,  including  therein  a  copy  of  the  notice  provided  for  in  the  fore- 
going section,  a  copy  of  the  subscription  list,  a  statement  of  the 
amount  of  the  capital,  not  less  than  one-half  actually  paid  in,  the 
amount  of  such  capital  not  paid  in,  what  disposition  has  been  made 
of  stock  subscribed  and  not  paid,  and  if  any  proportion  of  the  capital 
has  been  paid  in  property,  the  same  shall  be  appraised  by  said  com- 
missioners and  they  shall  report  the  fair  cash  value  thereof;  the 
names  of  the  directors  or  managers  elected  and  their  respective  terms 
of  office,  which  report  shall  be  sworn  to  by  at  least  a  majority  of  the 
commissioners  and  shall  be  filed  in  the  office  of  the  Secretary  of  State. 
The  Secretary  of  State  shall  thereupon  issue  a  certificate  of  the  com-: 
plete  organization  of  the  corporation,  making  a  part  thereof  a  copy  of 
all  the  papers  filed  in  his  office  in  and  about  the  organization  of  the 
corporation,  and  duly  authenticated  under  his  hand  and  seal  of  State, 
and  the  same  shall  be  recorded  in  a  book  for  that  purpose,  in  the  office 
of  the  recorder  of  deeds  of  the  county  where  the  principal  office  of 
such  company  is  located.  Upon  the  recording  of  the  said  copy,  the 
corporation  shall  be  deemed  fully  organized  and  may  proceed  to  busi- 
ness. Unless  such  company  shall  be  organized  and  shall  proceed  to 
business  as  provided  in  this  act  within  two  years  after  the  date  of  such 
license,  then  such  license  shall  be  deemed  revoked,  and  all  proceedings 
thereunder  void.  [As  amended  by  act  approved  May  16,  1905 ;  in  force 
July  1,  1905. 

§  5.  Corporations  formed  under  this  act  shall  be  bodies  corporate 
and  politic  for  the  period  for  which  they  are  organized ;  may  sue  and 
be  sued;  may  have  a  common  seal  which  they  may  alter  or  renew  at 
pleasure ;  may  own,  possess  and  enjoy  so  much  real  and  personal 
estate  as  shall  be  necessary  for  the  transaction  of  their  business,  and 
may  sell  and  dispose  of  the  same  when  not  required  for  the  uses  of 
the  corporation.  They  may  borrow  money  at  legal  rates  of  interest, 
and  pledge  their  property,  both  real  and  personal,  to  secure  the  pay- 
ment thereof;  and  may  have  and  exercise  all  the  powers  necessary 
and  requisite  to  carry  into  effect  the  objects  for  which  they  may  be 
formed :  Provided,  however,  that  all  real  estate,  so  acquired  in  satis- 
faction of  any  liability  or  indebtedness,  unless  the  same  may  be 
necessary  and  suitable  for  the  business  of  such  corporation,  shall  be 
offered  at  public  auction  at  least  once  every  year,  at  the  door  of  the 
court  house  of  the  county  wherein  the  same  be  situated,  or  on 
the  premises  so  to  be  sold,  after  giving  notice  thereof  for  at  least  four 
consecutive  weeks  in  some  newspaper  of  general  circulation  pub- 
lished in  said  county;  and  if  there  be  no  such  newspaper  published 
therein,  then  in  the  nearest  adjacent  county  where  such  newspaper 
is  published;  and  said  real  estate  shall  be  sold  whenever  the  price 


GENERAL   CORPORATION   LAW  37 

offered  for  it  is  not  less  than  the  claim  of  such  corporation,  including 
all  interest,  costs,  and  other  expenses:  And,  provided,  further,  that 
in  case  such  corporation  shall  not,  within  such  period  of  five  years,  sell 
such  land,  either  at  public  or  private  sale  as  aforesaid,  it  shall  be  the 
duty  of  the  State's  Attorney  to  proceed  by  information,  in  the  name 
of  the  people  of  the  State  of  Illinois,  against  such  corporation,  in  the 
circuit  court  of  the  county  within  which  such  lands,  so  neglected 
to  be  sold,  shall  be  situated,  and  such  court  shall  have  jurisdiction 
to  hear  and  determine  the  fact,  and  to  order  the  sale  of  such  land  or 
real  estate  at  such  time  and  place  subject  to  such  rules  as  the  court 
shall  establish.  The  court  shall  tax  as  the  fees  of  the  State's  Attor- 
ney such  sum  as  shall  be  reasonable;  and  the  proceeds  of  such  sale, 
after  deducting  the  said  fees  and  costs  of  proceedings,  shall  be 
paid  over  to  such  corporation.  The  provisions  of  this  section  shall 
apply  to  and  be  binding  upon  all  corporations  now  existing  by  virtue 
of  any  special  charter  granted  by  this  State.  [As  amended  by  act 
approved  June  5,  1889;  in  force  July  1,  1889. 

§  6.  The  corporate  powers  shall  be  exercised  by  a  board  of  direc- 
tors or  managers:  Provided,  the  number  of  directors  or  managers 
shall  not  be  increased  or  diminished,  or  their  term  of  office  changed, 
without  the  consent  of  the  owners  of  a  majority  of  the  shares  of 
stock.  The  officers  of  the  company  shall  consist  of  a  president,  secre- 
tary and  treasurer,  and  such  other  officers  and  agents  as  shall  be  de- 
termined by  the  directors  or  managers,  and  the  directors  or  managers 
may  adopt  by-laws  for  the  government  of  the  officers  and  affairs  of  the 
company:  Provided,  they  are  not  inconsistent  with  the  laws  of  this 
State.  The  directors  or  managers  may  require  of  the  officers  and 
agents  bonds,  with  such  sureties  and  conditions  as  they  shall  deem 
proper  and  may  remove  any  officers  when  the  interest  of  the  corpora- 
tion shall  require.  The  officers  shall  hold  their  respective  offices  for 
the  period  provided  by  the  by-laws. 

§  7.  The  shares  of  stock  shall  be  not  less  than  ten  nor  more  than 
one  hundred  dollars  each,  and  shall  be  deemed  personal  property,  and 
transferable  as  such  in  the  manner  provided  by  the  by-laws,  and  sub- 
scriptions therefor  shall  be  made  payable  to  the  corporation,  and  shall 
be  payable  in  such  installments  and  at  such  time,  or  times  as  shall  be 
determined  by  the  directors  or  managers,  and  an  action  may  be  main- 
tained in  the  name  of  the  corporation  to  recover  any  installment  which 
shall  remain  due  and  unpaid  for  the  period  of  twenty  days  after  per- 
sonal demand  therefor,  or,  in  cases  where  personal  demand  is  not  made, 
within  thirty  days  after  a  written  or  printed  demand  has  been 
deposited  in  the  postoffice  properly  addressed  to  the  postoffice  addresa 
of  the  stockholder.  The  directors  may,  by  by-law  prescribe  other 


38  MATERIALS    OP    CORPORATION    FINANCE 

penalties  for  a  failure  to  pay  the  installments  that  may  from  time  to 
time  become  due,  but  no  penalty  working  a  forfeiture  of  stock,  or  of 
the  amounts  paid  thereon  shall  be  declared  as  against  any  estate 
before  distribution  shall  have  been  made  or  against  any  stockholder 
before  demand  shall  have  been  made  for  the  amount  due  thereon 
either  in  person  or  by  a  written  or  printed  notice  duly  mailed  to  the 
proper  address  of  such  stockholder  at  least  thirty  days  prior  to  the 
time  when  such  forfeiture  is  to  take  effect:  Provided,  that  proceeds 
of  said  sale  over  and  above  the  amount  due  on  said  shares  shall  be 
paid  to  the  delinquent  stockholder. 

§  8.  Every  assignment  or  transfer  of  stocks  on  which  there  re- 
mains any  portion  unpaid  shall  be  recorded  in  the  office  of  the  re- 
corder of  deeds  of  the  county  within  which  the  principal  office  is 
located,  and  each  stockholder  shall  be  liable  for  the  debts  of  the  cor- 
poration to  the  extent  of  the  amount  that  may  be  unpaid  upon  the 
stock  held  by  him,  to  be  collected  in  the  manner  herein  provided. 
No  assignor  of  stocks  shall  be  released  from  any  such  indebtedness 
by  reason  of  any  assignment  of  his  stock,  but  shall  remain  liable  there- 
for, jointly  with  the  assignee,  until  the  said  stock  be  fully  paid.  When- 
ever any  action  is  brought  to  recover  any  indebtedness,  against  the 
corporation,  it  shall  be  competent  to  proceed  against  any  one  or  more 
stockholders  at  the  same  time  to  the  extent  of  the  balance  unpaid  by 
such  stockholders  upon  the  stock  owned  by  them,  respectively,  whether 
called  in  or  not,  as  in  cases  of  garnishment.  Every  assignee  or  trans- 
feree of  stock  shall  be  liable  to  the  company  for  the  amount  unpaid 
thereon,  to  the  extent  and  in  the  same  manner  as  if  he  had  been  the 
original  subscriber. 

§  9.  The  General  Assembly  shall  at  all  times  have  power  to  pre- 
scribe such  regulations  and  provisions  as  it  may  deem  advisable, 
which  regulations  and  provisions  shall  be  binding  on  any  and  all 
corporations  formed  under  the  provisions  of  this  Act :  And,  provided, 
•further,  that  this  act  shall  not  be  held  to  revive  or  extend  any  private 
charter  or  law  heretofore  granted  or  passed  concerning  any  corpora- 
tion. 

§  10.  All  corporations  organized  under  this  law,  whose  powers 
may  have  expired  by  limitation  or  otherwise,  shall  continue  their  cor- 
porate capacity  during  the  term  of  two  years  for  the  purpose  only  of 
collecting  the  debts  due  said  corporation  and  selling  and  conveying 
the  property  and  effects  thereof. 

§  11.  Such  corporations  shall  use  their  respective  names  for  the 
purposes  aforesaid,  and  shall  be  capable  of  prosecuting  and  defending 
all  suits  in  law  or  equity. 

§  12.     The  dissolution,  for  any  cause  whatever,  of  any  corporation 


GENERAL    CORPORATION    LAW  39 

created  as  aforesaid,  shall  not  take  away  or  impair  any  remedy  given 
against  such  corporation,  its  stockholders  or  officers,  for  any  liabilities 
incurred  previous  to  its  dissolution. 

§  13.  It  shall  be  the  duty  of  the  directors  or  trustees  of  every 
stock  corporation  to  cause  to  be  kept  at  its  principal  office  or  place  of 
business  in  this  State,  correct  books  of  account  of  all  its  business,  and 
every  stockholder  in  such  corporation  shall  have  the  right  at  all 
reasonable  times,  by  himself  or  by  his  attorney,  to  examine  the  records 
and  books  of  account  of  the  corporation. 

§  14.  A  failure  to  elect  directors,  trustees,  or  officers  in  lieu  of 
trustees,  on  the  day  named  and  designated  in  the  by-laws,  or  on  the 
day  for  which  notice  was  given  for  election,  shall  not  have  the  effect 
of  dissolving  the  corporation;  but  such  election  may  be  held  at  any 
time  after  proper  notice. 

§  15.  All  assessments  or  installments  of  the  stock  of  any  stock  cor- 
poration shall  be  levied  by  the  directors  in  accordance  with  the  pro- 
visions of  the  by-laws,  but  any  assessment  or  installment  required  to 
be  paid  shall  be  levied  pro  rata  upon  all  the  shares  of  such  stock. 

§  16.  If  the  indebtedness  of  any  stock  corporation  shall  exceed 
the  amount  of  its  capital  stock,  the  directors  and  officers  of  such 
corporation  assenting  thereto,  shall  be  personally  and  individually 
liable  for  such  excess  to  the  creditors  of  such  corporation. 

§17.  The  president,  secretary  or  treasurer  of  every  stock  corpora- 
tion shall  annually,  within  twenty  days  from  the  first  day  of  Decem- 
ber, make  a  statement  in  writing,  setting  forth  a  description  of  all 
real  estate  to  which  title  was  acquired  in  securing  any  debt  or  liability 
due  such  corporation,  together  with  the  time  of  acquiring  title  thereto ; 
which  statement  shall  be  verified  by  the  oath  or  affirmation  of  such 
president,  secretary  or  treasurer,  and  be  recorded  in  the  office  of  the 
recorder  of  the  county,  and  filed  in  the  office  of  the  Secretary  of  State. 

§  18.  If  any  person  or  persons,  being  or  pretending  to  be  an  officer 
or  agent  or  board  of  directors  of  any  stock  corporation,  or  pretended 
stock  corporation,  shall  assume  to  exercise  corporate  powers,  or  use  the 
name  of  any  such  corporation,  or  pretended  corporation,  without  com- 
plying with  the  provisions  of  this  act,  before  all  stock  named  in  the 
articles  of  incorporation  shall  be  subscribed  in  good  faith,  then  they 
shall  be  jointly  and  severally  liable  for  all  debts  and  liabilities  made 
by  them  and  contracted  in  the  name  of  such  corporation  or  pretended 
corporation. 

§  19.  If  the  directors  or  other  officers  or  agents  of  any  stock  cor- 
poration shall  declare  and  pay  any  dividend  when  such  corporation 
is  insolvent,  or  any  dividend  the  payment  of  which  would  render  it 
insolvent,  or  which  would  diminish  the  amount  of  its  capital  stock, 


40  MATEEIALS    OF    COKPOKATION    FINANCE 

all  directors,  officers  or  agents  assenting  thereto  shall  be  jointly  and 
severally  liable  for  all  debts  of  such  corporation  then  existing,  and 
for  all  that  shall  thereafter  be  contracted  while  they  shall,  respectively, 
continue  in  office. 

§  20.  The  by-laws  of  every  corporation  shall  provide  for  the  call- 
ing of  meetings  of  the  directors,  trustees,  or  other  officers  correspond- 
ing to  trustees;  and  when  all  such  officers  shall  be  present  at  any 
meeting,  however  called  or  notified,  or  shall  sign  a  written  consent 
thereto  on  the  record  of  such  meeting,  the  acts  of  such  meeting  shall 
be  as  valid  as  if  legally  called  and  notified :  Provided,  that  the  action 
of  any  meeting  held  beyond  the  limits  of  this  State  shall  be  void, 
unless  such  meeting  was  authorized,  or  its  acts  ratified  by  a  vote  of 
two-thirds  of  the  directors,  trustees,  or  officers  corresponding  to  trus- 
tees, at  a  regular  meeting. 

§  21.  If  any  certified  report  or  statement  made,  or  public  notice 
given  by  the  officers  of  any  corporation,  shall  be  false  in  any  material 
representation,  all  the  officers  who  shall  have  signed  the  same,  know- 
ing it  to  be  false,  shall  be  jointly  and  severally  liable  for  all  damages 
arising  therefrom. 

§  22.  The  stockholders  of  any  stock  corporation,  owning  two- 
thirds  of  the  stock  in  such  corporation,  upon  which  all  assessments 
have  been  fully  paid  up,  may  call  a  meeting  of  the  stockholders  of 
such  corporation  by  signing  a  call  therefor  with  their  proper  names, 
stating  the  number  of  shares  held  by  each  and  filing  the  same  with 
the  president  or  secretary  of  such  corporation  and  publishing  the 
same  in  a  newspaper  in  this  State  where  the  principal  office  of  such 
corporation  is  kept,  and  at  the  seat  of  government,  for  three  successive 
weeks  prior  to  the  time  fixed  for  holding  such  meeting,  and  mailing 
a  copy  {hereof  to  each  of  the  directors  of  said  corporation  at  his 
usual  place  of  abode.  And  the  secretary  of  such  corporation  shall 
enter  such  call  upon  the  records  thereof,  and  the  fact  of  such  publi- 
cation, and  mailing  such  notice,  giving  the  name  of  such  paper,  with 
the  dates  and  places  of  publication,  which  shall  be  prima  facie  evi- 
dence thereof. 

§  23.  No  person  holding  stock  in  any  corporation  as  executor, 
administrator,  conservator,  guardian  or  trustee,  and  no  person  hold- 
ing such  stock  as  collateral  security,  shall  be  personally  subject  to  any 
liability  as  stockholder  of  such  corporation;  but  the  person  pledging 
such  stock  shall  be  considered  as  holding  the  same  and  shall  be  liable 
as  a  stockholder  accordingly,  and  the  estate  and  funds  in  the  hands 
of  such  executor,  administrator,  conservator,  guardian  or  trustee,  shall 
be  liable  in  like  manner  and  to  the  same  extent  as  the  testator  or 
intestate,  or  the  ward  or  person  interested  in  such  trust  fund,  would 


GENERAL   CORPORATION   LAW  41 

have  been  if  he  had  been  living  and  had  been  competent  to  act  and 
held  the  stock  in  his  own  name. 

§  24.  Every  executor,  administrator,  conservator,  guardian  or 
trustee  shall  represent  the  stock  in  his  hands  at  all  meetings  of  any 
stock  corporation,  and  may  vote  accordingly  as  a  stockholder,  and 
every  person  who  shall  pledge  his  stock  may,  nevertheless,  represent 
the  same  at  all  meetings,  and  may  vote  accordingly  as  a  stockholder. 

§  25.  If  any  corporation,  or  its  authorized  agents,  shall  do  or 
refrain  from  doing  any  act  which  shall  subject  it  to  a  forfeiture  of 
its  charter  or  corporate  powers ;  or  shall  allow  any  execution  or  decree 
of  any  court  of  record  for  a  payment  of  money,  after  demand  made 
by  the  officer  to  be  returned  "no  property  found,"  or  to  remain 
unsatisfied  for  not  less  than  ten  days  after  such  demand,  or  shall  dis- 
solve or  cease  doing  business,  leaving  debts  unpaid,  suits  in  equity 
may  be  brought  against  all  persons  who  were  stockholders  at  the 
time,  or  liable  in  any  way  for  the  debts  of  the  corporation  by  joining 
the  corporation  in  such  suit;  and  each  stockholder  may  be  required 
to  pay  his  pro  rata  share  of  such  debts  or  liabilities,  to  the  extent 
of  the  unpaid  portion  of  his  stock,  after  exhausting  the  assets  of  such 
corporation,  and  if  any  stockholder  shall  not  have  property  enough 
to  satisfy  his  portion  of  such  debts  or  liabilities,  then  the  amount 
shall  be  divided  equally  among  all  the  remaining  solvent  stockholders ; 
and  courts  of  equity  shall  have  full  power,  on  good  cause  shown,  to 
dissolve  or  close  up  the  business  of  any  corporation,  to  appoint  a 
receiver  therefor  who  shall  have  authority,  by  the  name  of  the 
receiver  of  such  corporation  (giving  the  name),  to  sue  in  all  courts, 
and  do  all  things  necessary  to  closing  up  its  affairs  as  commanded  by 
the  decree  of  such  court.  Said  receiver  shall  be  in  all  cases  a  resident 
of  the  State  of  Illinois,  and  shall  be  required  to  enter  into  bonds, 
payable  to  the  people  of  the  State  of  Illinois,  for  the  use  of  the  parties 
interested,  in  such  penalty  and  with  such  securities  as  the  court  may, 
in  the  decree  or  order  appointing  the  same,  require.  In  all  cases  of 
suits  for  or  against  such  receiver  or  the  corporation  of  which  he  may 
be  receiver,  writs  may  issue  in  favor  of  such  receiver  or  corporation, 
or  against  him  or  it,  from  the  county  where  the  cause  of  action 
accrued  to  the  sheriff  of  any  county  in  this  State  for  service.  [As 
amended  by  act  approved  May  22,  1877;  in  force  July  1,  1877. 

§  26.  Foreign  corporations,  and  the  officers  and  agents  thereof, 
doing  business  in  this  State,  shall  be  subjected  to  all  the  liabilities, 
restrictions  and  duties  that  are  or  may  be  imposed  upon  corporations 
of  like  character  organized  under  the  general  laws  of  this  State,  and 
shall  have  no  other  or  greater  powers.  And  no  foreign  or  domestic 
corporation  established  or  maintained  in  any  way  for  the  pecuniary 


42  MATERIALS    OF    CORPORATION    FINANCE 

profit  of  its  stockholders  or  members,  shall  purchase  or  hold  real 
estate  in  this  State  except  as  provided  for  in  this  act. 

§  27.  The  certified  copy  of  any  articles  of  incorporation,  and 
changes  thereof,  together  with  all  indorsements  thereon,  under  the 
great  seal  of  the  State  of  Illinois,  shall  be  taken  and  received  in  all 
courts  and  places  as  prima  facie  evidence  of  the  facts  therein  stated. 

§  28.  Nothing  in  this  act  shall  be  construed  to  allow  the  construc- 
tion or  operation  of  any  street  railroad  in  any  city,  town  or  incorpo- 
rated village,  without  the  consent  of  the  local  authorities  thereof. 

§  28£.  It  shall  be  unlawful  for  the  Secretary  of  State  to  issue  a 
license  for  any  person  or  persons  to  incorporate,  under  the  name  of 
any  heretofore  existing  corporation  organized  under  any  general  law 
of  this  State,  until  the  expiration  of  thirty  days  from  and  after  the 
expiration  of  the  existence  of  such  corporation:  Provided,  that  the 
corporation  enjoying  such  name  shall  have  the  exclusive  privilege  of 
becoming  incorporated  under  the  same  name  at  any  time  within  the 
said  thirty  days,  according  to  the  provisions  of  the  act  to  which  this 
is  an  amendment.  [Added  by  act  approved  June  16,  1887;  in  force 
July  1,  1887.] 


MATERIALS    OF   CORPORATION    FINANCE  43 


We,  the  undersigned,  all  being  of  full  age  and  at  least  two-thirds 
being  citizens  of  the  United  States  of  America  and  at  least  one  being 
a  resident  of  the  State  of  New  York,  desiring  to  form  a  corporation 
pursuant  to  the  provisions  of  the  Business  Corporations  Law  of  the 
State  of  New  York,  DO  HEREBY  CERTIFY: 

First:  The  name  of  the  proposed  corporation  is  THE  WISCONSIN 
EDISON  COMPANY,  INCORPORATED. 

Second:  The  purposes  for  which  it  is  to  be  formed  are  as  follows: 

To  acquire  by  purchase,  subscription,  or  otherwise  and  to  invest  in, 
hold  for  investment  or  otherwise,  and  to  trade  and  deal  in  and  to  use, 
sell,  pledge  or  otherwise  dispose  of  the  stock,  bonds  and  other  evi- 
dences of  indebtedness  of  any  corporation,  domestic  or  foreign,  and 
issue  in  exchange  therefor  its  stock,  bonds  or  other  obligations,  and 
while  owner  of  any  such  stocks,  bonds,  and  other  evidences  of  indebt- 
edness to  exercise  all  the  rights,  powers  and  privileges  of  ownership, 
including  the  right  to  vote  thereon  for  any  and  all  purposes;  to  aid 
by  loan,  subsidy,  guaranty  or  in  any  other  manner  whatsoever,  so  far 
as  the  same  may  be  permitted  in  the  case  of  corporations  organized 
under  the  Business  Corporations  Law,  any  corporation  whose  stocks, 
bonds,  securities  or  other  obligations  are  in  any  manner  held  or  guar- 
anteed, and  to  do  any  and  all  other  acts  or  things  for  the  preservation, 
protection,  improvement  or  enhancement  in  value  of  any  such  stocks, 
bonds,  securities  or  other  obligations ;  and  to  do  all  and  any  such  acts 
or  things  designed  to  accomplish  any  such  purpose. 

To  acquire,  hold,  own,  dispose  of  and  generally  deal  in  grants, 
concessions,  franchises  and  contracts  of  every  kind;  to  cause  to  be 
formed,  to  promote  and  to  aid  in  any  way  in  the  formation  of  any 
corporation,  domestic  or  foreign. 

To  act  as  financial  or  business  agent  for  domestic  and  foreign  cor- 
porations, individuals,  partnerships,  associations,  states,  governments 
or  other  bodies. 

To  borrow  money,  to  issue  bonds,  debentures,  notes  and  other  obli- 
gations, secured  or  unsecured,  of  the  corporation,  from  time  to  time, 
for  moneys  borrowed,  or  in  payment  for  property  acquired,  or  for 
any  of  the  other  objects  or  purposes  of  the  corporation,  or  for  any 
of  the  objects  of  its  business;  to  secure  the  same  by  mortgage  or 
mortgages,  or  deed  or  deeds  of  trust,  or  pledge  or  other  lien  upon  any 

i  Certificate  of   Incorporation   of   the   Wisconsin   Edison   Company,   Incor- 
porated. • 
3 


44 

or  all  of  the  property,  rights,  privileges  or  franchises  of  the  corpora- 
tion, wheresoever  situated,  acquired  or  to  be  acquired ;  to  confer  upon 
the  holders  of  any  debenture  or  other  bonds  of  the  corporation,  secured 
or  unsecured,  the  right  to  convert  the  principal  thereof  into  preferred 
or  common  stock  of  the  corporation  upon  such  terms  and  conditions 
as  shall  be  fixed  by  the  Board  of  Directors;  to  sell,  pledge  or  other- 
wise dispose  of  any  or  all  debenture  or  other  bonds,  notes  and  other 
obligations  in  such  manner  and  upon  such  terms  as  the  Board  of 
Directors  may  deem  judicious;  and  to  guarantee  the  payment  of  any 
dividends  upon  stocks,  or  the  principal  or  interest  upon  bonds,  or  the 
contracts  or  other  obligations  of  any  corporation  or  individual,  so  far 
as  the  same  may  be  permitted  in  the  case  of  corporations  organized 
under  the  Business  Corporations  Law. 

To  conduct  its  business  and  all  or  any  of  its  branches,  so  far  as 
permitted  by  law  in  the  State  of  New  York  and  in  other  states  of  the 
United  States  of  America  and  in  the  territories  and  the  District  of 
Columbia  and  in  any  and  all  dependencies,  colonies  or  possessions  of 
the  United  States  of  America  and  foreign  countries;  and  for  and  in 
connection  with  such  business  to  hold,  possess,  purchase,  mortgage 
and  convey  real  and  personal  property,  and  to  maintain  offices  and 
agencies  either  within  or  anywhere  without  the  State  of  New  York. 

In  general  to  do  any  and  all  things  and  exercise  any  and  all  powers 
which  may  now  or  hereafter  be  lawful  for  the  corporation  to  do  or 
exercise  under  and  in  pursuance  of  the  Business  Corporations  Law 
of  the  State  of  New  York,  or  of  any  other  law  that  may  be  now  or 
hereafter  applicable  to  the  corporation. 

Third:  The  number  of  shares  of  capital  stock  that  may  be  issued 
by  said  corporation  is  three  hundred  thousand  (300,000),  of  which 
one  hundred  thousand  (100,000)  of  the  amount  or  par  value  of  one 
hundred  dollars  ($100)  each  are  to  be  preferred  stock,  and  two  hun- 
dred thousand  (200,000)  which  shall  have  no  nominal  or  par  value 
are  to  be  common  stock. 

Fourth:  The  holders  of  the  preferred  stock  shall  be  entitled  to 
cumulative  dividends  thereon  at  the  rate  of  six  dollars  ($6)  per 
share  or  six  per  centum  of  the  amount  or  par  value  for  each  and 
every  fiscal  year  of  the  life  of  the  corporation  and  no  more,  payable 
out  of  any  and  all  surplus  or  net  profits,  quarterly,  half-yearly  or 
yearly,  as  and  when  declared  by  the  Board  of  Directors,  before  any 
dividends  shall  be  declared,  set  apart  for,  or  paid  upon  the  common 
stock  of  the  corporation.  Said  dividends  on  the  preferred  stock  shall 
be  cumulative,  so  that  if  the  corporation  shall  fail  in  any  fiscal  year 
to  pay  such  dividends  on  all  of  the  issued  and  outstanding  preferred 
stock,  such  deficiency  in  the  dividends  shall  be.  fully  paid,  but  with- 


MATERIALS    OF   CORPORATION    FINANCE  45 

out  interest,  before  any  dividends  shall  be  paid  or  set  apart  on  the 
common  stock.  Subject  to  the  foregoing  provisions  said  preferred 
stock  shall  not  be  entitled  to  participate  in  any  other  or  additional 
earnings  or  profits  of  the  corporation. 

In  the  event  of  the  dissolution  or  liquidation  of  the  corporation, 
or  a  sale  of  all  its  assets  (whether  voluntary  or  involuntary)  or  in 
event  of  its  insolvency  or  upon  any  distribution  of  its  capital,  there 
shall  be  paid  to  the  holders  of  the  preferred  stock  the  par  value 
thereof,  to  wit,  one  hundred  dollars  ($100)  per  share  and  the  amount 
of  all  unpaid  accrued  dividends  thereon,  before  any  sum  shall  be 
paid  or  any  assets  distributed  among  the  holders  of  the  common 
stock;  and  after  the  payment  to  the  holders  of  the  preferred  stock 
of  its  par  value  and  the  unpaid  accrued  dividends  thereon,  the  re- 
maining assets  and  funds  of  the  corporation  shall  be  divided  among 
and  paid  to  the  holders  of  the  common  stock  according  to  their 
respective  shares. 

The  Board  of  Directors  may  in  their  discretion  declare  and  pay 
dividends  on  the  common  stock  concurrently  with  dividends  on  the 
preferred  stock,  for  any  dividend  period  of  any  fiscal  year  when  such 
dividends  are  applicable  to  the  common  stock;  provided  that  all 
accumulated  dividends  on  the  preferred  stock  for  all  previous  fiscal 
years  and  all  dividends  on  the  preferred  stock  for  previous  dividend 
periods  for  that  fiscal  year  shall  have  been  paid  in  full. 

The  whole  of  the  preferred  stock  may  be  redeemed  on  any  divi- 
dend day  at  the  option  of  the  Board  of  Directors,  upon  sixty  (60) 
days'  notice  by  mail  to  the  holders  of  record  of  such  stock  as  may 
be  prescribed  by  the  by-laws  or,  in  the  absence  of  any  by-law  upon  the 
subject,  by  resolution  of  its  Board  of  Directors,  by  paying  for  each 
share  of  the  preferred  stock  one  hundred  and  fifteen  dollars  ($115) 
in  cash,  and  in  addition  thereto  all  unpaid  dividends  accrued  thereon 
at  the  date  fixed  for  such  redemption. 

From  time  to  time  the  preferred  stock  and  the  common  stock  may 
be  increased  according  to  law  and  may  be  issued  in  such  amounts 
and  proportions  as  shall  be  determined  by  the  Board  of  Directors 
and  as  may  be  prescribed  by  law. 

Fifth:  The  amount  of  capital  with  which  the  corporation  will 
carry  on  business  is  twelve  million  dollars  ($12,000,000). 

Sixth:  The  corporation  may  issue  and  may  sell  its  authorized 
shares  from  time  to  time  for  such  consideration  as  may  from  time 
to  time  be  fixed  by  the  Board  of  Directors,  and  the  consideration  so 
fixed  for  shares  of  the  preferred  stock  may  be  either  greater  or  less 
than  their  par  value. 

Seventh:  The  principal  business  office  of  the  corporation  is  to  be 


£6        SHARES  WITHOUT  PAR  VALUE 

located  in  the  Borough  of  Manhattan,  City,  County  and  State  of  New 
York. 

Eighth:   The  duration  of  the  corporation  is  to  be  perpetual. 

Ninth:  The  number  of  its  directors  is  to  be  nine.  Three  directors 
shall  be  elected  in  each  year,  and  the  term  of  office  of  each  director, 
except  as  provided  in  the  next  section  hereof,  shall  be  three  years  or 
until  his  successor  shall  be  chosen. 

Tenth:  The  names  and  post  office  addresses  of  the  directors  for 
the  first  year  and  the  term  of  office  of  each  are  as  follows: 

NAMES  ADDRESSES 

To  serve  until  the  first  annual  meeting. 

Henry  H.  Pierce,  49  Wall     Street,  New  York,  N.  Y. 

Edward  H.  Green,  49  Wall     Street,  New  York,  N.  Y. 

Frederick  H.  Piske,  30  Broad  Street,  New  York,  N.  Y. 

To  serve  until  the  second  annual  meeting. 

James  D.  Mortimer,  30  Broad  Street,  New  York,  N.  Y. 

John  Foster  Dulles,  49  Wall     Street,  New  York,  N.  Y. 

Thomas  H.  Ryan,  30  Broad  Street,  New  York,  N.  Y. 

To  serve  until  the  third  annual  meeting. 

James  Campbell,  30  Broad  Street,  New  York,  N.  Y. 

John  K.  Byard,  49  Wall     Street,  New  York,  N.  Y. 

Emerson  D.  Pray,  30  Broad  Street,  New  York,  N.  Y. 

Eleventh:  The  names  and  post  office  addresses  of  the  subscribers 
to  this  certificate,  and  the  number  of  shares  of  stock  which  each  agrees 
to  take  in  the  corporation  are  as  follows: 

NAMES       ADDRESSES     NO.  OF  SHARES 

Here  follows  names  and  addresses  of  subscribers. 

Twelfth:  No  preferred  stockholder  shall  be  entitled  to  subscribe 
for,  purchase,  or  receive  any  part  of  any  new  or  additional  issue  of 
stock,  or  of  any  issue  of  bonds  or  debentures  convertible  into  stock. 

The  Board  of  Directors  may  appoint  an  Executive  Committee  from 
among  their  number,  which  Committee,  to  the  extent  provided  in  the 
By-laws  of  the  Corporation,  shall  have  and  may  exercise  all  of  the 
powers  of  the  Board  of  Directors  in  the  management  of  the  business 
and  affairs  of  the  corporation  during  the  intervals  between  the  meet- 
ings of  the  Board  of  Directors,  so  far  as  may  be  permitted  by  law. 

In  Witness  Whereof,  we  have  made,  signed  and  acknowledged  this 
certificate  this  4th  day  of  November,  1912. 

Here  follows  names  of  subscribers  and  their  acknowledgments. 


MATERIALS    OF   CORPORATION    FINANCE  47 


AN    ACT    IN    RELATION    TO    CORPORATIONS    HAVING 

SHARES   OF   CAPITAL   STOCK   WITHOUT 

NOMINAL  OR  PAR   VALUE1 

The  People  of  the  State  of  New  York,  represented  in  Senate  and 
Assembly,  do  enact  as  follows: 

SECTION  1.  Article  two  of  chapter  sixty-one  of  the  laws  of  nine- 
teen hundred  and  nine,  entitled  "An  act  relating  to  stock  corpora- 
tions, constituting  chapter  fifty-nine  of  the  consolidated  laws,"  is 
hereby  amended  by  adding  at  the  end  of  said  article  five  new  sections, 
to  be  sections  nineteen,  twenty,  twenty-one,  twenty-two  and  twenty- 
three  of  such  chapter,  to  read  respectively  as  follows: 

§  19.  Issuance  of  Shares  of  Stock  Without  Nominal  or  Par  Value. 
— Upon  the  formation  or  the  reorganization  of  any  stock  corporation, 
other  than  a  moneyed  corporation,  and  other  than  a  corporation  under 
the  jurisdiction  of  any  public  service  commission,  the  certificate  of 
incorporation  may  provide  for  the  issuance  of  the  shares  of  stock  of 
such  corporation,  other  than  preferred  stock  having  a  preference  as 
to  principal,  without  any  nominal  or  par  value  by  stating  in  such 
certificate : 

(1)  The  number  of  shares  that  may  be  issued  by  the  corporation, 
and  if  any  of  such  shares  be  preferred  stock,  the  preferences  thereof. 
If  such  preferred  stock  or  any  part  thereof  shall  have  a  preference 
as  to  principal,  the  certificate  shall  state  the  amount  of  such  preferred 
stock  having  such  preference,  the  particular  character  of  such  prefer- 
ences, and  the  amount  of  each  share  thereof,  which  shall  be  five  dol- 
lars or  some  multiple  of  five  dollars,  but  not  more  than  one  hundred 
dollars. 

(2)  The  amount  of  capital  with  which  the  corporation  will  carry 
on  business,  which  amount  shall  be  not  less  than  the  amount  of  pre- 
ferred stock  (if  any)  authorized  to  be  issued  with  a  preference  as  to 
principal,  and  in  addition  thereto  a  sum  equivalent  to  five  dollars 
or  to  some  multiple  of  five  dollars  for  every  share  authorized  to  be 
issued  other  than  such  preferred  stock;  but  in  no  event  shall  the 
amount  of  such  capital  be  less  than  five  hundred  dollars. 

Such  statements  in  the  certificates  shall  be  in  lieu  of  any  statements 
prescribed  by  the  law  under  which  the  corporation  shall  have  been 
formed  or  reorganized  as  to  the  amount  or  the  maximum  amount 
of  its  capital  stock  or  the  number  of  shares  into  which  the  same  shall 
be  divided,  or  of  the  amount  or  the  par  value  of  such  shares. 

Each  share  of  such  stock  without  nominal  or  par  value  shall  be 

i  Laws  of  the  State  of  New  York,  1912,  Chapter  351. 


48        SHARES  WITHOUT  PAR  VALUE 

equal  to  every  other  share  of  such  stock,  subject  to  the  preferences 
given  to  the  preferred  stock  if  any  authorized  to  be  issued.  Every 
certificate  for  such  shares  without  nominal  or  par  value  shall  have 
plainly  written  or  printed  upon  its  face  the  number  of  such  shares 
which  it  represents  and  the  number  of  such  shares  which  the  corpo- 
ration is  authorized  to  issue,  and  no  such  certificate  shall  express  any 
nominal  or  par  value  of  such  shares.  Tbe  certificates  for  preferred 
shares  having  a  preference  as  to  principal  shall  state  briefly  the 
amount  which  the  holders  of  each  of  such  preferred  shares  shall  be 
entitled  to  receive  on  account  of  principal  from  the  surplus  assets 
of  the  corporation  in  preference  to  the  holders  of  other  shares,  and 
shall  state  briefly  any  other  rights  or  preferences  given  to  the  holders 
of  such  shares. 

Such  corporation  may  issue  and  may  sell  its  authorized  shares, 
from  time  to  time,  for  such  consideration  as  may  be  prescribed  in  the 
certificate  of  incorporation,  or  as  from  time  to  time  may  be  fixed  by 
the  board  of  directors  pursuant  to  authority  conferred  in  such  cer- 
tificate, or  if  such  certificate  shall  not  so  provide,  then  by  the  consent 
of  the  holders  of  two-thirds  of  each  class  of  shares  then  outstanding 
given  at  a  meeting  called  for  that  purpose  in  such  manner  as  shall 
be  prescribed  by  the  by-laws.  Any  and  all  shares  issued  as  permitted 
by  this  section  shall  be  deemed  fully  paid  and  non-asssessable  and 
the  holder  of  such  shares  shall  not  be  liable  to  the  corporation  or  to 
its  creditors  in  respect  thereof. 

§  20.  Commencement  of  Business;  Authorized  Debts. — No  cor- 
poration formed  pursuant  to  section  nineteen  hereof  shall  begin  to 
carry  on  business  or  shall  incur  any  debts  until  the  amount  of  capital 
stated  in  its  certificate  of  incorporation  shall  have  been  fully  paid 
in  money,  or  in  property  taken  at  its  actual  value.  In  case  the 
amount  of  capital  stated  in  its  certificate  of  incorporation  shall  be 
increased  as  herein  provided,  such  corporation  shall  not  increase  the 
amount  of  its  indebtedness  then  existing  until  it  shall  have  received 
in  money  or  property  the  amount  of  such  increase  of  its  stated  capital. 
The  directors  of  the  corporation  assenting  to  the  creation  of  any  debt 
in  violation  of  this  section  shall  be  liable  jointly  and  severally  for 
such  debt;  but  no  action  shall  be  brought  under  the  foregoing  pro 
vision  of  this  section  unless  within  one  year  after  the  debt  shall  have 
been  incurred  the  creditor  shall  have  served  upon  the  director  written 
notice  of  intention  to  hold  him  personally  liable  for  such  debt.  Any 
director  who,  because  of  any  such  liability  under  this  section,  shall 
pay  any  debt  of  the  corporation,  shall  be  subrogated  to  all  rights  of 
the  creditor  in  respect  thereof  against  the  corporation  and  its  prop- 
erty and  also  shall  be  entitled  to  contribution  from  all  other  directors 


MATEEIALS    OF   CORPORATION    FINANCE  49 

of  the  corporation  similarly  liable  for  the  same  debt  and  the  personal 
representative  of  any  such  director  who  shall  have  died  before  mak- 
ing such  contribution. 

No  such  corporation  shall  declare  any  dividend  which  shall  reduce 
the  amount  of  its  capital  below  the  amount  stated  in  the  certificate 
as  the  amount  of  capital  with  which  the  corporation  will  carry  on 
business.  In  case  any  such  dividend  shall  be  declared,  the  directors 
in  whose  administration  the  same  shall  have  been  declared,  except 
those  who  may  have  caused  their  dissent  therefrom  to  be  entered  upon 
the  minutes  of  such  directors  at  the  time  or  who  were  not  present  when 
such  action  was  taken,  shall  be  liable  jointly  and  severally  to  such 
corporation  and  to  the  creditors  thereof  to  the  full  amount  of  any 
loss  sustained  by  such  corporation  or  by  its  creditors  respectively  by 
reason  of  such  dividend. 

§  21.  Taxation. — The  organization  tax  payable  under  section  one 
hundred  and  eighty  of  the  tax  law  by  any  corporation  issuing  such 
shares  without  designated  monetary  value  shall  be  at  the  rate  of  five 
cents  on  each  such  share  which  the  corporation  is  authorized  to  issue, 
and  a  like  tax  upon  any  subsequent  increase  thereof.  The  tax  pay- 
able under  section  two  hundred  and  seventy  of  the  tax  law  in  respect 
of  any  sale  or  agreement  of  sale  or  any  memorandum  of  sale  or  de- 
livery or  transfer  of  shares  or  certificates  of  any  share  without  desig- 
nated monetary  value  hereafter  issued  by  any  such  corporation  issuing 
such  shares  shall  be  at  the  rate  of  two  cents  for  each  and  every  share 
of  such  stock  so  transferred.  The  franchise  tax  upon  any  corporation 
issuing  such  shares  of  stock  payable  under  section  one  hundred  and 
eighty-two  of  the  tax  law  shall  be  determined  by  the  amount  of  the 
gross  assets  of  such  corporation  employed  in  any  business  within  this 
State,  less  such  proportion  of  its  liabilities  as  shall  represent  the 
ratio  of  its  gross  assets  employed  in  any  business  within  this  State 
to  its  entire  gross  assets  wherever  employed  in  business,  and  the  rate 
of  such  franchise  tax  shall  be  fixed  in  the  manner  provided  in  said 
section  one  hundred  and  eighty-two  of  the  tax  law.  For  this  pur- 
pose the  rate  of  dividends  shall  be  computed  by  dividing  the  total 
amount  of  dividends  which  have  been  paid  during  the  year  by  the 
amount  of  assets  of  the  corporation  upon  the  first  day  of  such  year. 

§  22.  Increase  or  Reduction  of  Shares  or  Capital. — Any  corpora- 
tion formed  or  reorganized  pursuant  to  section  nineteen  may  amend 
its  certificate  of  incorporation  so  as  to  increase  or  to  reduce  the  num- 
ber of  shares  which  it  may  issue,  or  so  as  to  increase  or  to  reduce  the 
amount  of  its  stated  capital,  by  filing,  in  the  manner  provided  for 
the  original  certificate  of  incorporation,  a  certificate  of  amendment 
under  seal  executed  by  its  president  or  a  vice-president  and  by  its 


50        SHAEES  WITHOUT  PAR  VALUE 

secretary  or  its  treasurer,  stating  the  amendment  proposed  and  that 
the  same  has  been  duly  authorized  by  a  vote  of  a  majority  of  the 
directors  and  also  by  the  vote  of  the  holders  of  at  least  three-fifths 
of  the  outstanding  shares  of  each  class  issued  by  the  corporation,  at 
a  meeting  of  the  stockholders  called  for  the  purpose  in  the  manner 
provided  in  section  sixty-three  hereof,  and  by  filing  with  such  cer- 
tificate of  amendment  a  copy  of  the  proceedings  of  such  meeting, 
made,  signed,  verified  and  acknowledged  by  the  president  or  a  vice- 
president  and  by  the  secretary  or  the  treasurer  of  the  corporation; 
but  an  amendment  cannot  be  made  under  this  section  unless  as  so 
amended  the  certificate  of  incorporation  could  lawfully  have  been 
filed  under  section  nineteen  of  this  chapter.  In  case  of  a  reduction 
of  the  amount  of  capital  of  a  corporation,  a  certificate  setting  forth 
the  whole  amount  of  the  ascertained  debts  and  liabilities  of  the  cor- 
poration shall  be  made,  signed,  verified  and  acknowledged  by  the 
president  or  a  vice-president  and  by  the  secretary  or  the  treasurer  of 
the  corporation  and  shall  be  filed  with  the  certificate  of  amendment; 
and  such  certificate  of  amendment  shall  have  endorsed  thereon  the 
approval  of  the  comptroller  to  the  effect  that  as  so  stated  the  reduced 
amount  of  capital  is  sufficient  for  the  proper  purposes  of  the  corpo- 
ration and  is  in  excess  of  its  ascertained  debts  and  liabilities. 

§  23.  Amount  of  Capital  Stock  and  of  Shares  Within  Meaning 
of  Other  Laws. — For  the  purpose  of  any  rule  of  law  or  of  any  statu- 
tory provision  (other  than  the  foregoing  sections  nineteen,  twenty, 
twenty-one  and  twenty-two)  relating  to  the  amount  of  the  capital  stock 
of  a  corporation  or  the  amount  or  par  value  of  its  shares,  the  aggre- 
gate amount  of  the  capital  stock  of  any  such  corporation  formed 
pursuant  to  section  nineteen  hereof  shall  be  deemed  to  be  the  aggre- 
gate amount  specified  in  the  certificate  or  amended  certificate  of 
incorporation  or  of  reorganization  as  the  amount  of  capital  with 
which  the  corporation  will  carry  on  business;  the  amount  or  the  par 
value  of  each  share  of  preferred  stock  having  a  preference  as  to  prin- 
cipal shall  be  deemed  to  be  the  amount  thereof  so  specified  in  such 
certificate  or  such  amended  certificate;  and  the  amount  or  the  par 
value  of  each  other  share  shall  be  deemed  to  be  an  aliquot  part  of 
the  aggregate  capital  so  specified  in  such  certificate  or  in  such  amended 
certificate  in  excess  of  the  specified  amount  (if  any)  of  the  preferred 
stock  therein  authorized  to  be  issued  with  a  preference  as  to  principal. 

SECTION  2.     This  act  shall  take  effect  immediately. 

Approved  by  the  Governor  April  15,  1912. 


MATERIALS    OF    CORPORATION    FINANCE 


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54  CERTIFICATE    OF    INCORPORATION 


CERTIFICATE  OF  INCORPORATION  OF  THE  ATCHISON, 
TOPEKA  AND  SANTA  FE  RAILWAY  COMPANY 

State  of  Kansas, 
Shawnee  County, 

Whereas,  The  Atchison,  Topeka  and  Santa  Fe  Railroad  Company, 
a  corporation  created  by  an  Act  of  the  Territory  of  Kansas,  entitled 
"An  Act  incorporating  the  Atchison  and  Topeka  Railroad  Company,'' 
approved  February  11,  1859,  and  existing  under  the  laws  of  said  ter- 
ritory and  of  the  State  of  Kansas,  did,  on  the  15th  day  of  October, 
1889,  execute  its  certain  mortgage  or  deed  of  trust  to  the  Union  Trust 
Company  of  New  York,  as  trustee,  to  secure  the  bonds  of  said  Atchi- 
son, Topeka  and  Santa  Fe  Railroad  Company,  issued  under  and  pur- 
suant to  said  mortgage  or  deed  of  trust,  and  in  and  by  said  mortgage 
or  deed  of  trust,  mortgaged  and  conveyed  to  said  Union  Trust  Com- 
pany of  New  York,  as  trustee,  all  of  its  railroad  constructed  in  the 
State  of  Kansas,  running  from  Atchison  on  the  Missouri  River, 
through  Topeka,  to  a  point  on  the  western  boundary  of  the  State  of 
Kansas,  being  about  four  hundred  and  seventy  and  fifty-eight  hun- 
dredths  (470.58)  miles  in  length,  together  with  all  the  appurtenances 
thereof,  including  telegraphs  and  telephones,  and  all  franchises,  rights, 
privileges  and  immunities,  then  or  thereafter  pertaining  to  said  rail- 
road, telegraphs,  telephones  and  other  property,  or  the  appurtenances 
and  appendages  thereof;  and  all  property,  real  and  personal,  of  every 
name  and  nature  whatsoever  and  wheresoever  situated,  including  all 
shares  of  the  capital  stock  and  bonds  of  other  corporations,  whether 
then  possessed  or  thereafter  acquired  by  the  said  Atchison,  Topeka 
and  Sante  Fe  Railroad  Company,  for  the  purposes  of  the  construc- 
tion, equipment,  maintenance  or  operation  of  the  said  railroad,  tele- 
graphs, telephones  and  other  property,  or  for  use  in  connection  there- 
with, or  with  any  or  all  of  the  same;  together  with  all  the  revenues, 
income,  profits,  benefits  and  advantages  of,  or  in  any  way  growing 
out  of,  any  or  all  of-  the  said  above-described  property;  and  also 
certain  stocks  and  bonds  mentioned  and  described  in  said  mortgage 
and  then  owned  or  thereafter  to  be  acquired  by  said  Atchison,  Topeka 
and  Santa  Fe  Railroad  Company;  and 

Whereas,  Thereafter,  and  on  or  about  the  27th  day  of  August. 
1895,  the  Circuit  Court  of  the  United  States  for  the  District  of 
Kansas,  the  same  being  a  court  of  competent  jurisdiction,  made  and 
entered  a  certain  judgment  or  decree  foreclosing  said  mortgage  or 
deed  of  trust,  which  judgment  or  decree  was  entered  in  a  certain 
consolidated  cause  pending  in  said  court,  wherein  the  Union  Trust 


CHARTER  OF  ATCHISON,  TOPEKA  &  SANTA  FE  RY.    55 

Company  of  New  York,  the  trustee  under  said  mortgage  or  deed  of 
trust,  was  a  complainant,  and  said  Atchison,  Topeka  and  Santa  F6 
Railroad  Company  was  a  defendant;  and 

Whereas,  The  said  railroad,  properties  and  franchises,  on  the  tenth 
day  of  December,  1895,  were  duly  sold  in  pursuance  of  the  said  judg- 
ment or  decree  of  said  court  to  Edward  King,  Charles  C.  Seaman 
and  Victor  Morawetz,  all  of  the  City  of  New  York,  N.  Y.,  and  such 
sale  having  been  duly  confirmed  by  said  court,  the  said  railroad,  prop- 
erties and  franchises,  in  pursuance  of  said  judgment  or  decree  and  the 
orders  of  said  court  made  thereon,  were  conveyed  by  deed,  executed 
by  John  B.  Johnson,  Special  Master  in  Chancery,  appointed  by  said 
court  in  said  cause,  to  the  said  Edward  King,  Charles  C.  Beaman 
and  Victor  Morawetz,  as  joint  tenants  and  not  as  tenants  in  common, 
who  thereby  acquired  title  to  said  railroad,  properties  and  franchises 
under  such  sale;  and  the  said  purchasers,  and  their  associates,  suc- 
cessors and  assigns,  under  and  by  virtue  of  the  laws  of  the  State  of 
Kansas  in  such  case  made  and  provided,  did  thereby  have  and  acquire 
and  become  entitled  thereafter  to  exercise  and  enjoy,  all  the  rights, 
privileges,  grants,  franchises,  immunities  and  advantages  in  and  by 
said  mortgage  or  deed  of  trust  conveyed,  which  belonged  to  and  were 
enjoyed  by  said  Atchison,  Topeka  and  Santa  F6  Railroad  Company, 
so  far  as  the  same  relate  and  appertain  to  said  railroad,  described  in 
and  conveyed  by  said  mortgage  or  deed  of  trust  as  above  set  forth ;  and 

Whereas,  The  said  Edward  King,  Charles  C.  Beaman  and  Victor 
Morawetz,  the  said  purchasers,  for  the  purpose  of  organizing  a  new 
corporation  under  and  in  pursuance  of  the  laws  of  the  State  of 
Kansas,  have  associated  with  themselves  the  following  named  per- 
sons, viz. : 

EDWARD  P.  RIPLEY,  who  is  a  citizen  of  the  State  of  Illinois, 

residing  at  the  City  of  Chicago. 
ALDACE  F.  WALKER,  who  is  a  citizen  of  the  State  of  Illinois, 

residing  at  the  City  of  Chicago. 

BENJAMIN  P.  CHENEY,  who  is  a  citizen  of  the  State  of  Massa- 
chusetts, residing  at  the  City  of  Dover. 
EDWARD  N.  GIBBS,  who  is  a  citizen  of  the  State  of  New  York, 

residing  at  the  City  of  New  York. 
CHARLES  S.  GLEED,  who  is  a  citizen  of  the  State  of  Kansas,  re.-i.l  • 

ing  at  the  City  of  Topeka. 
R.  SOMERS  HAYES,  who  is  a  citizen  of  the  State  of  New  York, 

residing  at  the  City  of  New  York. 
GEORGE  G.  HAVEN,  who  is  a  citizen  of  the  State  of  New  York, 

residing  at  the  City  of  New  York. 


56  CERTIFICATE    OF   INCORPORATION 

CYRUS  K.  HOLLIDAY,  who  is  a  citizen  of  the  State  of  Kansas, 
residing  at  the  City  of  Topeka. 

THOMAS  A.  OSBORN,  who  is  a  citizen  of  the  State  of  Kansas,  resid- 
ing at  the  City  of  Topeka. 

WILLIAM  ROTCH,  who  is  a  citizen  of  the  State  of  Massachusetts, 
residing  at  the  City  of  Boston. 

EDWARD  WILDER,  who  is  a  citizen  of  the  State  of  Kansas,  resid- 
ing at  the  City  of  Topeka. 

Whereas,  The  said  purchasers  and  their  said  associates  have  organ- 
ized themselves  and  do  hereby  organize  themselves  as  a  new  corpora- 
tion as  hereinafter  in  this  certificate  set  forth : 

Now,  therefore,  The  undersigned,  being  the  said  purchasers,  and 
their  associates,  do  hereby  certify  and  state  as  follows: 

First.  The  name  of  the  corporation  formed  by  the  undersigned  is 
THE  ATCHISON,  TOPEKA  AND  SANTA  FE  RAILWAY  COMPANY. 

Second.  The  purposes  for  which  such  corporation  is  formed  are 
as  follows : 

To  acquire,  construct,  own,  maintain  and  operate  a  rail- 
way running  from  the  City  of  Atchison  on  the  Missouri 
River,  in  the  State  of  Kansas,  through  Topeka  to  a  point  on 
the  western  boundary  of  the  State  of  Kansas,  through  the 
counties  of  Atchison,  Jefferson,  Shawnee,  Osage,  Lyon, 
Chase,  Marion,  Harvey,  Reno,  Rice,  Barton,  Pawnee,  Ed- 
wards, Ford,  Gray,  Finney,  Kearney  and  Hamilton,  and  a 
telegraph  line  in  connection  with  said  railway,  together  with 
all  the  appurtenances  thereof,  the  estimated  length  of  which 
railway  is  four  hundred  and  seventy  and  fifty-eight  hun- 
dredths  (470.58)  miles;  and  also  to  acquire,  own,  use  and 
enjoy  the  railroad  and  appurtenances,  franchises,  rights, 
privileges  and  immunities,  stocks  and  bonds,  and  all  other 
properties  acquired  by  said  purchasers  at  said  sale  as  above 
recited ; 

Third.  The  place  or  places  where  the  business  of  said  corporation 
is  to  be  transacted  are  the  City  of  Topeka,  in  the  County  of  Shawnee. 
in  the  State  of  Kansas,  and  such  other  places  and  cities  upon  the  line 
of  said  railway,  or  any  of  its  branches,  or  leased,  operated  or  con- 
trolled lines,  as  may  from  time  to  time  be  deemed  desirable,  and  at 
such  other  points  or  places  where  any  business  may  be  legally  done 
by  it  in  the  exercise  and  enjoyment  of  its  rights,  powers  and  priv- 
ileges. 


MATERIALS   OF   CORPORATION    FINANCE  57 

Fourth.  The  term  for  which  this  corporation  is  to  exist  is  nine 
hundred  and  ninety-nine  (999)  years. 

Fifth.  The  number  of  its  directors  shall  be  fifteen,  and  the  names 
and  residences  of  those  who  are  appointed  for  the  first  year  are  as 
follows : 

Names.  Residences. 

Edward  P.  Ripley Chicago,  111. 

Aldace  F.  Walker Chicago,  111. 

Benjamin  P.  Cheney Dover,  Mass. 

Edward  N.  Gibbs New  York,  N.  Y. 

Charles  S.  Gleed Topeka,  Kan. 

George  G.  Haven New  York,  N.  Y. 

R.  Somers  Hayes New  York,  N.  Y. 

Cyrus  K.  Holliday Topeka,  Kan. 

Victor  Morawetz New  York,  N.  Y. 

Thomas  A.  Osborn Topeka,  Kan. 

William  Rotch   Boston,  Mass. 

Edward  Wilder Topeka,  Kan. 

Robert  Fleming London,  Eng. 

John  Luden   Amsterdam,  Holland. 

and  Herman  Kobbe New  York,  N.  Y. 

Sixth.  The  amount  of  the  capital  stock  of  such  corporation  shall 
be  two  hundred  and  thirty-three  million,  four  hundred  and  eighty-six 
thousand  ($233,486,000)  dollars,  and  the  same  shall  be  divided  into 
two  million  three  hundred  and  thirty-four  thousand  eight  hundred 
and  sixty  (2,334,860)  shares  of  the  par  value  of  one  hundred  ($100) 
dollars  each. 

Of  such  capital  stock  one  million,  three  hundred  and  fourteen 
thousand  eight  hundred  and  sixty  (1,314,860)  shares,  amounting  in 
the  aggregate  to  one  hundred  and  thirty-one  million,  four  hundred 
and  eighty-six  thousand  ($131,486,000)  dollars,  shall  be  five  per 
cent,  non-cumulative  preferred  stock  and 

One  million,  twenty  thousand  (1,020,000)  shares,  amounting  in 
the  aggregate  to  one  hundred  and  two  million  ($102,000,000)  dollars, 
shall  be  common  stock. 

The  holders  of  the  preferred  stock  shall  be  entitled  to  non-cumula- 
tive dividends  in  each  and  every  fiscal  year  beginning  after  the  30th 
day  of  June,  1896,  at  such  rate,  not  exceeding  five  per  centum  per 
annum,  as  shall  be  declared  by  the  Board  of  Directors  of  such  cor- 
poration, in  preference  and  priority  to  any  payment  in  or  for  such 
fiscal  year  of  any  dividend  on  the  common  stock  or  on  any  other 
stock  of  said  company,  but  only  from  undivided  net  profits  when  and 


58     CHARTER  OF  ATCHISON,  TOPEKA  &  SANTA  FE  RY. 

as  determined  by  the  said  Board ;  and  in  case  of  dissolution  or  liquida- 
tion of  said  corporation,  the  holders  of  the  preferred  stock  shall  be 
entitled  to  receive  the  par  amount  of  their  stock  out  of  the  assets  of 
such  corporation  in  priority  to  the  common  stock. 

No  mortgage,  other  than  a  mortgage  to  secure  an  issue  of  seventeen 
million  dollars  of  four  per  cent,  thirty-year  prior  lien  gold  bonds 
and  an  issue  of  one  hundred  and  sixty-five  million  four  hundred  and 
ninety  thousand  five  hundred  dollars  of  general  mortgage  four  per 
cent,  one  hundred  year  gold  bonds,  and  another  mortgage  to  secure 
an  issue  of  not  to  exceed  seventy-one  million  seven  hundred  and 
twenty-eight  thousand  dollars  of  four  per  cent,  one  hundred  year 
adjustment  bonds  (bearing  interest  payable  only  out  of  surplus  net 
earnings  if  earned),  shall  be  executed  by  the  corporation  hereby 
formed,  nor  shall  the  amount  of  the  preferred  stock  of  said  corpora- 
tion be  increased,  unless  the  execution  of  such  mortgage  or  such 
increase  of  the  preferred  stock  shall  have  received  the  consent  of  the 
holders  of  a  majority  of  the  whole  amount  of  the  preferred  stock 
which  shall  at  the  time  be  outstanding,  given  at  a  meeting  of  the 
stockholders  called  for  that  purpose  and  the  consent  of  the  holders 
of  a  majority  of  such  part  of  the  common  stock  as  shall  be  repre- 
sented at  such  meeting. 

In  testimony  whereof,  We  have  hereunto  subscribed  our  names  this 
12th  day  of  December,  1895 : 

Edward  King, 
Charles  C.  Beaman, 
Victor  Morawetz, 
E.  P.  Ripley, 
Aldace  F.  Walker, 
Benj.  P.  Cheney, 
Edward  N.  Gibbs, 
C.  S.  Gleed, 
R.   Somers  Hayes, 
G.  G.  Haven, 
Cyrus  K  Holliday, 
Thomas  A.  Osborn, 
William  Rotch, 
E.  Wilder. 


(Here    follows    the    acknowledgment    and 
Authenticity  of  the  Secretary  of  State.) 


the     Certificate    of 


MATERIALS    OF   CORPORATION    FINANCE  59 

AMENDED  CERTIFICATE  OF  INCORPORATION  OF  UNITED 
STATES  STEEL  CORPORATION. 

We,  the  undersigned,  in  order  to  form  a  corporation  for  the  pur- 
poses hereinafter  stated,  under  and  pursuant  to  the  provisions  of  the 
Act  of  the  Legislature  of  the  State  of  New  Jersey,  entitled  "An  Act 
concerning  corporations  (Revision  of  1896),"  and  the  acts  amendatory 
thereof  and  supplemental  thereto,  do  hereby  certify  as  follows: 

I.  The  name  of  the  corporation  is 

UNITED  STATES  STEEL  CORPORATION. 

II.  The  location  of  its  principal  office  in  the  State  of  New  Jersey 
is  at  No.  51  Newark  Street,  in  the  City  of  Hoboken,  County  of  Hud- 
son.    The  name  of  the  agent  therein  and  in  charge  thereof,  upon 
whom  process   against  the  corporation  may  be  served,  is   Hudson 
Trust  Company.    Said  office  is  to  be  the  registered  office  of  said  cor- 
poration. 

III.  The  objects  for  which  the  corporation  is  formed  are: 

To  manufacture  iron,  steel,  manganese,  coke,  copper,  lumber  and 
other  materials,  and  all  or  any  articles  consisting,  or  partly  consist- 
ing, of  iron,  steel,  copper,  wood  or  other  materials,  and  all  or  any 
products  thereof. 

To  acquire,  own,  lease,  occupy,  use  or  develop  any  lands  contain- 
ing coal  or  iron,  manganese,  stone  or  other 'ores,  or  oil,  and  any 
wood  lands,  or  other  lands  for  any  purpose  of  the  Company. 

To  mine,  or  otherwise  to  extract  or  remove,  coal,  ores,  stone  and 
other  minerals  and  timber  from  any  lands  owned,  acquired,  leased 
or  occupied  by  the  company,  or  from  any  other  lands. 

To  buy  and  sell,  or  otherwise  to  deal  or  to  traffic  in,  iron,  steel, 
manganese,  copper,  stone,  ores,  coal,  coke,  wood,  lumber  and  other 
materials,  and  any  of  the  products  thereof,  and  any  articles  consist- 
ing, or  partly  consisting  thereof. 

To  construct  bridges,  buildings,  machinery,  ships,  boats,  engines, 
cars  and  other  equipment,  railroads,  docks,  slips,  elevators,  water 
works,  gas  works  and  electric  works,  viaducts,  aqueducts,  canals  and 
other  water-ways,  and  any  other  means  of  transportation,  and  to  sell 
the  same,  or  otherwise  to  dispose  thereof,  or  to  maintain  and  operate 
the  same,  except  that  the  Company  shall  not  maintain  or  operate 
any  railroad  or  canal  in  the  State  of  New  Jersey. 

To  apply  for,  obtain,  register,  purchase,  lease,  or  otherwise  to 
acquire,  and  to  hold,  use,  own,  operate  and  introduce,  and  to  sell, 
assign,  or  otherwise  to  dispose  of,  any  trade-marks,  trade  names, 


60    CHAETEK  OF  UNITED  STATES  STEEL  CORPORATION 

patents,  inventions,  improvements  and  processes  used  in  connection 
with,  or  secured  under  letters  patent  of  the  United  States,  or  else- 
where, or  otherwise;  and  to  use,  exercise,  develop,  grant  licenses  in 
respect  of,  or  otherwise  to  turn  to  account  any  such  trade-marks, 
patents,  licenses,  processes,  and  the  like,  or  any  such  property  or 
rights. 

To  engage  in  any  other  manufacturing,  mining,  construction  or 
transportation  business  of  any  kind  or  character  whatsoever,  and 
to  that  end  to  acquire,  hold,  own  and  dispose  of  any  and  all  property, 
assets,  stocks,  bonds  and  rights  of  any  and  every  kind;  but  not  to 
engage  in  any  business  hereunder  which  shall  require  the  exercise 
of  the  right  of  eminent  domain  within  the  State  of  New  Jersey. 

To  acquire  by  purchase,  subscription  or  otherwise,  and  to  hold 
or  to  dispose  of,  stocks,  bonds  or  any  other  obligations  of  any  corpora- 
tion formed  for,  or  then  or  theretofore  engaged  in  or  pursuing,  any 
one  or  more  of  the  kinds  of  business,  purposes,  objects  or  operations 
above  indicated,  or  owning  or  holding  any  property  of  any  kind  herein 
mentioned;  or  of  any  corporation  owning  or  holding  the  stocks  or 
the  obligations  of  any  such  corporation. 

To  hold  for  investment,  or  otherwise  to  use,  sell  or  dispose  of. 
any  stock,  bonds  or  other  obligations  of  any  such  other  corporation; 
to  aid  in  any  manner  any  corporation  whose  stock,  bonds  or  other 
obligations  are  held  or  are  in  any  manner  guaranteed  by  the  Company, 
and  to  do  any  other  acts  or  things  for  the  preservation,  protection, 
improvement  or  enhancement  of  the  value  of  any  such  stock,  bonds 
or  other  obligations,  or  to  do  any  acts  or  things  designed  for  any 
such  purpose;  and,  while  owner  of  any  such  stock,  bonds  or  other 
obligations,  to  exercise  all  the  rights,  powers  and  privileges  of  owner- 
ship thereof,  and  to  exercise  any  and  all  voting  power  thereon. 

The  business  or  purpose  of  the  Company  is  from  time  to  time 
to  do  any  one  or  more  of  the  acts  and  things  herein  set  forth;  and 
it  may  conduct  its  business  in  other  States  and  in  the  Territories 
and  in  foreign  countries,  and  may  have  one  office  or  more  than  one 
office,  and  keep  the  books  of  the  Company  outside  of  the  State  of 
New  Jersey,  except  as  otherwise  may  be  provided  by  law;  and  may 
hold,  purchase,  mortgage  and  convey  real  and  personal  property 
either  in  or  out  of  the  State  of  New  Jersey. 

Without  in  any  particular  limiting  any  of  the  objects  and  powers 
of  the  corporation,  it  is  hereby  expressly  declared  and  provided 
that  the  corporation  shall  have  power  to  issue  bonds  and  other 
obligations,  in  payment  for  property  purchased  or  acquired  by  it, 
or  for  any  object  in  or  about  its  business ;  to  mortgage  or  pledge  any 
stocks,  bonds  or  other  obligations,  or  any  property  which  may  be 


MATERIALS    OF   CORPORATION    FINANCE  61 

acquired  by  it,  to  secure  any  bonds  or  other  obligations  by  it  issued 
or  incurred;  to  guarantee  any  dividends  or  bonds  or  contracts  or 
other  obligations;  to  make  and  perform  contracts  of  any  kind  and 
description;  and  in  carrying  on  its  business,  or  for  the  purpose  of 
attaining  or  furthering  any  of  its  objects,  to  do  any  and  all  other  acts 
and  things,  and  to  exercise  any  and  all  other  powers  which  a  co- 
partnership or  natural  person  could  do  and  exercise,  and  which  now 
or  hereafter  may  be  authorized  by  law. 

IV.  The  total  authorized  capital  stock  of  the  corporation  is  eleven 
hundred  million  dollars  ($1,100,000,000),  divided  into  eleven  million 
shares  of  the  par  value  of  one  hundred  dollars  each.  Of  such  total 
authorized  capital  stock,  five  million  five  hundred  thousand  shares, 
amounting  to  five  hundred  and  fifty  million  dollars,  shall  be  preferred 
stock,  and  five  million  five  hundred  thousand  shares,  amounting  to 
five  hundred  and  fifty  million  dollars,  shall  be  common  stock. 

From  time  to  time,  the  preferred  stock  and  the  common  stock 
may  be  increased  according  to  law,  and  may  be  isssued  in  such 
amounts  and  proportions  as  shall  be  determined  by  the  board  of 
directors,  and  as  may  be  permitted  by  law. 

The  holders  of  the  preferred  stock  shall  be  entitled  to  receive  when 
and  as  declared,  from  the  surplus  or  net  profits  of  the  corporation, 
yearly  dividends  at  the  rate  of  seven  per  centum  per  annum,  and  no 
more,  payable  quarterly  on  dates  to  be  fixed  by  the  by-laws.  The 
dividends  on  the  preferred  stock  shall  be  cumulative,  and  shall  be 
payable  before  any  dividend  on  the  common  stock  shall  be  paid 
or  set  apart;  so  that,  if  any  year  dividends  amounting  to  seven  per 
cent,  shall  not  have  been  paid  thereon,  the  deficiency  shall  be  payable 
before  any  dividends  shall  be  paid  upon  or  set  apart  for  the  common 
stock. 

Whenever  all  cumulative  dividends  on  the  preferred  stock  for  all 
previous  years  shall  have  been  declared  and  shall  have  become  payable, 
and  the  accrued  quarterly  installments  for  the  current  year  shall  have 
been  declared,  and  the  company  shall  have  paid  such  cumulative  divi- 
dends for  previous  years  and  such  accrued  quarterly  installments, 
or  shall  have  set  aside  from  its  surplus  or  net  profits  a  sum  sufficient 
for  the  payment  thereof,  the  Board  of  Directors  may  declare  dividends 
on  the  common  stock,  payable  then  or  thereafter,  out  of  any  remaining 
surplus  or  net  profits. 

In  the  event  of  any  liquidation  or  dissolution  or  winding  up 
(whether  voluntary  or  involuntary)  of  the  corporation,  the  holders 
of  the  preferred  stock  shall  be  entitled  to  be  paid  in  full  both  the 
par  amount  of  their  shares,  and  the  unpaid  dividends  accrued  thereon 


62     CHARTER  OF  UNITED  STATES  STEEL  CORPORATION 

before  any  amount  shall  be  paid  to  the  holders  of  the  common  stock; 
and  after  the  payment  to  the  holders  of  the  preferred  stock  of  its 
par  value,  and  the  unpaid  accrued  dividends  thereon,  the  remaining 
assets  and  funds  shall  be  divided  and  paid  to  the  holders  of  the 
common  stock  according  to  their  respective  shares. 

V.  The  names  and  post-office  addresses  of  the  incorporators,  and 
the  number  of  shares  of  stock  for  which  severally  and  respectively  we 
do  hereby  subscribe   (the  aggregate  of  our  said  subscriptions,  being 
three  thousand  dollars,  is  the  amount  of  capital  stock  with  which 
the  corporation  will  commence  business),  are  as  follows: 

Number  of  Shares. 

,,  Preferred  Common 

Name.  Post  Office  Address.  a   •  .  a,    , 

Stock.         Stock. 

Charles  C.  duff. . .  51  Newark  Street,  Hoboken, 

New  Jersey  5  5 

William  J.  Curtis.  Ditto  5  5 

Charles  MacVeagh  Ditto  5  5 

VI.  The  duration  of  the  corporation  shall  be  perpetual. 

VII.  The  number  of  the  directors  of  the  Company  shall  be  fixed 
from  time  to  time  by  the  by-laws;  but  the  number,  if  fixed  at  more 
than  three,  shall  be  some  multiple  of  three.     The  directors  shall  be 
classified  with  respect  to  the  time  for  which  they  shall  severally  hold 
office  by  dividing  them  into  three  classes,  each  consisting  of  one- 
third  of  the  whole  number  of  the  board  of  directors.     The  directors 
of  the  first  class  shall  be  elected  for  a  term  of  one  year ;  the  directors 
of  the  second  class  for  a  term  of  two  years;  and  the  directors  of  the 
third  class  for  a  term  of  three  years;  and  at  each  annual  election 
the  successors  to  the  class  of  directors  whose  terms  shall  expire  in 
that  year  shall  be  elected  to  hold  office  for  the  term  of  three  years, 
so  that  the  term  of  office  of  one  class  of  directors  shall  expire  in 
each  year. 

The  number  of  the  directors  may  be  increased  as  may  be  provided 
in  the  by-laws.  In  case  of  any  increase  of  the  number  of  the  directors 
the  additional  directors  shall  be  elected  as  may  be  provided  in  the 
by-laws,  by  the  Directors  or  by  the  stockholders  at  an  annual  or 
special  meeting  and  one-third  of  their  number  shall  be  elected  for 
the  then  unexpired  portion  of  the  term  of  the  directors  of  the  first 
class,  one-third  of  their  number  for  the  unexpired  portion  of  the 
term  of  the  directors  of  the  second  class,  and  one-third  of  their 
number  for  the  unexpired  portion  of  the  term  of  the  directors  of  the 
third  class,  so  that  each  class  of  directors .  shall  be  increased  equally. 


MATERIALS    OF   CORPORATION   FINANCE  63 

In  case  of  any  vacancy  in  any  class  of  directors  through  death, 
resignation,  disqualification  or  other  cause,  the  remaining  directors, 
by  affirmative  vote  of  a  majority  of  the  Board  of  Directors,  may  elect 
a  successor  to  hold  office  for  the  unexpired  portion  of  the  term  of 
the  director  whose  place  shall  be  vacant,  and  until  the  election  of  a 
successor. 

The  Board  of  Directors  shall  have  power  to  hold  their  meetings 
outside  of  the  State  of  New  Jersey  at  such  places  as  from  time  to 
time  may  be  designated  by  the  by-laws  or  by  resolution  of  the  Board. 
The  by-laws  may  prescribe  the  number  of  directors  necessary  to 
constitute  a  quorum  of  the  Board  of  Directors,  which  number  may  be 
less  than  a  majority  of  the  whole  number  of  the  directors. 

Unless  authorized  by  votes  given  in  person  or  by  proxy  by  stock- 
holders holding  at  least  two-thirds  of  the  capital  stock  of  the  cor- 
poration, which  is  represented  and  voted  upon  in  person  or  by  proxy 
at  a  meeting  specially  called  for  that  purpose  or  at  an  annual  meeting, 
the  Board  of  Directors  shall  not  mortgage  or  pledge  any  of  its  real 
property,  or  any  shares  of  the  capital  stock  of  any  other  corporation ; 
but  this  prohibition  shall  not  be  construed  to  apply  to  the  execution 
of  any  purchase-money  mortgage  or  any  other  purchase-money  lien. 
As  authorized  by  the  Act  of  the  Legislature  of  the  State  of  New 
Jersey  passed  March  22,  1901,  amending  the  17th  section  of  the  Act 
Concerning  Corporations  (Revision  of  1896),  any  action  which  there- 
tofore required  the  consent  of  the  holders  of  two-thirds  of  the  stock 
at  any  meeting  after  notice  to  them  given,  or  required  their  consent 
in  writing  to  be  filed,  may  be  taken  upon  the  consent  of,  and  the 
consent  given  and  filed  by  the  holders  of  two-thirds  of  the  stock  of 
each  class  represented  at  such  meeting  in  person  or  by  proxy. 

Any  officer  elected  or  appointed  by  the  Board  of  Directors  may  be 
removed  at  any  time  by  the  affirmative  vote  of  a  majority  of  the  whole 
Board  of  Directors.  Any  other  officer  or  employe  of  the  Company 
may  be  removed  at  any  time  by  vote  of  the  Board  of  Directors,  or 
by  any  committee  or  superior  officer  upon  whom  such  power  of  re- 
moval may  be  conferred  by  the  by-laws  or  by  vote  of  the  Board  of 
Directors. 

The  Board  of  Directors,  by  the  affirmative  vote  of  a  majority  of 
the  whole  board,  may  appoint  from  the  directors  an  executive  com- 
mittee, of  which  a  majority  shall  constitute  a  quorum ;  and  to  such 
extent  as  shall  be  provided  in  the  by-laws,  such  committee  shall  have 
and  may  exercise  all  or  any  of  the  powers  of  the  Board  of  Directors, 
including  power  to  cause  the  seal  of  the  corporation  to  be  affixed  to 
all  papers  that  may  require  it. 

The  Board  of  Directors,  by  the  affirmative  vote  of  a  majority  of  the 


64     CHARTER  OF  UNITED  STATES  STEEL  CORPORATION 

whole  board,  may  appoint  any  other  Standing  Committees,  and  such 
Standing  Committees  shall  have  and  may  exercise  such  powers  as 
shall  be  conferred  or  authorized  by  the  by-laws. 

The  Board  of  Directors  may  appoint  not  only  other  officers  of  the 
Company,  but  also  one  or  more  vice-presidents,  one  or  more  assistant 
treasurers  and  one  or  more  assistant  secretaries;  and,  to  the  extent 
provided  in  the  by-laws,  the  persons  so  appointed  respectively  shall 
have  and  may  exercise  all  the  powers  of  the  president,  of  the  treasurer 
and  of  the  secretary,  respectively. 

The  Board  of  Directors  shall  have  power  from  time  to  time  to 
fix  and  to  determine  and  to  vary  the  amount  of  the  working  capital 
of  the  Company ;  and  to  direct  and  determine  the  use  and  disposition 
of  any  surplus  or  net  profits  over  and  above  the  capital  stock  paid  in; 
and  in  its  discretion  the  Board  of  Directors  may  use  and  apply  any 
such  surplus  or  accumulated  profits  in  purchasing  or  acquiring  its 
bonds  or  other  obligations,  or  shares  of  its  own  capital  stock,  to  such 
extent  and  in  such  manner  and  upon  such  terms  as  the  Board  of 
Directors  shall  deem  expedient;  but  shares  of  such  capital  stock  so 
purchased  or  acquired  may  be  resold,  unless  such  shares  shall  have 
been  retired  for  the  purpose  of  decreasing  the  Company's  capital 
stock  as  provided  by  law. 

The  Board  of  Directors  from  time  to  time  shall  determine  whether 
and  to  what  extent,  and  at  what  times  and  places,  and  under  what 
conditions  and  regulations,  the  accounts  and  books  of  the  corporation 
or  any  of  them,  shall  be  open  to  the  inspection  of  the  Stockholders, 
and  no  Stockholder  shall  have  any  right  to  inspect  any  account  or 
book  or  document  of  the  corporation,  except  as  conferred  by  Statute 
or  authorized  by  the  Board  of  Directors,  or  by  a  resolution  of  the 
Stockholders. 

Subject  always  to  by-laws  made  by  the  Stockholders,  the  Board  of 
Directors  may  make  by-laws,  and,  from  time  to  time,  may  alter, 
amend  or  repeal  any  by-laws;  but  any  by-laws  made  by  the  Board  of 
Directors  may  be  altered  or  repealed  by  the  Stockholders  at  any  an- 
nual meeting,  or  at  any  special  meeting,  provided  notice  of  such 
proposed  alteration  or  repeal  be  included  in  the  notice  of  the  meeting. 

IN  WITNESS  WHEREOF,  we  have  hereunto  set  our  hands  and  seals 
the  23rd  day  of  February,  1901. 

CHARLES  C.  CLUFF  [SEAL] 

WILLIAM  J.  CURTIS          [SEAL] 
CHARLES  MAC"VEAGH        [SEAL] 


CHARTER  OF  UNITED  STATES  STEEL  CORPORATION    65 

Signed,  sealed  and  delivered 
in  the  presence  of 

FRANCIS  LYNDE  STETSON 
VICTOR  MORAWETZ. 

STATE  OF  NEW  JERSEY,  ) 

L  gg   • 

County  of  Hudson,      j 

Be  it  remembered  that  on  this  23rd  day  of  February,  1901,  before 
the  undersigned,  personally  appeared  Charles  C.  Cluff,  William  J. 
Curtis  and  Charles  MacVeagh,  who,  I  am  satisfied,  are  the  persons 
named  in  and  who  executed  the  foregoing  certificate;  and  I  having 
first  made  known  to  them,  and  to  each  of  them,  the  contents  thereof, 
they  did  each  acknowledge  that  they  signed,  sealed  and  delivered  the 
same  as  their  voluntary  act  and  deed. 

GEO.  HOLMES, 
Master  in  Chancery  of  New  Jersey. 

lOct.  Internal  Revenue  Stamp  Cancelled. 

ENDORSED  "Received  in  the  Hudson  Co.  N.  J.  Clerk's  Office  Feb'y 
25th  A.  D.  1901  and  Recorded  in  Clerk's  Record  No  -  -  on  Page  — 

MAURICE  J.  STACK, 

Clerk" 
ENDORSED  "Filed  Feb.  25,  1901 

GEORGE  WURTS, 

Secretary  of  State." 


66 

BY-LAWS   OF    UNITED    STATES    STEEL    CORPORATION1 

ARTICLE    I 

STOCKHOLDERS 

SECTION  I. — ANNUAL  MEETING — STOCKHOLDERS'  ANNUAL 
MEETING — DATE  OF  MEETING 

The  annual  meeting  of  the  stockholders  of  the  Company  shall  be 
held  annually  at  the  principal  office  of  the  Company  in  the  State  of 
New  Jersey,  at  twelve  o'clock  noon,  on  the  third  Monday  in  April 
in  each  year,  if  not  a  legal  holiday,  and  if  a  legal  holiday  then  on 
the  next  succeeding  Monday  not  a  legal  holiday,  for  the  purpose  of 
electing  directors,  and  for  the  transaction  of  such  other  business  as 
may  be  brought  before  the  meeting;  and  the  terms  of  office  of  the 
directors  of  the  several  classes  shall  continue  until  the  election  of 
their  successors  at  such  meeting  as  provided  in  Article  II  hereof. 

Advertising  Notice  of  Meeting. — It  shall  be  the  duty  of  the  Secre- 
tary to  cause  notice  of  each  annual  meeting  to  be  published  once  in 
each  of  the  four  calendar  weeks  next  preceding  the  meeting  in  at  least 
one  newspaper  in  each  of  the  following  places:  Jersey  City,  N.  J., 
New  York,  N.  Y.,  Chicago,  111.,  and  Pittsburg,  Pa.  Nevertheless, 
a  failure  to  publish  such  notice,  or  any  irregularity  in  such  notice, 
or  in  the  publication  thereof,  shall  not  affect  the  validity  of  any 
annual  meeting,  or  of  any  proceedings  at  any  such  meeting. 

SECTION  2. — SPECIAL  MEETINGS 

Special  Meetings. — Special  meetings  of  the  stockholders  may  be 
held  at  the  principal  office  of  the  Company  in  the  State  of  New 
Jersey,  whenever  called  in  writing,  or  by  vote,  by  a  majority  of  the 
Board  of  Directors. 

Advertising  Notice  of  Meetings. — Notice  of  each  special  meeting, 
indicating  briefly  the  object  or  objects  thereof,  shall  by  the  secretary 
be  published  once  in  each  of  the  four  calendar  weeks  preceding  the 
meeting,  in  at  least  one  newspaper  in  each  of  the  following  places : 
Jersey  City,  N.  J.,  New  York,  N.  Y.,  Chicago,  111.,  and  Pittsburg, 
Pa.  Nevertheless,  if  all  the  stockholders  shall  waive  notice  of  a  spe- 
cial meeting,  no  notice  of  such  meeting  shall  be  required ;  and  when- 
ever all  the  stockholders  shall  meet  in  person  or  by  proxy,  such  meet- 
ing shall  be  valid  for  all  purposes  without  call  or  notice,  and  at  such 
meeting  any  corporate  action  may  be  taken. 

i  As  amended  Mav  31,  1911. 


BY-LAWS  OF  UNITED  STATES  STEEL  CORPORATION      67 
SECTION  3. — QUORUM 

Quorum. — At  any  meeting  of  the  stockholders,  one-third  of  all 
of  the  shares  of  the  capital  stock  of  the  Company,  present  in  person 
or  represented  by  proxy,  shall  constitute  a  quorum  of  the  stockholders 
for  all  purposes,  unless  the  representation  of  a  larger  number  shall 
be  required  by  law,  and,  in  that  case,  the  representation  of  the  number 
so  required,  shall  constitute  a  quorum. 

If  the  holders  of  the  amount  of  stock  necessary  to  constitute  a 
quorum  shall  fail  to  attend  in  person  or  by  proxy  at  the  time  and 
place  fixed  by  these  by-laws  for  an  annual  meeting,  or  fixed  by  notice 
as  above  provided  for  a  special  meeting  called  by  the  directors,  a  ma- 
jority in  interest  of  the  stockholders  present  in  person  or  by  proxy 
may  adjourn,  from  time  to  time,  without  notice  other  than  by  an- 
nouncement at  the  meeting,  until  holders  of  the  amount  of  stock 
requisite  to  constitute  a  quorum  shall  attend.  At  any  such  adjourned 
meeting  at  which  a  quorum  shall  be  present,  any  business  may  be 
transacted  which  might  have  been  transacted  at  the  meeting  as  origin- 
ally notified. 

SECTION  4. — ORGANIZATION 

Chairman. — The  chairman  of  the  Board,  and  in  his  absence,  the 
chairman  of  the  Finance  Committee,  and  in  the  absence  of  both,  the 
president,  shall  call  meetings  of  the  stockholders  to  order,  and  shall 
act  as  chairman  of  such  meetings.  The  Board  of  Directors  or  Finance 
Committee  may  appoint  any  stockholder  to  act  as  chairman  of  any 
meeting  in  the  absence  of  the  chairman  of  the  Board  and  of  the  chair- 
man of  the  Finance  Committee  and  of  the  president. 

Secretary. — The  secretary  of  the  Company  shall  act  as  secretary  at 
all  meetings  of  the  stockholders ;  but  in  the  absence  of  the  secretary  at 
any  meeting  of  the  stockholders  the  presiding  officer  may  appoint  any 
person  to  act  as  secretary  of  the  meeting. 

SECTION  5. — VOTING 

Voting. — At  each  meeting  of  the  stockholders,  every  stockholder 
shall  be  entitled  to  vote  in  person,  or  by  proxy  appointed  by  instru- 
ment in  writing,  subscribed  by  such  stockholder  or  by  his  duly  author- 
ized attorney,  and  delivered  to  the  inspectors  at  the  meeting;  and  he 
shall  have  one  vote  for  each  share  of  stock  standing  registered  in  his 
name  at  the  time  of  the  closing  of  the  transfer  books  for  said  meeting 
The  votes  for  directors,  and,  upon  demand  of  any  stockholder,  the 
votes  upon  any  question  before  the  meeting,  shall  be  by  ballot. 


68          MATERIALS    OF   CORPOEATION   FINANCE 

List  of  Stockholders. — At  each  meeting  of  the  stockholders,  a  full, 
true  and  complete  list,  in  alphabetical  order,  of  all  of  the  stockholders 
entitled  to  vote  at  such  meeting,  and  indicating  the  number  of  shares 
by  each,  certified  by  the  secretary  or  by  the  treasurer,  shall  be  fur- 
nished. Only  the  persons  in  whose  names  shares  of  stock  stand  on 
the  books  of  the  Company  at  the  time  of  the  closing  of  the  transfer 
books  for  such  meeting,  as  evidenced  by  the  list  of  stockholders  so 
furnished,  shall  be  entitled  to  vote  in  person  or  by  proxy  on  the  shares 
so  standing  in  their  names. 

Prior  to  any  meeting,  but  subsequent  to  the  time  of  closing  the 
transfer  books  for  such  meeting,  any  proxy  may  submit  his  powers 
of  attorney  to  the  secretary,  or  to  the  treasurer,  for  examination. 
The  certificate  of  the  secretary,  or  of  the  treasurer,  as  to  the  regularity 
of  such  powers  of  attorney,  and  as  to  the  number  of  shares  held  by 
the  persons  who  severally  and  respectively  executed  such  powers  of 
attorney,  shall  be  received  as  prima  facie  evidence  of  the  number  of 
shares  represented  by  the  holder  of  such  powers  of  attorney  for  the 
purpose  of  establishing  the  presence  of  a  quorum  at  such  meeting  and 
of  organizing  the  same,  and  for  all  other  purposes. 

SECTION  6. — INSPECTORS 

Inspectors  of  Election. — At  each  meeting  of  the  stockholders,  the 
polls  shall  be  opened  and  closed,  the  proxies  and  ballots  shall  be  re- 
ceived and  be  taken  in  charge,  and  all  questions  touching  the  quali- 
fication of  voters  and  the  validity  of  proxies  and  the  acceptance  or 
rejection  of  votes,  shall  be  decided  by  three  inspectors.  Such  in- 
spectors shall  be  appointed  by  the  Board  of  Directors  before  or  at  the 
meeting,  or,  if  no  such  appointment  shall  have  been  made,  then  by 
the  presiding  officer  at  the  meeting.  If  for  any  reason  any  of  the  in- 
spectors previously  appointed  shall  fail  to  attend  or  refuse  or  be  un- 
able to  serve,  inspectors  in  place  of  any  so  failing  to  attend  or  refus- 
ing or  unable  to  attend,  shall  be  appointed  in  like  manner. 

AETICLE   II 

BOARD  OF  DIRECTORS 

SECTION  1. — NUMBER,  CLASSIFICATION  AND  TERM  OF  OFFICE 

Directors. — The  business  and  the  property  of  the  Company  shall  be 
managed  and  controlled  by  the  Board  of  Directors. 

Classification. — As  provided  in  the  certificate  of  incorporation,  the 
directors  shall  be  classified  in  respect  of  the  time  for  which  they  shall 
severally  hold  office,  by  dividing  them  into  three  classes,  each  class 


BY-LAWS  OF  UNITED  STATES  STEEL  CORPORATION     69 

consisting  of  one-third  of  the  whole  number  of  the  Board  of  Directors. 

Terms  of  Each  Class. — The  directors  of  the  first  class  shall  be 
elected  for  a  term  of  one  year ;  the  directors  of  the  second  class  shall 
be  elected  for  a  term  of  two  years,  and  the  directors  of  the  third  class 
shall  be  elected  for  a  term  of  three  years.  At  each  annual  election, 
the  successors  to  the  directors  of  the  class  whose  term  shall  expire  in 
that  year,  shall  be  elected  to  hold  office  for  the  term  of  three  years, 
so  that  the  term  of  office  of  one  class  of  directors  shall  expire  in  each 
year. 

Number  of  Directors. — The  number  of  directors  shall  be  twenty- 
four;  but  the  number  of  directors  may  be  altered  from  time  to  time 
by  the  alteration  of  these  by-laws. 

In  case  of  any  increase  of  the  number  of  directors,  the  additional 
directors  shall  be  elected  by  the  directors  then  in  office;  one-third  of 
such  additional  directors  for  the  unexpired  portion  of  the  term  of  one 
year;  one-third  for  the  unexpired  portion  of  the  term  of  two  years, 
and  one-third  for  the  unexpired  portion  of  the  term  of  three  years, 
so  that  each  class  of  directors  shall  be  increased  equally. 

Directors  Must  be  Stockholders. — Every  director  shall  be  a  holder 
of  at  least  one  share  of  the  capital  stock  of  the  Company.  Each  direc- 
tor shall  serve  for  the  term  for  which  he  shall  have  been  elected,  and 
until  his  successor  shall  have  been  duly  chosen. 

Polls  Open  One  Hour. — At  all  elections  of  the  directors,  the  polls 
shall  remain  open  for  at  least  one  hour,  unless  every  registered  owner 
of  shares  has  sooner  voted  in  person  or  by  proxy,  or  in  writing  has 
waived  the  statutory  provision. 

SECTION  2. — VACANCIES 

Vacancies  in  Board. — In  case  of  any  vacancy  in  the  directors  of  any 
class  through  death,  resignation,  disqualification  or  other  cause,  the 
remaining  directors,  by  affirmative  vote  of  a  majority  thereof,  may 
elect  a  successor  to  hold  office  for  the  unexpired  portion  of  the  term 
of  the  director  whose  place  shall  be  vacant,  and  until  the  election  of 
his  successor. 

Such  vacancy  shall  be  filled  upon  and  after  nominations  shall  have 
been  made  by  the  Finance  Committee. 

SECTION  3. — PLACE  OF  MEETING,  ETC. 

Place  of  Meeting. — The  directors  may  hold  their  meetings,  and 
may  have  an  office  and  keep  the  books  of  the  Company  (except  as 
otherwise  may  be  provided  for  by  law)  in  such  place  or  pianos  in  tlio 
State  of  New  Jersey  or  outside  of  the  State  of  New  Jersey,  as  the 
Board  from  time  to  time  may  determine. 


70  MATEEIALS    OF    CORPORATION    FINANCE 

SECTION  4. — REGULAR  MEETINGS 

Regular  Monthly  Meetings. — Regular  meetings  of  the  Board  of 
Directors  shall  be  held  monthly  on  the  last  Tuesday  of  each  month, 
if  a  legal  holiday,  then  on  the  next  succeeding  Tuesday  not  a  legal 
holiday.  No  notice  shall  be  required  for  any  such  regular  monthly 
meeting  of  the  Board. 

SECTION  5. — SPECIAL  MEETINGS 

Special  Meetings. — Special  meetings  of  the  Board  of  Directors 
shall  be  held  whenever  called  by  direction  of  the  chairman  of  the 
Board,  or  the  chairman  of  the  Finance  Committee,  or  the  president, 
or  of  one-third  of  the  directors  for  the  time  being  in  office. 

NOTICE  REQUIRED 

The  secretary  shall  give  notice  of  each  special  meeting  by  mailing 
the  same  at  least  two  days  before  the  meeting,  or  by  telegraphing  the 
same  at  least  one  day  before  the  meeting,  to  each  director;  but  such 
notice  may  be  waived  by  any  director.  Unless  otherwise  indicated  in 
the  notice  thereof,  any  and  all  business  may  be  transacted  at  a  special 
meeting.  At  any  meeting  at  which  every  director  shall  be  present, 
even  though  without  any  notice,  any  business  may  be  transacted. 

SECTION  6. — QUORUM 

Quorum. — Ten  directors  shall  constitute  a  quorum  for  the  transac- 
tion of  business ;  but  if  at  any  meeting  of  the  Board  there  be  less  than 
a  quorum  present,  a  majority  of  those  present  may  adjourn  the  meet- 
ing from  time  to  time. 

The  affirmative  vote  of  at  least  one-third  of  all  the  directors  for 
the  time  being  in  office  shall  be  necessary  for  the  passage  of  any  reso- 
lution. 

SECTION  7. — ORDER  OF  BUSINESS 

Order  of  Business. — At  meetings  of  the  Board  of  Directors  business 
shall  be  transacted  in  such  order  as,  from  time  to  time,  the  Board  may 
determine  by  resolution. 

Presiding  Officer. — At  all  meetings  of  the  Board  of  Directors,  the 
chairman  of  the  Board,  or  in  his  absence  the  chairman  of  the  Finance 


BY-LAWS  OF  UNITED  STATES  STEEL  CORPORATION      71 

Committee,  or,  in  the  absence  of  both  of  these  officers,  the  president 
shall  preside. 

SECTION  8. — CONTRACTS 

Contracts. — Inasmuch  as  the  directors  of  this  Company  are  likely 
to  be  connected  with  other  corporations  with  which  from  time  to  time 
this  Company  must  have  business  dealings,  no  contract  or  other  trans- 
action between  this  Company  and  any  other  corporation  shall  be  af- 
fected by  the  fact  that  directors  of  this  Company  are  interested  in, 
or  are  directors  or  officers  of,  such  other  corporation,  if,  at  the  meet- 
ing of  the  board,  or  of  the  committee  of  this  Company,  making, 
authorizing  or  confirming  such  contract  or  transaction,  there  shall  be 
present  a  quorum  of  directors  not  so  interested ;  and  any  director  in- 
dividually may  be  a  party  to,  or  may  be  interested  in,  any  contract  or 
transaction  of  this  Company,  provided  that  such  contract  or  transac- 
tion shall  be  approved  or  be  ratified  by  the  affirmative  vote  of  at  least 
three  directors  not  so  interested. 

Ratification  &y  Stockholders  of  Acts  of  Contracts. — The  Board  of 
Directors  in  its  discretion  may  submit  any  contract  or  act  for  ap- 
proval or  ratification  at  any  annual  meeting  of  the  stockholders,  or  at 
any  meeting  of  the  stockholders  called  for  the  purpose  of  considering 
any  such  act  or  contract;  and  any  contract  or  act  that  shall  be  ap- 
proved or  be  ratified  by  the  vote  of  the  holders  of  a  majority  of  the 
capital  stock  of  the  Company  which  is  represented  in  person  or  by 
proxy  at  such  meeting  (provided  that  a  lawful  quorum  of  stockholders 
be  there  represented  in  person  or  by  proxy)  shall  be  valid  and  as 
binding  upon  the  corporation  and  upon  all  the  stockholders  as  though 
it  had  been  approved  or  ratified  by  every  stockholder  of  the  corpora- 
tion. 

SECTION  9. — COMPENSATION  OF  DIRECTORS 

Compensation  of  Directors. — For  his  attendance  at  any  meeting  of 
the  Board  of  Directors,  of  any  committee,  every  director  shall  receive 
an  allowance  of  fifty  dollars  for  attendance  at  each  meeting. 

SECTION  10. — ELECTION  OF  OFFICERS  AND  COMMITTEES 

Election  of  Officers  and  Committees. — At  the  first  regular  meeting 
of  the  Board  of  Directors  in  each  year  (at  which  a  quorum  shall  be 
present)  held  next  after  the  annual  meeting,  the  Board  of  Directors 
shall  proceed  to  the  election  of  the  executive  officers  of  the  Company, 
and  of  the  Finance  Committee  to  be  elected  by  the  Board  of  Directors 
under  the  provisions  of  Article  III.  and  Article  TV.  of  the  By- Laws. 


72  MATERIALS    OF    CORPORATION    FINANCE 

ARTICLE  III 
SECTION  1. — FINANCE  COMMITTEE 

Finance  Committee. — The  Board  of  Directors  shall  elect  from  the 
directors  a  Finance  Committee,  and  shall  designate  for  such  com- 
mittee a  chairman,  who  shall  continue  to  be  chairman  of  the  com- 
mittee during  the  pleasure  of  the  Board  of  Directors. 

Vacancies,  How  Filled. — The  Board  of  Directors  shall  fill  vacancies 
in  the  Finance  Committee  by  election  from  the  directors;  and  at  all 
times  it  shall  be  the  duty  of  the  Board  of  Directors  to  keep  the  mem- 
bership of  such  committee  full,  with  due  regard  to  the  qualifications 
for  such  membership  indicated  in  this  Article  of  the  By-Laws. 

Action  of  Committee  to  be  Reported  to  Board. — All  action  by  the 
Finance  Committee  shall  be  reported  to  the  Board  of  Directors  at  its 
meeting  next  succeeding  such  action,  and  shall  be  subject  to  revision 
or  alteration  by  the  Board  of  Directors;  provided,  that  no  rights  or 
acts  of  third  parties  shall  be  affected  by  any  such  revision  or  altera- 
tion. 

Rules  of  Procedure. — The  Finance  Committee  shall  fix  its  own 
rules  of  proceeding,  and  shall  meet  where  and  as  provided  by  such 
rules,  or  by  resolution  of  the  Board  of  Directors,  but  in  every  case 
the  presence  of  at  least  four  members  shall  be  necessary  to  constitute 
a  quorum. 

In  every  case  the  affirmative  vote  of  a  majority  of  all  of  the  mem- 
bers present  at  the  meeting,  shall  be  necessary  to  its  adoption  of  any 
resolution. 

SECTION  2. — MEMBERSHIP 

Membership. — The  Finance  Committee  shall  consist  of  eight  mem- 
bers, besides  the  chairman  of  the  Board,  who,  by  virtue  of  his  office, 
shall  be  a  member  of  the  Finance  Committee.  So  far  as  practicable 
each  of  the  eight  elected  members  of  the  Finance  Committee  shall  be 
a  person  of  experience  in  matters  of  finance.  Unless  otherwise  ordered 
by  the  Board  of  Directors,  each  elected  member  of  the  Finance  Com- 
mittee shall  continue  to  be  a  member  thereof  until  the  expiration  of 
his  term  of  office  as  a  director. 

Powers  and  Duties. — The  Finance  Committee  shall  have  special 
charge  and  control  of  all  financial  affairs  of  the  Company.  The 
president,  vice-presidents,  the  general  counsel,  the  treasurer,  the  comp- 
troller and  the  secretary,  and  their  respective  officers  shall  be  under  the 
direct  control  and  supervision  of  the  Finance  Committee,  and  of  its 
chairman  when  the  Committee  is  not  in  session. 


BY-LAWS  OF  UNITED  STATES  STEEL  CORPORATION    73 

During  the  intervals  between  the  meetings  of  the  Board  of  Direc- 
tors, the  Finance  Committee  shall  possess,  and  may  exercise,  all  the 
powers  of  the  Board  of  Directors,  in  the  management  of  all  the  affairs 
of  the  Company,  including  its  purchase  of  property,  and  the  execu- 
tion of  legal  instruments  with  or  without  the  corporate  seal  in  such 
manner  as  said  committee  shall  deem  to  be  best  for  the  interest  of  the 
Company,  in  all  cases  in  which  specific  directions  shall  not  have  been 
given  by  the  Board  of  Directors. 

Powers  of  Chairman. — During  the  intervals  between  the  meetings 
of  the  Finance  Committee,  and  subject  to  its  review,  the  chairman  of 
the  Board  and  the  chairman  of  the  Finance  Committee  together,  shall 
possess,  and  may  exercise  any  of  the  powers  of  the  committee,  except 
as  from  time  to  time  shall  be  otherwise  provided  by  resolution  of  the 
Board  of  Directors. 

Salaries  Fixed  by  Finance  Committee. — Except  as  otherwise  pro- 
vided by  the  By- Laws,  or  by  resolution  of  the  Board  of  Directors,  all 
salaries  and  compensation  paid  or  payable  by  the  Company  shall  be 
fixed  by  the  Finance  Committee. 

No  director  not  an  executive  officer  shall  become  a  salaried  employee 
of  the  Company  except  by  special  vote  of  the  Finance  Committee. 

ARTICLE   IV 

OFFICERS 
SECTION  1. — OFFICERS 

Officers — Titles. — The  executive  officers  of  the  Company  shall  be  a 
chairman  of  the  Board  of  Directors,  a  chairman  of  the  Finance  Com- 
mittee, a  president,  a  general  counsel,  a  treasurer,  a  secretary  and 
comptroller,  all  of  whom  shall  be  elected  by  the  Board  of  Directors. 

Other  Officers. — The  Board  of  Directors  may  appoint  such  other 
officers  as  they  shall  deem  necessary,  who  shall  have  such  authority  and 
shall  perform  such  duties  as  from  time  to  time  may  be  prescribed  by 
the  Board  of  Directors. 

One  person  may  hold  more  than  one  office. 

In  its  discretion,  the  Board  of  Directors  by  the  vote  of  a  majority 
thereof  may  leave  unfilled  for  any  such  period  as  it  may  fix  by  resolu- 
tion any  office  except  those  of  president,  treasurer,  secretary  and 
comptroller. 

Term  of  Office. — All  officers  and  agents  shall  be  subject  to  removal 
at  any  time  by  the  affirmative  vote  of  a  majority  of  the  whole  Board 
of  Directors.  All  officers,  agents  and  employees,  other  than  officers 


74  MATERIALS    OF    CORPORATION"    FINANCE 

appointed  by  the  Board  of  Directors,  shall  hold  office  at  the  discretion 
of  the  committee  or  of  the  officer  appointing  them. 

Each  of  the  salaried  officers  of  the  corporation  shall  devote  his  en- 
tire time,  skill  and  energy  to  the  business  of  the  corporation,  unless 
the  contrary  is  expressly  consented  to  by  the  Board  of  Directors  or 
the  Finance  Committee.  No  vacation  shall  be  taken  by  any  of  such 
officers  except  by  consent  of  the  Board  of  Directors  or  the  Finance 
Committee. 

Removal. — The  Finance  Committee  shall  have  power  to  remove  all 
officers,  agents  and  employees  of  the  Company,  except  officers  elected 
or  appointed  by  the  Board  of  Directors. 

SECTION  2. — POWEKS  AND  DUTIES  OF  THE  CHAIRMAN  OF  THE  BOARD 

Chairman — Powers  and  Duties. — The  chairman  of  the  Board  of 
Directors  shall  be  the  chief  executive  officer  of  the  corporation  and, 
subject  to  the  Board  of  Directors  and  Finance  Committee,  shall  be  in 
general  charge  of  the  affairs  of  the  corporation.  He  shall  preside  at 
all  meetings  of  the  stockholders  and  of  the  Board  of  Directors;  and 
by  virtue  of  his  office  shall  be  a  member  of  the  Finance  Committee. 

SECTION  3. — POWERS  AND  DUTIES  OF  THE  PRESIDENT 

President — Powers  and  Duties. — In  the  absence  of  the  Chairman 
of  the  Board  and  the  Chairman  of  the  Finance  Committee,  the  presi- 
dent shall  preside  at  all  meetings  of  the  stockholders  and  of  the  Board 
of  Directors.  Subject  to  the  Board  of  Directors  and  the  Finance 
Committee,  he  shall  have  general  charge  of  the  business  of  the  cor- 
poration relating  to  manufacturing,  mining  and  transportation  and 
general  operation.  He  shall  keep  the  Board  of  Directors  and  the 
Finance  Committee  and  the  Chairman  of  the  Board  and  the  Chair- 
man of  the  Finance  Committee  fully  informed,  and  shall  freely  con- 
sult them  concerning  the  business  of  the  corporation  in  his  charge. 
He  may  sign  and  execute  all  authorized  bonds,  contracts,  checks  or 
other  obligations  in  the  name  of  the  corporation,  and  with  the  treas- 
urer or  as  an  assistant  treasurer  may  sign  all  certificates  of  the  shares 
in  the  capital  stock  of  the  corporation.  He  shall  do  and  perform  such 
other  duties  as  from  time  to  time  may  be  assigned  to  him  by  the  Board 
of  Directors. 

SECTION  4. — VICE-PRESIDENTS 

Vice-Presidents. — The  Board  of  Directors  may  appoint  a  vice-presi- 
dent or  more  than  one  vice-president.  Each  vice-president  shall  have 


BY-LAWS  OF  UNITED  STATES  STEEL  CORPORATION      75 

such  powers,  and  shall  perform  such  duties,  as  may  be  assigned  to 
him  by  the  Board  of  Directors  or  the  Finance  Committee. 

SECTION  5. — THE  GENERAL  COUNSEL 

General  Counsel. — The  general  counsel  shall  be  the  chief  consulting 
officer  of  the  Company  in  all  legal  matters,  and  subject  to  the  Board 
of  Directors  and  the  Finance  Committee,  shall  have  general  control 
of  all  matters  of  legal  import  concerning  the  Company. 

SECTION  6. — POWERS  AND  DUTIES  OF  THE  TREASURER 

Treasurer — Powers  and  Duties. — The  treasurer  shall  have  custody 
of  all  the  funds  and  securities  of  the  Company  which  may  have  come 
into  his  hands;  when  necessary  or  proper  he  shall  endorse  on  behalf 
of  the  Company,  for  collection,  checks,  notes  and  other  obligations, 
and  shall  deposit  the  same  to  the  credit  of  the  Company  in  such  bank 
or  banks  or  depository  as  the  Board  of  Directors  or  the  Finance  Com- 
mittee shall  designate ;  he  shall  sign  all  receipts  and  vouchers  for  pay- 
ments made  to  the  Company ;  jointly  with  such  other  officer  as  may  be 
designated  by  the  Finance  Committee,  he  shall  sign  all  checks  made 
by  the  Company,  and  shall  pay  out  and  dispose  of  the  same  under  the 
direction  of  the  Board  or  of  the  Finance  Committee;  he  shall  sign 
with  the  President,  or  such  other  person  or  persons  as  may  be  desig- 
nated for  the  purpose  by  the  Board  of  Directors  or  the  Finance  Com- 
mittee, all  bills  of  exchange  and  promissory  notes  of  the  Company ;  he 
may  sign,  with  the  president  or  a  vice-president,  all  certificates  of 
shares  in  the  capital  stock ;  whenever  required  by  the  Board  of  Direc- 
tors or  by  the  Finance  Committee,  he  shall  render  a  statement  of  his 
cash  account ;  he  shall  enter  regularly,  in  books  of  the  Company  to  be 
kept  by  him  for  the  purpose,  full  and  accurate  account  of  all  moneys 
received  and  paid  by  him  on  account  of  the  Company;  he  shall,  at  all 
reasonable  times,  exhibit  his  books  and  accounts  to  any  director  of  the 
Company  upon  application  at  the  office  of  the  Company  during  busi- 
ness hours;  and  he  shall  perform  all  acts  incident  to  the  position  of 
the  treasurer,  subject  to  the  control  of  the  Board  of  Directors  or  of 
the  Finance  Committee. 

He  shall  give  a  bond  for  the  faithful  discharge  of  his  duties  in  such 
sum  as  the  Board  of  Directors  or  the  Finance  Committee  may  require. 

SECTION  7. — ASSISTANT  TREASURER 

Assistant  Treasurers. — The  Board  of  Directors  or  the  Finance  Com- 
mittee may  appoint  an  assistant  treasurer  or  more  than  one  assistant 
4 


76  MATEEIALS    OF    CORPORATION    FINANCE 

treasurer.  Each  assistant  treasurer  shall  have  such  powers  and  shall 
perform  such  duties  as  may  be  assigned  to  him  by  the  Board  of  Direc- 
tors, or  by  the  Finance  Committee. 

SECTION  8. — POWERS  AND  DUTIES  OF  SECRETARY 

Secretary — Powers  and  Duties. — The  secretary  shall  keep  the  min- 
utes of  all  meetings  of  the  Board  of  Directors,  and  the  minutes  of  all 
meetings  of  the  stockholders,  and  also  (unless  otherwise  directed  by 
the  Finance  Committee)  the  minutes  of  all  committees,  in  books  pro- 
vided for  that  purpose ;  he  shall  attend  to  the  giving  and  serving  of  all 
notices  of  the  Company ;  he  may  sign  with  the  president  in  the  name 
of  the  Company  all  contracts  authorized  by  the  Board  of  Directors 
or  by  the  Finance  Committee,  and,  when  so  ordered  by  the  Board 
of  Directors  or  the  Finance  Committee,  he  shall  affix  the  seal  of  the 
Company  thereto ;  he  shall  have  charge  of  the  certificate  books,  trans- 
fer books  and  stock  ledgers  and  such  other  books  and  papers  as  the 
Board  of  Directors  or  the  Finance  Committee  may  direct,  all  of  which 
shall,  at  all  reasonable  times,  be  open  to  the  examination  of  any  direc- 
tor, upon  application  at  the  office  of  the  Company  during  business 
hours;  and  he  shall  in  general  perform  all  the  duties  incident  to  the 
office  of  secretary,  subject  to  the  control  of  the  Board  of  Directors  and 
of  the  Finance  Committee.  The  offices  of  Secretary  and  of  Treasurer 
may  be  held  by  one  and  the  same  person. 

SECTION  9. — ASSISTANT  SECRETARIES 

Assistant  Secretaries. — The  Board  of  Directors  or  the  Finance 
Committee  may  appoint  one  assistant  secretary  or  more  than  one  as- 
sistant secretary.  Each  assistant  secretary  shall  have  such  powers  and 
shall  perform  such  duties  as  may  be  assigned  to  him  by  the  Board 
of  Directors,  or  by  the  Finance  Committee. 

SECTION  10. — COMPTROLLER 

Comptroller. — The  Comptroller  shall  be  the  principal  officer  in 
charge  of  the  accounts  of  the  Company,  and  shall  perform  such  duties 
as  from  time  to  time  may  be  assigned  to  him  by  the  Board  of  Direc- 
tors, or  by  the  Finance  Committee. 

SECTION  11. — VOTING  UPON  STOCKS 

Voting  Upon  Stocks  Owned  in  Other  Companies. — Unless  other- 
wise ordered  by  the  Board  of  Directors  or  by  the  Finance  Committee, 
the  chairman  of  the  Board  or  the  chairman  of  the  Finance  Committee 


BY-LAWS  OF  UNITED  STATES  STEEL  CORPORATION      77 

shall  have  full  power  and  authority  in  behalf  of  the  Company  to  at- 
tend and  to  act  and  to  vote  at  any  meetings  of  stockholders  of  any 
corporation  in  which  the  Company  may  hold  stock,  and  at  any  such 
meeting  shall  possess  and  may  exercise  any  and  all  the  rights  and 
powers  incident  to  the  ownership  of  such  stock,  and  which,  as  the 
owner  thereof,  the  Company  might  have  possessed  and  exercised  if 
present.  The  Board  of  Directors  or  the  Finance  Committee,  by  reso- 
lution, from  time  to  time,  may  confer  like  powers  upon  any  other 
person  or  persons. 

ARTICLE   V 

CAPITAL  STOCK SEAL 

SECTION  1. — CERTIFICATES  OF  SHARES 

Stock  Certificates. — The  certificates  for  shares  of  the  capital  stock 
of  the  Company  shall  be  in  such  form,  not  inconsistent  with  the  cer- 
tificate of  incorporation,  as  shall  be  prepared  or  be  approved  by  the 
Board  of  Directors.  The  certificates  shall  be  signed  by  the  president 
or  vice-president,  and  also  by  the  treasurer  or  an  assistant  treasurer. 

All  certificates  shall  be  consecutively  numbered.  The  name  of  the 
person  owning  the  shares  represented  thereby,  with  the  number  of 
such  shares  and  the  date  of  issue,  shall  be  entered  on  the  Company's 
books. 

No  certificate  shall  be  valid  unless  it  is  signed  by  the  president  or 
a  vice-president,  and  by  the  treasurer  or  an  assistant  treasurer. 

All  certificates  surrendered  to  the  Company  shall  be  cancelled  and 
no  new  certificates  shall  be  issued  until  the  former  certificate  for  the 
same  number  of  shares  of  the  same  class  shall  have  been  surrendered 
and  cancelled. 

SECTION  2. — TRANSFER  OF  SHARES 

Transfer  of  Shares. — Shares  in  the  capital  stock  of  the  Company 
shall  be  transferred  only  on  the  books  of  the  Company  by  the  holder 
thereof  in  person,  or  by  his  attorney,  upon  surrender  and  cancella- 
tion of  certificates  for  a  like  number  of  shares. 

SECTION  3. — REGULATIONS 

Regulations. — The  Board  of  Directors,  and  the  Finance  Committee, 
also,  shall  have  power  and  authority  to  make  all  such  rules  and  regu- 
lations as  respectively  they  may  deem  expedient,  concerning  the  is- 


78  MATERIALS    OF    CORPORATION    FINANCE 

sue,  transfer  and  registration  of  certificates  for  shares  of  the  capital 
stock  of  the  Company. 

Transfer  Agent — Registrar. — The  Board  of  Directors  or  the  Finance 
Committee  may  appoint  a  transfer  agent  and  a  registrar  of  transfers, 
and  may  require  all  stock  certificates  to  bear  the  signature  of  such 
transfer  agent  and  of  such  registrar  of  transfers. 

SECTION  4. — CLOSING  OF  TRANSFER  BOOKS 

Closing  of  Transfer  Books. — The  stock  transfer  books  shall  be 
closed  for  the  meetings  of  the  stockholders,  and  for  the  payment  of 
dividends,  during  such  periods  as  from  time  to  time  may  be  fixed 
by  the  Board  of  Directors,  or  by  the  Finance  Committee,  and  during 
such  periods  no  stock  shall  be  transferable. 

SECTION  5. — DIVIDENDS 

Dividends. — The  Board  of  Directors  may  declare  dividends  from 
the  surplus  or  from  the  net  profits  of  the  Company. 

Dates  of  Declaration. — The  dates  for  the  declaration  of  dividends 
upon  the  preferred  stock  and  upon  the  common  stock  of  the  Com- 
pany shall  be  the  days  by  these  By-Laws  fixed  for  the  regular  monthly 
meetings  of  the  Board  of  Directors  in  the  months  of  April,  July, 
October  and  January  in  each  year,  on  which  days,  the  Board  of  Di- 
rectors in  its  discretion  shall  declare  what,  if  any,  dividends  shall  be 
declared  upon  the  preferred  stock  and  the  common  stock,  or  either  of 
such  stocks. 

Preferred;  When  Payable. — The  dividends  upon  the  preferred 
stock,  if  declared,  severally  and  respectively,  shall  be  payable  quar- 
terly upon  the  day  preceding  the  last  day  of  May,  of  August,  of  No- 
vember, and  of  February  in  each  year. 

Common;  When  Payable. — The  dividends  upon  the  common  stock, 
if  declared,  severally  and  respectively,  shall  be  payable  quarterly  on 
the  day  preceding  the  last  day  of  June,  of  September,  of  December 
and  of  Marcli  in  each  year. 

If  the  date  herein  appointed  for  the  payment  of  any  dividend  shall 
in  any  year  fall  upon  a  legal  holiday,  then  the  dividend  payable  on 
such  date  shall  be  paid  on  the  next  preceding  day  not  a  legal  holiday. 

SECTION  6. — WORKING  CAPITAL 

Working  Capital. — The  directors  shall  not  be  required  in  January 
in  each  year,  after  reserving  over  and  above  its  capital  stock  paid  in. 
as  a  working  capital  for  said  corporation,  such  sum,  if  any,  as  shall 


BY-LAWS  OF  UNITED  STATES  STEEL  CORPORATION      79 

have  been  fixed  by  the  stockholders,  to  declare  a  dividend  among  its 
stockholders  of  the  whole  of  its  accumulated  profits  exceeding  the 
amount  so  reserved,  and  pay  the  same  to  such  stockholders  on  de- 
mand; but  the  Board  of  Directors  may  fix  a  sum  which  may  be  set 
aside  or  reserved,  over  and  above  the  Company's  capital  paid  in,  as  a 
working  capital  for  the  Company,  and  from  time  to  time  they  may 
increase,  diminish  and  vary  the  same  in  their  absolute  judgment  and 
discretion. 

SECTION  7. — CORPORATE  SEAL 

Corporate  Seal. — The  Board  of  Directors  shall  provide  a  suitable 
seal,  containing  the  name  of  the  Company,  which  seal  shall  be  in 
charge  of  the  secretary.  If,  and  when  so  directed  by  the  Board  of 
Directors,  or  by  the  Finance  Committee,  a  duplicate  of  the  seal  may 
be  kept  and  be  used  by  the  treasurer  or  by  any  assistant  secretary  or 
assistant  treasurer. 

ARTICLE   VI 
SECTION  1. — AMENDMENTS 

Amendments. — The  Board  of  Directors  shall  have  power  to  make, 
amend  and  repeal  the  By-Laws  of  the  Company,  by  vote  of  a  majority 
of  all  of  the  directors,  at  any  regular  or  special  meeting  of  the  Board, 
provided  that  notice  of  intention  to  make,  amend  or  repeal  the  By-Laws 
in  whole  or  in  part  shall  have  been  given  at  the  next  preceding  meet- 
ing; or  without  any  such  notice,  by  a  vote  of  two-thirds  of  all  the 
directors. 


80  MATERIALS    OF    CORPORATION    FINANCE 


FORM  OF  ORGANIZATION  PAPERS  OF  A  CORPORATION, 
INCLUDING  MINUTES  OF  ORGANIZATION  MEET- 
INGS.- 

FIRST  MEETING  of  the  incorporators  and  subscribers  of  THE  HAM- 
ILTON AUTOMOBILE  COMPANY  of  New  York,  held  at  the  temporary 
office  of  the  company,  No.  1936  West  54th  Street,  in  the  Borough  of 
Manhattan,  City,  County  and  State  of  New  York,  on  the  16th  day 
of  April,  1908,  at  10  o'clock  in  the  forenoon. 

Mr.  Joseph  Hall,  one  of  the  subscribers  to  the  Certificate  of  Incor- 
poration and  to  the  capital  stock  of  the  corporation,  called  the  meet- 
ing to  order,  and  stated  the  object  thereof. 

On  motion  duly  made,  seconded  and  carried,  Mr.  Hall  was  nomi- 
nated Chairman  of  the  meeting,  and  a  vote  having  been  taken,  was 
3uly  elected  to  occupy  such  position. 

On  motion,  duly  made,  seconded  and  carried,  Mr.  James  McKeon 
was  nominated  temporary  Secretary  thereof,  and  a  vote  having  been 
taken,  was  duly  elected  to  occupy  such  position. 

Each  accepted  his  respective  office  and  discharged  the  duties  thereof 
until  the  close  of  the  meeting. 

There  were  present  the  following  subscribers  to  the  capital  stock 
of  the  corporation: 

Names.  Post  Office  Address. 

Joseph   Hall 1936  West  54th  Street,  New  York 

James  McKeon 1936  West  54th  Street,  New  York 

Andrew  J.  Cook 1325  West  83rd  Street,  New  York 

On  motion,  duly  made,  seconded  and  carried,  the  roll  of  incorpora- 
tors and  subscribers  was  called  by  the  Secretary,  and  each  of  the 
above  named  incorporators  and  subscribers,  personally  representing 
the  number  of  shares  set  opposite  his  name  respectively,  answered 
present,  showing  that  54  shares,  being  the  whole  number  of  shares 
subscribed  for,  were  present  in  person. 

At  the  close  of  the  roll  call,  the  Chairman  declared  that  54  shares 
of  the  capital  stock  were  represented,  which  was  the  whole  capita] 
stock  subscribed  for,  and  that  the  meeting  was  completely  organized 
and  competent  to  proceed  to  the  transaction  of  business. 

The  Secretary  then  presented  and  read  a  waiver  of  notice  of  the 
time  and  place  of  holding  the  present  meeting,  signed  by  all  the  in- 
corporators and  subscribers  to  the  capital  stock  of  the  company. 

i  Adapted  from  Commercial  Law,  by  Charles  W.  Gerstenberg  and  Thomas 
W.  Hiighes. 


CORPORATE  MINUTES  81 

Upon  motion,  duly  made,  seconded  and  carried,  the  same  was 
ordered  filed,  and  the  Secretary  was  requested  to  cause  the  same  to  be 
spread  at  length  upon  the  minutes  of  the  meeting. 

WAIVER    OF    NOTICE 

—of  the— 
Meeting  of  the   Incorporators   and  Subscribers 

—of  the— 

HAMILTON   AUTOMOBILE    COMPANY 

WE,  THE  UNDERSIGNED,  being  all  the  ^corporators  named  in  the 
certificate  of  incorporation  of  the  HAMILTON  AUTOMOBILE  COMPANY, 
and  all  the  subscribers  to  the  capital  stock  thereof,  DO  HEREBY  WAIVE 
all  notice  whatsoever  of  the  first  meeting  of  the  Incorporators  and  Sub- 
scribers to  the  capital  stock  of  said  Company,  and  do  consent  that  the  16th 
day  of  April,  1908,  at  10  o'clock  in  the  forenoon  be,  and  hereby  is  fixed 
as  the  time,  and  the  temporary  office  of  the  company,  at  1936  West  54th 
Street,  in  the  Borough  of  Manhattan,  City,  County  and  State  of  New  York, 
as  the  place  of  holding  the  same,  and  that  all  such  business  may  be  trans- 
acted thereat  as  may  lawfully  come  before  said  meeting. 

JOSEPH   HALL. 
JAMES  McKEON. 
ANDREW   J.   COOK. 
Dated  New  York.  April  12th,  1908. 

The  Secretary  then  presented  and  read  to  the  meeting  a  copy  of 
the  Certificate  of  Incorporation  of  the  Company,  and  reported  that 
the  same  had  been  filed  and  recorded  in  the  office  of  the  Secretary  of 
State  of  the  State  of  New  York,  on  the  10th  day  of  April,  1908,  and 
that  the  organization  tax  of  one-twentieth  of  one  per  cent,  on  the 
authorized  capital  stock  of  the  Company  had  been  paid  to  the  State 
Treasurer,  to  wit:  the  sum  of  Fifty  dollars  ($50.00) ;  that  a  receipt 
therefor  had  been  given  by  him  on  the  10th  day  of  April,  1908,  and 
that  a  duplicate  original  of  said  Certificate  of  Incorporation,  together 
with  receipt  from  the  State  Treasurer,  had  been  filed  in  the  office  of 
the  Clerk  of  the  County  of  New  York  (the  county  in  which  the  prin- 
cipal office  and  place  of  business  of  the  company  is  to  be  located), 
on  the  12th  day  of  April,  1908,  and  that  all  the  fees  for  filing  and 
recording  such  Certificate  and  receipt  had  been  duly  paid  before 
filing.  Upon  motion  duly  made,  seconded  and  unanimously  carried, 
it  was 

RESOLVED,  that  the  said  report  be  accepted  as  correct  and  the 
Secretary  be  requested  to  cause  such  Certificate  and  receipt  to  bo 
spread  at  length  upon  the  minutes  of  the  meeting. 

(Here  follows  the  Certificate.) 

Mr.  Cook,  one  of  the  directors,  on  behalf  of  those  named  as  directors 
in  the  certificate  of  incorporation,  presented  and  read  the  subscription 


82  MATERIALS    OF    CORPORATION    FINANCE 

list  to  the  capital  stock  of  the  corporation,  and  reported  that  fifty-four 
shares  of  said  capital  stock  had  been  subscribed  for,  which  are  the 
shares  only  that  were  subscribed  for  by  the  incorporators,  as  appears 
by  the  certificate  of  incorporation. 

On  motion,  duly  made,  seconded  and  carried,  it  was 

RESOLVED,  that  said  report  be  accepted  as  correct,  and  that  this 
company  accept  such  subscriptions,  and  notify  said  subscribers  of  the 
acceptance  of  their  respective  subscriptions. 

Upon  motion,  duly  made,  seconded  and  carried,  Charles  W.  Gers- 
tenberg,  Esq.,  counselor-at-law,  of  the  City  of  New  York,  was  ap- 
pointed a  committee  to  prepare  a  set  of  by-laws  for  the  regulation  of 
the  affairs  of  the  Company,  the  management  of  its  property,  the  trans- 
fer of  its  stock,  and  the  calling  of  meetings  of  the  shareholders  and 
directors,  and  fixing  what  attendance  and  what  amount  of  stock  must 
be  represented  thereat  to  constitute  a  quorum,  and  such  other  matters 
as  can  properly  be  contained  in  such  by-laws,  and  to  report  the  same 
to  the  meeting  at  their  earliest  convenience. 

Upon  motion,  duly  made,  seconded  and  carried,  a  recess  was  then 
taken  until  the  Committee  should  be  ready  to  report  to  the  meeting. 

The  Chairman  called  the  meeting  to  order,  and  announced  that 
the  Committee  was  ready  to  render  its  report,  whereupon  the  Com- 
mittee to  whom  had  been  entrusted  the  drawing  of  the  by-laws,  pre- 
sented its  report,  with  a  proposed  set  of  by-laws,  which  were  taken  up 
and  read,  clause  by  clause,  and  separately  and  carefully  considered 
and  discussed  at  length  by  the  members,  and 

Upon  motion,  duly  made,  seconded  and  carried,  the  following  wtre 
adopted  as  and  for  the  By-laws  of  the  Company,  and  the  Committee 
discharged. 

Upon  motion,  duly  made,  seconded  and  carried,  the  Secretary  was 
instructed  to  cause  the  same  to  be  spread  at  length  upon  the  minutes. 

(Here  Follow  the  By-Laws.) 

Upon  motion,  duly  made,  seconded  and  carried,  the  Board  of  Direc- 
tors was  requested,  authorized  and  empowered  to  open  books  of  sub- 
scriptions to  the  capital  stock  in  such  places  and  after  giving  such 
notice  as  they  may  deem  expedient  and  to  continue  to  receive  sub- 
scriptions until  the  whole  capital  stock  is  subscribed;  and  to  accept 
and  receive  payment  for  same,  ten  per  cent,  to  be  paid  in  cash  at  the 
time  of  each  subscription  by  every  subscriber,  whose  subscription  is 
payable  in  money. 

It  was  then  communicated  to  the  meeting  by  Joseph  Hall,  who 
attended  the  meeting  for  that  purpose,  that  he  was  willing  to  sell  this 
Company  the  patents,  franchises,  property,  contracts,  good  will,  and 


CORPORATE    MINUTES  83 

all  other  property  of  whatsoever  kind  or  description  belonging  or 
relating  to  a  certain  patented  automobile  horn  and  to  a  certain  pat- 
ented wind-shield,  for  the  sum  of  One  Hundred  Thousand  ($100,- 
000.00)  Dollars,  and  to  accept  in  payment  therefor  One  Hundred 
Thousand  ($100,000.00)  Dollars  of  the  capital  stock  of  this  Company 
at  par  value  thereof,  which  is  the  whole  capital  stock  of  this  Company. 
The  question  of  accepting  this  offer  was  presented  to  the  meeting,  and 
all  the  incorporators  and  stockholders  and  Directors  being  present, 
it  was, 

On  motion,  duly  made,  seconded  and  carried, 

RESOLVED,  that  this  Company  purchase  of  Joseph  Hall  the  pat- 
ents, franchises,  property,  contracts,  good  will,  and  all  other  of  what- 
soever kind  or  description  belonging  and  relating  to  a  certain  auto- 
mobile horn  and  a  certain  wind-shield,  commonly  known  as  the  Sur- 
prise Horn,  for  the  sum  of  One  Hundred  Thousand  ($100,000.00) 
Dollars,  to  be  paid  for  by  shares  of  the  capital  stock  of  this  Company 
at  par  value  thereof,  which  is  the  total  capital  stock  of  this  Company, 
and  it  is  further, 

RESOLVED,  that  the  President  and  Secretary  of  this  Company 
be,  and  they  hereby  are  directed  and  authorized  to  issue  to  the  said 
Joseph  Hall  all  the  stock  of  this  Company  unissued  and  unsubscribed 
for,  and  the  President  and  Secretary  procure  to  be  transferred  to 
said  Joseph  Hall,  fifty-four  (54)  shares  of  the  stock  now  subscribed 
for  by  the  said  Joseph  Hall,  James  McKeon  and  Andrew  T.  Cook, 
and  it  is  further, 

RESOLVED,  that  the  Company  proceed  to  carry  on  the  business 
for  which  it  was  incorporated. 

It  was  duly  moved,  seconded  and  carried,  that  the  principal  office 
of  the  corporation  be  fixed  at  1936  West  54th  Street,  in  the  Borough 
of  Manhattan,  City,  County  and  State  of  New  York. 

On  motion,  duly  made,  seconded  and  carried,  the  foregoing  minutes 
were  then  read  and  approved  as  and  for  the  minutes  of  the  meeting. 

On  motion,  the  meeting  thereupon  adjourned. 

T,  Joseph  Hall,  the  Chairman  of  the  foregoing  meeting,  and  T,  James 
McKeon,  the  Temporary  Secretary  thereat,  DO  HEREBY  CERTIFY  that 
the  foregoing  is  a  true,  full  and  accurate  statement  and  record  of  all  the 
acts  and  things  done  thereat. 

Dated  the  16th  day  of  April,  1908. 

JOSEPH  HALL, 

Chairman. 
JAMES  Mrl\n>\. 

Secretary. 

THE  HAMILTON  AUTOMOBILE  CO. 

MINUTES  OF  THE  FIRST  MEETING  OF  THE  BOARD  OF 
DIRECTORS,  held  at  the  temporary  office  of  the  Company.  193G 


84  MATERIALS    OF    CORPORATION    FINANCE 

West  54th  Street,  in  the  Borough  of  Manhattan,  City,  County  and 
State  of  New  York,  on  the  15th  day  of  April,  1908,  at  11 :30  o'clock 
in  the  forenoon. 

Present :    Messrs. 
Joseph  Hall, 
James  McKeon, 
Andrew  J.  Cook, 

being  all  the  Directors  named  in  the  Certificate  of  Incorporation  of 
the  Hamilton  Automobile  Co. 

Upon  motion,  duly  made,  seconded  and  carried,  Mr.  Cook  was 
nominated  and  elected  Temporary  Chairman. 

Mr.  Cook  accepted  the  position  of  Temporary  Chairman,  and  acted 
as  such  until  relieved  by  the  President. 

Upon  motion,  'duly  made,  seconded  and  carried,  Mr.  McKeon  was 
nominated  and  elected  Temporary  Secretary. 

Mr.  McKeon  thereupon  accepted  the  position  of  Temporary  Secre- 
tary, and  acted  as  such  until  relieved  by  the  permanent  Secretary. 

The  Chairman  then  requested  the  Secretary  to  read  the  list  of  Di- 
rectors for  the  first  year,  as  set  forth  in  the  Certificate  of  Incorpora- 
tion, and  the  following  was  the  list: 
Joseph  Hall, 
James  McKeon, 
Andrew  J.  Cook. 

The  Secretary  then  presented  and  read  to  the  meeting,  a  waiver 
of  notice  of  the  meeting,  subscribed  by  all  the  Directors  mentioned 
in  the  Certificate  of  Incorporation. 

On  motion,  duly  made,  seconded  and  carried,  it  was, 

RESOLVED,  that  the  same  be  ordered  on  file,  and  the  Secretary 
be  requested  to  cause  the  same  to  be  spread  at  length  upon  the  min- 
utes. 

WAIVER    OF    NOTICE 

—of  the— 
First  Meeting  of  Directors 

— of  the — 
HAMILTON    AUTOMOBILE    CO. 

WE,  the  undersigned,  being  all  the  Directors  of  The  Hamilton  Automo- 
bile Co.,  DO  HEREBY  WAIVE  all  notice  whatsoever  of  the  First  Meeting 
of  the  Board  of  Directors  of  said  Company,  and  do  consent  that  the  16th 
day  of  April,  1908,  at  11.30  o'clock  in  the  forenoon,  be,  and  hereby  is  fixed 
as  the  time,  and  the  temporary  office  of  the  Company,  at  1936  West  54th 
Street,  in  the  Borough  of  Manhattan.  City,  County  and  State  of  New  York, 


CORPORATE    MINUTES  85 

as  the  place  for  holding  the  same,  and  that  all  such  business  be  transacted 
thereat  as  may  lawfully  come  before  said  meeting. 
Dated  the  12th  day  of  April,  1908. 

JOSEPH  HALL. 

JAMES  McKEON. 

ANDREW  J.  COOK. 

The  Secretary  then  called  the  roll,  and  all  the  Directors  of  the 
Company  were  found  to  be  present. 

The  Chairman  thereupon  stated  that  a  quorum  was  present,  as 
required  by  the  By-laws. 

On  motion,  duly  made,  seconded  and  carried,  it  was 

RESOLVED,  that  the  Board  proceed  to  the  business  of  the  meet- 
ing. 

The  Secretary  then  presented  and  read  to  the  meeting  the  minutes 
of  the  first  meeting  of  the  Incorporators  and  Stockholders,  held  on 
the  16th  day  of  April,  1908,  at  10  o'clock  in  the  forenoon,  at  the 
temporary  office  of  the  Company,  1936  West  54th  Street,  New  York 
City. 

Upon  motion,  duly  made,  seconded  and  carried,  the  same  were  in 
all  respects  ratified,  approved  and  confirmed. 

The  Secretary  then  presented  and  read  to  the  meeting  the  By-laws 
adopted  at  the  said  meeting  of  the  Incorporators  and  Stockholders. 
The  same  were  taken  up  clause  by  clause,  discussed,  and  upon  motion, 
duly  made,  seconded  and  carried,  the  same  were  in  all  respects  rati- 
fied, confirmed  and  approved  as  and  for  the  By-laws  of  the  Company. 

The  Chairman  then  stated  that,  in  accordance  with  the  By-laws,  a 
President,  Vice-President,  Secretary  and  Treasurer  of  the  Company 
were  to  be  elected,  and  that  nominations  were  in  order. 

Mr.  Hall  was  nominated,  his  nomination  was  seconded  and  he  was 
unanimously  elected  president. 

The  temporary  chairman  then  withdrew  from  the  chair  and  Mr. 
Hall  thereafter  acted  as  the  chairman  of  the  meeting. 

The  meeting  thereupon  proceeded  to  the  election  of  a  vice-president, 
a  treasurer  and  a  secretary.  Nominations  were  duly  made,  seconded 
and  ballots  cast,  the  election  resulting  in  the  unanimous  choice  of 
the  following  officers: 

Vice-President Andrew  J.   Cook 

Treasurer Andrew  J.  Cook 

Secretary James   McKeon 

Upon  motion,  duly  made,  seconded  and  carried,  it  was 
RESOLVED,  that  the  first  Tuesday  of  each  month  at  10  A.  M.  be 


86  MATERIALS    OF   CORPORATION    FINANCE 

fixed  as  the  day  upon  which  the  regular  monthly  meetings  of  the 
Board  of  Directors  of  this  Company  will  be  held  during  the  ensuing 
year. 

The  following  preamble  and  resolution  for  the  purchase  of  property 
necessary  for  the  business  of  this  Company  and  for  the  issuance  of 
the  stock  of  this  Company,  fully  paid,  as  a  consideration"  therefor, 
were  thereupon  unanimously  adopted : 

WHEREAS,  a  resolution  was  passed,  at  a  meeting  of  the  Incor- 
porators  and  Stockholders  of  this  Company,  held  on  the  16th  day  of 
April,  1908,  accepting  a  proposition  for  the  sale  to  this  Company  of 
the  patents,  franchises,  property,  contracts,  good  will,  and  all  other 
property  of  whatsoever  kind  or  description,  belonging  or  relating  to 
a  certain  patented  automobile  horn  and  a  certain  wind-shield,  owned 
by  Joseph  Hall,  and  at  said  meeting  the  Directors  were  authorized 
and  instructed  to  accept  the  aforesaid  proposition  and  offer  to  pur- 
chase and  acquire  the  aforesaid  property,  and  to  pay  for  the  same  the 
fair  value  of  the  property  so  transferred,  as  fixed  by  the  aforesaid 
proposition,  and  to  offer  in  payment  the  full  paid  stock  of  this  Com- 
pany, provided  in  the  judgment  of  the  Board  of  Directors  the  said 
price  is  a  fair  valuation  thereof ;  and, 

WHEREAS,  in  the  judgment  of  the  Board  of  Directors,  after  a 
careful  examination  and  fair  appraisement,  this  Board  is  unanimously 
convinced  that  the  said  property  is  necessary  and  advantageous  for 
the  business  of  this  Company,  and  that  the  fair  value  thereof  is  £he 
amount  at  par  of  stock  proposed  to  be  issued  in  payment  thereof, 

NOW,  THEREFORE,  BE  IT  RESOLVED,  that  in  accordance 
with  the  provisions  of  the  said  resolution  of  the  stockholders,  and  in 
accordance  with  the  judgment  of  this  Board  of  Directors  this  Com- 
pany do  accept  the  aforesaid  proposition  and  offer  and  the  President 
and  Secretary  of  this  Company  are  hereby  authorized,  empowered  and 
instructed,  upon  delivery  of  said  property,  and  the  execution  and 
delivery  of  the  proper  legal  instruments  necessary  to  convey  and  trans- 
fer said  property,  to  issue  and  deliver,  in  accordance  with  this  reso- 
lution, the  full  paid  stock  of  this  Company,  to  the  full  amount  of  the 
capital  stock  unsubscribed  for  and  unissued,  and  to  procure  from  the 
original  incorporators  and  subscribers  to  the  stock,  a  transfer  of  the 
shares  held  by  them. 

On  motion,  duly  made,  seconded  and  carried,  it  was 

RESOLVED,  that  the  certificates  of  the  Capital  Stock  of  the 
Company  be  in  the  following  form: 


CORPORATE    MINUTES  87 

Incorporated  under  the  laws  of  the  State  of  New  York. 

Number  2.  Shares  . 

HAMILTON    AUTOMOBILE    CO. 
Capital  Stock,  $100,000. 

THIS  CERTIFIES  THAT  -  -  is  the  owner  of Shares  of  the 

Capital  Stock  of  HAMILTON  AUTOMOBILE  CO.,  FULL  PAID  AND  NON- 
ASSESSABLE, transferable  only  on  the  books  of  the  Corporation  by  the 
holder  hereof  in  person  or  by  Attorney,  upon  surrender  of  this  Certificate 
properly  endorsed. 

IN  WITNESS  WHEREOF,  the  said  Corporation  has  caused  this  Certificate 
to  be  signed  by  its  duly  authorized  officers  and  to  be  sealed  with  the  Seal 
of  the  Corporation  this  day  of ,  A.  D.  19 . 


Secretary.  President. 

Shares,  $100  each. 

Endorsed : 

For  Value  Received,  hereby  sell,  assign  and  transfer  unto , 

—    Shares    of   the    Capital    Stock    represented    by    the   within    Certificate, 

and  do  hereby  irrevocably  constitute  and  appoint to  transfer  the 

said  Stock  on  the  books  of  the  within  named  Corporation,  with  full  power 
of  substitution  in  the  premises. 
Dated ,   19—. 


In   presence   of 

NOTICE. — The  signature  of  this  assignment  must  correspond  with  the  name 
as  written  upon  the  face  of  the  certificate  in  every  particular,  without 
alteration  or  enlargement,  or  any  change  whatever. 

The  Secretary  then  read  a  resolution  of  the  Incorporators  and  Sub- 
scribers, adopted  at  the  meeting  held  on  the  16th  day  of  April,  1908, 
wherein  and  whereby  the  permanent  office  of  the  corporation  was  fixed 
at  No.  1936  West  54th  Street,  in  the  Borough  of  Manhattan,  City, 
County  and  State  of  New  York.  The  said  resolution  was  by  motion, 
duly  made,  seconded  and  carried,  affirmed  and  adopted. 

On  motion,  duly  made,  seconded  and  carried,  the  meeting 
ADJOURNED. 

THIS  IS  TO  CERTIFY,  that  I,  Andrew  J.  Cook,  and  I,  Joseph  Hall, 
Temporary  Chairman  and  President,  respectively,  at  the  above  meeting,  and 
I,  James  McKeon,  the  Temporary  Secretary  and  Permanent  Secretary  thereat, 
have  read  the  foregoing  minutes  of  said  meeting,  and  the  same  are  in  all 
respects  a  full,  true  and  accurate  record  of  the  proceedings  thereat. 
Dated  the  10th  day  of  April,  1908. 

ANDREW  J.  COOK, 
Temporary  Chairman. 
JOSEPH   HALL. 

President. 
JAMES  MCKEON, 

Secretary. 


MATERIALS    OF   CORPORATION"    FINANCE 


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Notice  hereby  is  given  that  the  Annual  Meetin 
at  the  Hudson  Trust  Company,  No.  51  Newark  St 
o'clock  noon,  for  the  transaction  of  any  and  all  bus 
all  purchases,  contracts,  acts,  proceedings,  election: 
holders  of  the  Corporation  on  April  17,  1911;  and  s 
the  proceedings)  of  the  Board  of  Directors,  which  ui 
of  the  Corporation,  71  Broadway;  the  election  of  ei 
of  the  Corporation  at  the  close  of  the  fiscal  year. 
The  stock  transfer  books  will  be  closed  at  the  cl 
Tuesday,  April  16,  1912. 

Hoboken,  New  Jersey,  February  27,  1912. 

As  the  stock  of  the  Corporation  should  be  repi 
wish  to  vote  as  therein  indicated,  may  sign  the  a 
Transfer  Office,  71  Broadway,  New  York. 
In  view  of  the  very  considerable  amount  of  det 
by  every  Stockholder. 
A  copy  of  the  Annual  Report  will  be  mailed  to  e 

1  In  the  original,  this  form  and  the  one  below  ar 

•ftnow  all  flften  bu  tbese  presents,  That  the  und 
HENBY  C.  P'BICK,  ELBEBT  H.  GABY,  NOBMAN  B.  REA 
proxies  of  the  undersigned,  with  power  of  substitutio 
either,  held  or  owned  by  the  undersigned,  at  the  Am 
Hoboken,  New  Jersey,  on  Monday,  the  fifteenth  da; 
before  the  meeting,  including  considering  and  votin 
the  Board  of  Directors  or  by  the  Finance  Committ< 
meeting  and  in  the  Annual  Report  to  Stockholders  f 
Finance  Committee,  the  election  of  eight  Directors  1 
before  the  meeting,  according  to  the  number  of  votes 
tofore  given  to  vote  upon  such  stock,  and  ratifying 
said  attorneys,  agents  and  proxies  who  shall  be  prest 
all  of  the  powers  of  all  said  attorneys,  agents  and  pi 
purchasos,  contracts,  acts,  proceedings,  elections  a 
WITNESS  hand  and  seal  this 
Witness: 

NOTICE    OF    MEETINt; 


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90  MATERIALS    OF    CORPORATION    FINANCE 


FOR  DIRECTORS 


OF  THE 


COMPANY 


VOTES    IN    PERSON 


VOTES  BY  PROXY- 


SHARES 


-SHARE? 


STOCKHOLDER    SIGNS    HERE 
Form  of  ballot  used  by  Erie  Railroad. 


VOTING    TRUST    AGREEMENT  91 

VOTING    TRUST    AGREEMENT,    INTERNATIONAL    HAR- 
VESTER   CO.    BETWEEN    WILLIAM    G.    LANE    AND 
GEORGE    W.    PERKINS,    CHARLES    DEERING,    AND 
CYRUS  H  McCORMICK,   VOTING  TRUSTEES,  DATED 
AUGUST  18,  1902* 

This  agreement,  made  in  the  City  of  New  York  this  thirteenth 
day  of  August,  one  thousand  nine  hundred  and  two,  by  and  between 
WILLIAM  C.  LANE,  party  of  the  first  part,  and  GEORGE  W.  PERKINS, 
CHARLES  DEERING  and  CYRUS  H.  MCCORMICK  (hereinafter  called  the 
"Voting  Trustees"),  parties  of  the  second  part, 

Witnesseth  as  follows: 

Whereas,  tin  International  Harvester  Company  (hereinafter  called 
the  "Company"),  is  a  corporation  organized  under  .the  laws  of  the 
State  of  New  Jersey,  with  a  capital  stock  of  $120,000,000,  divided  into 
1,200,000  shares,  of  the  par  value  of  $100  each,  all  of  which  stock 
has  been  issued  and  is  outstanding;  and 

Whereas,  the  party  of  the  first  part  has  caused  to  be  delivered  to 
the  Voting  Trustees  certificates  for  fully  paid  shares  of  the  capital 
stock  of  the  Compan}  to  the  amount  of  its  entire  capital  stock  (ex- 
cepting such  shares  as  are  necessary  to  qualify  directors)  ;  and  said 
certificates,  together  with  such  other  certificates  for  stock  of  the 
Company  as  hereafter,  from  time  to  time,  may  be  delivered  here- 
under,  are  to  be  held  and  disposed  of  by  the  Voting  Trustees  under 
and  pursuant  to  the  terms  and  conditions  hereof; 

Now,  therefore, 

First.  The  Voting  Trustees  agree  with  the  party  of  the  first  part, 
and  with  each  and  every  holder  of  stock  trust  certificates  issued  as 
hereinafter  provided,  that,  from  time  to  time,  upon  request,  they  will 
cause  to  be  issued  to  the  party  of  the  first  part,  or  upon  his  order,  in 
respect  of  said  stock  of  the  Company  received  from  him,  certificates 
in  substantially  the  following  form : 

INTERNATIONAL  HARVESTER  COMPANY. 
No.  Shares. 

STOCK   TRUST   CERTIFICATE. 

This  certifies  that,  as  hereinafter  provided, 

will  be  entitled  to  receive  a  certificate  or  certificates  for 

fully  paid  shares  of  one  hundred  dollars  each,  of  the  capital  stock 
of  the  International  Harvester  Company,  and,  in  the  meantime, 
to  receive  payments  equal  to  the  dividends  if  any,  collected  by 
the  Undersigned  Voting  Trustees  upon  a  like  number  of  surh 

1  From  Report  of  Bureau  of  Corporations,  on  The  International  Harvester 
Co. 


92  MATERIALS    OF    CORPORATION    FINANCE 

shares  standing  in  their  names;  such  dividends,  if  received  by 
the  Voting  Trustees  in  stock  of  said  Company,  to  be  payable  in 
stock  trust  certificates.  Until  the  actual  delivery  of  such  stock 
certificates,  the  Voting  Trustees  shall  possess,  in  respect  of  any 
and  all  of  such  stock,  and  shall  be  entitled,  in  their  discretion, 
to  exercise,  all  rights  and  powers  of  absolute  owners  of  said  stock, 
including  the  right  to  vote  for  every  purpose  and  to  consent  to 
any  corporate  act  of  said  Company;  it  being  expressly  stipulated 
that  no  voting  right  passes  by  or  under  this  certificate,  or  by  or 
under  any  agreement  expressed  or  implied. 

This  certificate  is  issued  pursuant  to,  and  the  rights  of  the 
holder  are  subject  to,  and  limited  by,  the  terms  and  conditions 
of  a  certain  agreement,  dated  the  thirteenth  day  of  August,  1902, 
by  and  between  William  C.  Lane  and  the  undersigned  Voting 
Trustees. 

Stock  certificates  shall  be  due  and  delivered  in  exchange  for 
stock  trust  certificates  on,  but  not  before  August  1,  1912,  unless 
a  majority  of  the  Voting  Trustees  elect,  as  they  may,  to  terminate 
said  agreement  after  August  1,  1907,  upon  not  less  than  ninety 
days'  notice. 

This  certificate  is  transferable  only  on  the  books  of  the  Voting 
Trustees  of  the  registered  holder  hereof,  either  in  person  or  by 
attorney  duly  authorized,  according  to  rules  established  for  that 
purpose  by  the  Voting  Trustees,  and  on  •  surrender  hereof ;  and, 
until  so  transferred,  the  Voting  Trustees  may  treat  the  regis- 
tered holder  as  owner  hereof  for  all  purposes  whatsoever,  except 
that  they  shall  not  be  required  to  deliver  stock  certificates  here- 
under  without  surrender  hereof. 

This  certificate  is  not  valid  unless  duly  signed  on  behalf  of 

the  undersigned  Voting  Trustees  by ,  their  agents, 

and  also  registered  by ,  as  Registrar. 

In  witness  whereof,  the  undersigned  Voting  Trustees  have 
caused  this  certificate  to  be  signed  by  their  duly  authorized 
agents,  • : ,  this  day  of  ,  one  thousand 

nine  hundred  and  .  , 

Voting  trustees. 


Their  agents. 

T>,,     

oy  -  , 

T>     •  ,       ,  ,.  .              ,  President. 

Registered  this day  of ,  190  . 

Registrar. 
Secretary. 


VOTING   TRUST    AGREEMENT  93 

Second.  At  any  time  after  August  1,  1907,  if  a  majority  of  the 
Voting  Trustees  so  decide,  this  agreement  may  be  terminated;  but 
at  least  ninety  days'  notice  of  an  intention  to  terminate  this  agree- 
ment must  be  given  by  the  Voting  Trustees  according  to  the  provi- 
sions of  Article  Tenth  hereof.  This  agreement  shall  in  any  event 
terminate  on  August  1,  1912,  without  notice  by  or  action  of  the  Vot- 
ing Trustees.  On  August  1,  1912,  or  upon  the  earlier  termination  of 
this  agreement,  the  Voting  Trustees,  in  exchange  for,  or  upon  sur- 
render of  any  stock  trust  certificate  then  outstanding,  shall,  in  ac- 
cordance with  the  terms  hereof,  deliver  proper  certificates  of  stock 
of  the  Company,  and  may  require  the  holders  of  stock  trust  certifi- 
cates to  exchange  them  for  certificates  of  capital  stock 

In  case  on  or  after  the  termination  of  said  agreement  the  Voting 
Trustees  shall  deposit  with  an  incorporated  bank  or  trust  company 
of  good  standing,  having  an  office  in  the  City  of  New  York,  stock 
certificates  properly  endorsed  for  transfer  in  blank,  representing 
stock  of  the  Company  to  a  par  amount  equal  to  the  par  amount  of 
stock  trust  certificates  outstanding,  with  authority  in  writing  to  such 
bank  or  trust  company  to  deliver  the  same  in  exchange  for  stock 
trust  certificates  when  and  as  surrendered  for  exchange  as  herein 
provided,  then  all  further  liability  of  said  Trustees,  or  any  of  them, 
for  the  delivery  of  stock  certificates  in  exchange  for  stock  trust  cer- 
tificates shall  cease  and  determine. 

Third.  The  term  Company,  for  the  purpose  of  this  agreement  and 
for  all  rights  thereunder,  including  the  issue  and  delivery  of  stock, 
shall  be  taken  to  mean  the  said  corporation  organized  under  the  laws 
of  the  State  of  New  Jersey,  or  any  successor  corporation  or  corpora- 
tions into  which  the  same  may  be  consolidated  or  merged. 

Fourth.  From  time  to  time  hereafter,  the  Voting  Trustees  may 
receive  any  additional  fully  paid  shares  of  the  capital  stock  of  the 
Company,  and  in  respect  of  all  such  shares  so  received,  will  issue 
and  deliver  certificates  similar  to  those  above  mentioned,  entitling  the 
holders  to  the  rights  above  specified.  In  case  the  Company  shall 
hereafter  have  both  common  and  preferred  stock  the  Voting  Trustees 
may  receive,  subject  to  the  provisions  hereof,  certificates  representing 
fully  paid  stock  of  each  class,  and  the  stock  trust  certificates  shall 
indicate  upon  their  face  whether  they  represent  common  or  preferred 
stock,  and  holders  of  stock  trust  certificates  representing  one  class 
of  stock  shall  have  no  interest  in,  or  claim  upon,  stock  of  the  other 
class.  In  any  event  the  stock  trust  certificates  outstanding  shall 
be  surrendered  by  the  holders  thereof  in  exchange  for  new  certificates 
specifying  the  class  of  stock,  whether  preferred  or  common,  repre- 
sented thereby.  In  case  the  Voting  Trustees  shall  receive  any  stock 


94  MATERIALS    OF   CORPORATION    FINANCE 

of  the  Company  issued  by  way  of  dividend  upon  stock  held  by  them 
subject  to  said  agreement,  they  shall  hold  such  stock  subject  to  the 
terms  of  said  agreement,  and  shall  issue  stock  trust  certificates  repre- 
senting such  stock  to  the  respective  registered  holders  of  the  then 
outstanding  stock  trust  certificates  entitled  to  such  dividend. 

Fifth.  Any  Voting  Trustee  may,  at  any  time,  resign  by  delivering 
to  the  other  Trustees,  in  writing,  his  resignation,  to  take  effect  ten 
days  thereafter.  In  case  of  the  death  or  the  resignation  or  inability 
of  any  Voting  Trustee  to  act,  the  vacancy  so  occurring  shall  be  filled 
by  the  appointment  of  a  successor  or  successors,  to  be  made  as  fol- 
lows :  Any  successor  in  the  line  of  succession  to  George  W.  Perkins 
shall  by  appointed  by  J.  P.  Morgan  &  Co.,  as  said  firm  now  is  or  may 
hereafter  be  constituted.  Any  successor  in  the  line  of  succession  to 
Charles  Deering  shall  be  appointed  by  James  Deering,  or  in  the  case 
of  his  failure  to  act,  by  Richard  F.  Howe,  and  in  case  of  the  failure 
of  either  to  act,  by  the  other  two  Voting  Trustees.  Any  successor  in 
the  line  of  succession  to  Cyrus  H.  McCormick  shall  be  appointed  by 
Harold  F.  McCormick,  or  in  case  of  his  failure  to  act,  by  Stanley 
McCormick,  and  in  case  of  the  failure  of  either  to  act,  by  the  other 
two  Voting  Trustees.  The  term  Voting  Trustees,  as  used  herein  and 
in  said  certificates,  shall  apply  to  the  parties  of  the  second  part  and 
their  successors  hereunder. 

Sixth.  The  Voting  Trustees  may  adopt  their  own  rules  of  pro- 
cedure. The  action  of  a  majority  of  the  Voting  Trustees  expressed 
from  time  to  time  at  a  meeting  or  by  writing  with  or  without  a  meet- 
ing, shall,  except  as  otherwise  herein  stated,  constitute  the  action  of 
the  Voting  Trustees  and  have  the  same  effect  as  though  assented  to 
by  all.  Any  Voting  Trustee  may  vote  in  person  or  by  proxy,  and 
may  act  as  a  director  or  officer  of  the  Company. 

Seventh.  In  voting  the  stock  held  by  them,  the  Voting  Trustees 
will  exercise  their  best  judgment  from  time  to  time  to  secure  suit- 
able directors,  to  the  end  that  the  affairs  of  the  Company  shall  be 
properly  managed,  and  in  voting  and  in  acting  on  other  matters 
which  shall  come  before  them  as  stockholders  or  at  stockholders' 
meetings,  will  likewise  exercise  their  best  judgment,  but  they  assume 
no  responsibility  in  respect  of  such  management  or  in  respect  of  any 
action  taken  by  them  or  taken  in  pursuance  of  their  consent  thereto 
as  such  stockholders,  or  in  pursuance  of  their  vote  so  cast,  and  no 
Voting  Trustee  shall  incur  any  responsibility  by  reason  of  any  error 
of  law  or  of  any  matter  or  thing  done  or  suffered  or  omitted  to  be 
done  under  this  agreement,  except  for  his  own  individual  willful 
malfeasance. 

Eighth.    The  Voting  Trustees  possess  and  shall  be  entitled  in  their 


VOTING   TRUST   AGREEMENT  95 

discretion  to  exercise,  until  the  actual  delivery  of  stock  certificates  in 
exchange  for  stock  trust  certificates,  all  rights  and  powers  of  absolute 
owners  of  said  stock,  including  the  right  to  vote  for  every  purpose  and 
to  consent  to  any  corporate  act  of  said  Company,  it  being  expressly 
stipulated  that  no  voting  right  passes  to  others  by  or  under  said  stock 
trust  certificates  or  by  or  under  this  agreement,  or  by  or  under  any 
agreement,  expressed  or  implied;  the  Voting  Trustees  shall  not,  how- 
ever, during  the  pendency  of  this  agreement,  vote  in  respect  of  the 
shares  of  the  capital  stock  of  the  Company  held  by  them,  to  authorize 
or  consent  to  any  mortgage  or  other  lien  upon  the  property  of  the 
Company,  or  (except  as  herein  otherwise  specifically  provided)  to 
authorize  any  increase  or  diminution  in  the  amount  of  the  authorized 
capital  stock  of  said  Company,  except  with  the  consent  in  each  in- 
stance of  the  holders  of  stock  trust  certificates  representing  two-thirds 
in  amount  of  each  class  of  stock  at  the  time  deposited  hereunder,  given 
in  writing,  or  by  vote  at  a  meeting  called  for  that  purpose;  provided, 
however,  that  the  Voting  Trustees  may,  in  their  discretion,  prior  to 
July  1,  1903,  without  the  consent  of  holders  of  any  stock  trust  cer- 
tificates, consent  to  and  authorize  the  increase  of  the  Company's 
capital  stock  to  an  amount  not  exceeding  one  hundred  and  eighty 
million  dollars  ($180,000,000). 

Ninth.  For  the  purposes  of  this  agreement  any  consent  in  writing 
!>y  the  holders  of  stock  trust  certificates  may  be  in  any  number  of 
concurrent  instruments  of  similar  tenor,  and  may  be  executed  by  the 
certificate  holders  in  person,  or  by  agent  or  attorney  appointed  by  an 
instrument  in  writing.  Proof  of  the  execution  of  any  such  consent, 
or  of  a  writing  appointing  any  such  agent  or  attorney,  or  of  the  hold- 
ing by  any  person  of  stock  trust  certificates  issued  hereunder,  shall  be 
sufficient  for  any  purpose  of  this  indenture,  and  shall  be  conclusive  in 
favor  of  the  Voting  Trustees  with  regard  to  any  action  taken  by 
them  under  such  consent,  if  made  in  the  following  manner,  viz. :  (a) 
the  fact  and  date  of  the  execution  by  any  person  of  any  such  consent 
may  be  proved  by  the  certificate  of  any  notary  public  or  other  officer 
authorized  to  take,  either  within  or  without  the  State  of  New  York, 
acknowledgements  of  deeds  to  be  recorded  in  any  State,  certifying 
that  the  person  signing  such  consent  acknowledged  to  him  the  execu- 
tion therof ;  or  by  the  affidavit  of  a  witness  to  such  execution.  (6) 
the  amount  of  stock  trust  certificates  held  by  any  person  executing 
any  such  consent  and  the  issue  of  the  same,  may  be  proved  by  a  cer- 
tificate executed  by  any  trust  company,  bank  or  other  depositary 
(wheresoever  situated)  whose  certificate  shall  be  deemed  by  the  Vot- 
ing Trustees  to  be  satisfactory,  showing  that  at  the  date  therein  men- 
tioned such  person  had  on  deposit  with  such  depositary,  or  exhibited 


96  MATERIALS    OF    CORPORATION    FINANCE 

to  it,  the  stock  trust  certificates  numbered  and  described  in  such  de- 
positary's certificate. 

Tenth.  All  notices  to  be  given  to  the  holders  of  stock  trust  certifi- 
cates hereunder  shall  be  given  either  by  mail  to  the  registered  holders 
of  stock  trust  certificates  at  the  addresses  furnished  by  such  holders 
to  the  Voting  Trustees  or  to  the  agents  of  the  Voting  Trustees,  or 
by  publication  in  two  daily  papers  of  general  circulation  in  the 
City  of  New  York  and  in  two  daily  papers  of  general  circulation  in  the 
City  of  Chicago,  twice  in  each  week  for  two  successive  weeks;  and 
any  call  or  notice  whatsoever,  when  either  mailed  or  published  by  the 
Voting  Trustees  as  herein  provided,  shall  be  taken  and  considered  as 
though  personally  served  on  all  parties  hereto,  including  the  holders 
of  said  stock  trust  certificates,  and  such  mailing  or  publication  shall 
be  the  only  notice  required  to  be  given  under  any  provision  of  this 
agreement. 

Eleventh.  This  agreement  may  be  simultaneously  executed  in  sev- 
eral counterparts,  each  of  which  so  executed  shall  be  deemed  to  be 
an  original,  and  such  counterparts  shall  together  constitute  but  one 
and  the  same  instrument. 

In  witness  whereof,  the  several  parties  have  hereunto  set  their 
hands  and  seals,  in  the  City  of  New  York,  the  day  and  year  first 
hereinabove  mentioned. 

WM.  C.  LANE.  [L.  s.] 

G.  W.  PERKINS.  [L.  s/fl 

CHARLES  DEERING.         [L.  s.]  Woting  trustees. 

CYRUS  H.  McCoRMiCK.  [L.  s.]  j 

STATE  OF  NEW  YORK,  ) 

>  ss.  '. 
County  of  New  York,    j 

On  this  thirteenth  day  of  August,  in  the  year  nineteen  hundred 
and  two,  before  me  personally  came  William  C.  Lane,  to  me  known, 
and  known  to  me  to  be  the  individual  described  in  and  who  executed 
the  foregoing  instrument,  and  he  acknowledged  to  me  that  he  executed 
the  same. 

[SEAL.]  JOHN  P.  TUOMEY, 

Notary  Public,  Kings  County. 
Certificate  filed  in  N.  Y.  Co. 


) 

I 

,  j 


STATE  OF  NEW  YORK, 

County  of  New  York 

On  this  thirteenth  day  of  August,  in  the  year  nineteen  hundred 
and  two,  before  me  personally  came  George  W.   Perkins,   Charles 


VOTING  TRUST  AGREEMENT  97 

Deering  and  Cyrus  H.  McCormick,  to  me  known,  and  known  to  me 
to  be  the  individuals  described  in  and  who  executed  the  foregoing 
instruments,  and  they  severally  acknowledged  to  me  that  they  ex- 
ecuted the  same. 

[SEAL.]  JOHN  J.  DALY, 

Notary  Public,  Kings  County. 
Certificate  filed  in  N.  Y.  Co. 


98 


MATERIALS    OF    CORPORATION    FINANCE 


GREAT  NORTHERN  IRON  ORE  PROPERTIES 
Trustees'  Certificate  of  Beneficial  Interest. 

The  undersigned,  as  Trustees  under  a  certain  Indenture  entered 
into  between  them  and  the  Lake  Superior  Company,  Ltd.,  on  the  7th 
day  of  December,  A.  D.  one  thousand  nine  hundred  and  six,  do  hereby 
certify  that  is  the  owner  of 

shares  of  the  beneficial 

interest  therein  specifically  described.  This  certificate  is  transferable 
only  upon  the  books  of  the  Trustees  in  person  or  by  attorney,  and 
upon  the  surrender  of  this  certificate.  This  certificate  shall  not  be 
valid  until  countersigned  by  the  Registrar  of  Transfers. 

IN  WITNESS  WHEREOF,  the  Trustees  have  signed  this  certificate 


this 

day  of 

191     . 

Trustees 

By.  . 

and  as  attor- 

Trustees. 

neys  for 

the  other 
Trustees. 

CORPORATE    ACTb  99 


CORPORATE  ACTS  REQUIRING  CONSENT  OR   VOTE  01 
STOCKHOLDERS  UNDER  THE  NEW  YORK  STATUTE. 

To  alter  or  amend  the  Certificate  of  Incorporation  a  vote  of  the 
stockholders  representing  at  least  three-fifths  of  the  capital  stock  at  a 
meeting  of  the  stockholders  called  for  the  purpose  is  required.  (Stock- 
Corporation  Law,  Sec.  18.) 

The  amount  of  the  capital  stock  may  be  increased  or  reduced  either 
by  the  unanimous  consent  of  the  stockholders  expressed  in  writing  and 
filed  in  the  office  of  the  Secretary  of  State  and  in  the  County  Clerk's 
office,  or  by  a  vote  of  the  stockholders  owning  at  least  a  -majority  of 
the  stock  of  the  corporation,  taken  at  a  meeting  of  the  stockholders 
especially  called  for  that  purpose.  ( Stock  Corporation  Law,  Sees.  62, 
63.) 

To  increase  or  reduce  the  par  value  of  shares  into  which  the  capital 
stock  is  divided  a  two-thirds  vote  of  all  the  stock  represented  at  a 
meeting  held  for  the  purpose  is  required.  (Stock  Corporation  Law, 
Sec.  65.) 

Every  stock  corporation  may  issue  preferred  stock,  if  the  Certi- 
ficate of  Incorporation  so  provides,  or  if  it  obtains  the  consent  of  the 
holders  of  record  of  two-thirds  of  the  capital  stock  at  a  special  meet- 
ing called  for  the  purpose.  (Stock  Corporation  Law,  Sec.  61.) 

The  vote  of  stockholders  owning  at  least  two-thirds  of  the  capital 
stock  of  a  corporation  is  necessary  to  effect  a  consolidation  with 
another  corporation.  (Business  Corporations  Law,  Sees.  7,  8.) 

A  stock  corporation,  excepting  a  railroad  or  a  public  service  cor- 
poration, may  sell  its  entire  property  with  the  consent  of  two-thirds 
of  its  stock.  (Stock  Corporation  Law,  Sees.  16,  17.) 

The  consent  of  not  less  than  two-thirds  of  the  capital  stock  is 
necessary  effectually  to  execute  a  mortgage  (except  a  purchase  money 
mortgage)  or  to  permit  the  authorization  of  the  issue  of  bonds  by  a 
corporation.  (Stock  Corporation  Law,  Sec.  6.) 

A  corporation  may  guarantee  the  bonds  or  securities  of  any  other 
domestic  corporation  engaged  in  the  same  general  line  of  business  in 
pursuance  of  a  unanimous  vote  of  the  stockholders,  voting  at  a  special 
meeting  called  for  the  purpose.  (Stock  Corporation  Law,  Sec  8.) 

Any  stock  corporation  owning  the  entire  capital  stock  of  any  other 
corporation  engaged  in  the  same  general  line  of  business  may  guar- 
antee the  bonds  or  securities  of  that  corporation  in  pursuance  of  a 
two-thirds  vote  of  its  stockholders,  voting  at  a  special  meeting  called 
for  that  purpose.  (Ibid.) 

A  corporation  may  voluntarily  dissolve  itself  with  the  consent  of 


100         MATERIALS    OF    CORPORATION    FINANCE 

the  holders  of  two-thirds  of  the  total  capital  stock  of  the  corporation. 
(General  Corporation  Law,  Sec.  221.) 

The  number  of  the  directors  of  a  corporation  may  be  changed  by 
the  affirmative  vote  of  holders  of  the  majority  of  the  stock  cast  at  a 
meeting,  or  by  unanimous  consent  without  a  meeting.  (Stock  Cor- 
poration Law,  Sec.  26.) 

A  majority  vote  at  the  annual  meeting  or  at  a  special  meeting  called 
for  the  purpose  is  necessary  to  make  the  by-laws  provide  for  the 
closing  of  the  transfer  books  prior  to  the  meeting  of  stockholders. 
(General  Corporation  Law,  Sec.  23.) 


CALIFORNIA   PETROLEUM    CORPORATION         101 


FROM  THE  ARTICLES  OF  INCORPORATION  OF  THE  CALI- 
FORNIA PETROLEUM  CORPORATION. 

The  capital  of  the  said  Corporation  shall  be  of  a  minimum  par 
value  of  Ten  Thousand  Dollars  ($10,000)  and  the  maximum  par 
value  of  Thirty-five  Million  Dollars  ($35,000,000),  divided  into 
shares  of  the  par  value  of  One  Hundred  Dollars  ($100)  each. 

The  minimum  capital  stock  shall  be  common  stock,  with  rights 
and  privileges  hereinafter  stated. 

Of  the  maximum  capital  stock,  seventeen  million  five  hundred 
thousand  dollars  ($17,500,000)  par  value,  or  a  maximum  of  one  hun- 
dred and  seventy-five  thousand  (175,000)  shares  of  the  par  value  of 
one  hundred  dollars  ($100)  each,  shall  be  seven  per  cent.  (7%) 
cumulative  preferred  stock,  participating  as  to  dividend,  and  seven- 
teen million  five  hundred  thousand  dollars  ($17,500,000)  par  value 
thereof,  or  a  maximum  of  one  hundred  and  seventy-five  thousand 
(175,000)  shares  of  the  par  value  of  one  hundred  dollars  ($100)  each, 
shall  be  common  stock,  which  said  preferred  stock  and  common  stock 
shall  be  issued  upon  the  terms  and  conditions  and  with  the  rights  and 
privileges  following,  that  is  to  say: 

A.  Out  of  the  surplus  profits  arising  from  the  business  of  the 
Corporation : 

FIRST.  The  holders  of  record  of  the  preferred  stock  are  entitled 
to  receive  dividends  at  the  rate  of  seven  per  cent.  (7%)  per  annum, 
payable  quarterly,  before  any  dividends  shall  be  declared,  set  aside 
or  paid  upon  the  common  stock,  and  such  dividends  shall  be  cumula- 
tive from  October  1,  1912. 

SECOND.  In  January  in  the  year  1915,  and  in  January  of  each 
year  thereafter,  out  of  any  remaining  surplus  profits  of  the  preceding 
year,  the  Corporation  shall  set  aside  for  the  purchase  or  redemption 
of  its  preferred  stock  or  of  bonds  of  subsidiary  companies  (which 
term  in  this  certificate  of  incorporation  includes  in  every  case  every 
company  in  which  the  Corporation  shall  own  a  majority  of  the  capital 
stock  and  every  company  in  which  any  such  subsidiary  company  shall 
own  a  majority  of  the  capital  stock)  or  both,  an  amount  equal  to  five 
cents  for  each  barrel  of  petroleum  produced  and  sold  by  the  Corpora- 
tion during  such  preceding  year ;  and,  for  each  barrel  produced  and 
sold  by  any  subsidiary  company,  an  amount  equal  to  five  cents  or 
such  part  thereof  as  shall  be  proportionate  to  the  Corporation's  stock 
interest,  direct  or  indirect,  in  such  subsidiary  company.  This  obliga- 
tion is  cumulative,  so  that  if  in  any  year  said  remaining  surplus 
profits  shall  be  insufficient  to  permit  the  full  amount  required  as 


SANTA  EArC.:rw\  STATE  COLLEGE  LIBRARl 


102         MATERIALS    OF    CORPORATION    FINANCE 

aforesaid  to  be  set  aside,  or  if  for  any  other  reason  such  full  amount 
shall  not  be  set  aside,  the  deficiency  shall  be  made  good  out  of  the  sur- 
plus profits  of  the  succeeding  fiscal  year  or  years  before  any  dividend 
shall  be  declared  or  paid  upon  the  common  stock.  All  moneys  at  any 
time  set  aside  pursuant  to  the  provisions  of  this  clause  Second  shall 
be  applied  as  promptly  as  practicable  and  in  any  case  before  the  next 
succeeding  first  day  of  July  of  each  year,  under  suitable  regulations 
to  be  established  by  the  By-Laws  or  by  resolution  of  the  Board  of 
Directors,  either  (a)  to  the  purchase  of  bonds  of  subsidiary  companies, 
or  (b)  to  the  purchase  or,  subject  to  the  provision  of  section  13  of 
chapter  5  of  said  Act  Concerning  Corporations,  the  redemption  of  the 
preferred  stock  of  the  Corporation,  at  the  election  of  the  Board  of 
Directors  of  the  Corporation,  provided  that  all  such  moneys  shall 
be  applied  in  the  manner  deemed  most  advantageous  to  the  Corpora- 
tion, and  that  the  prices  shall  not  exceed  in  the  case  of  the  preferred 
stock  of  the  Corporation,  one  hundred  and  twenty  dollars  ($120)  per 
share  and  accrued  dividends,  or  in  case  of  the  purchase  of  bonds  of 
subsidiary  companies,  the  redemption  price  thereof  as  fixed  therein. 
The  amounts  set  aside  for  the  purposes  of  this  clause  Second  shall 
not  be  required  to  be  actually  withdrawn  from  the  business  of  the 
Corporation  until  the  actual  application  thereof  as  herein  provided; 
but  such  amounts  shall  not  be  made  the  basis  of  a  stock  or  cash  divi- 
dend or  otherwise  distributed  among  the  holders  of  the  common  stock, 
nor  shall  the  said  amounts  be  depleted  or  used  in  any  other  way  which 
would  interfere  with  the  application  thereof  as  herein  required.  All 
bonds  so  purchased  shall  be  kept  alive,  until  paid  or  redeemed,  un- 
pledged in  the  treasury  of  the  Corporation,  unless  and  until  the  Cor- 
poration shall  own  all  the  capital  stock  of  the  subsidiary  company  or 
companies  liable  upon  the  same.  Preferred  stock  redeemed  or  pur- 
chased shall  not  be  reissued  and  no  preferred  stock  shall  be  issued  in 
lieu  thereof  or  in  exchange  therefor.  Surplus  profits  used  to  purchase 
or  redeem,  or  growing  out  of  the  purchase,  redemption  or  resulting 
reduction  of  preferred  stock  shall  be  and  thereafter  remain,  so  long 
as  any  of  the  preferred  stock  shall  be  outstanding,  unavailable  as  a 
basis  for  dividends. 

THIRD.  Out  of  any  surpus  profits  remaining  after  full  cumula- 
tive dividends  as  aforesaid  upon  the  preferred  stock  shall  have  been 
declared  and  paid  or  provided  for,  including  all  dividends  accrued 
or  in  arrears  and  such  dividend  for  the  current  quarterly  dividend 
period,  and  after  the  Corporation  shall  have  complied  with  the  above 
clause  Second  in  respect  of  any  and  all  amounts  then  or  theretofore 
due,  but  not  otherwise,  the  holders  of  record  of  the  common  stock 
shall  be  entitled  to  receive  non-cumulative  dividends  at  the  rate  of 


CALIFORNIA   PETKOLEUM   CORPORATION         103 

seven  per  cent,  per  annum,  before  the  payment  or  declaration  of  any 
dividends  upon  the  preferred  stock  in  excess  of  said  cumulative  prefer- 
ential 7%  dividends. 

FOURTH.  The  holders  of  record  of  the  preferred  and  of  the 
common  stock  shall  be  entitled  to  participate  ratably,  share  for  share, 
and  without  preference  of  either  class  over  the  other,  in  all  sums  de- 
clared as  dividends  out  of  any  surplus  profits  then  remaining. 

B.  The  preferred  stock  shall  be  preferred  as  to  both  earnings  and 
assets,  and  in  the  event  of  any  liquidation  or  dissolution  or  winding 
up  of  the  Corporation,  the  holders  of  record  of  the  preferred  stock 
phall  be  entitled,  before  any  distribution  shall  be  made  to  the  holders 
of  the  common  stock,  to  be  paid  in  full  the  par  amount  of  their  shares, 
together  with  all  dividends  accrued  or  in  arrears,  and,  if  such  liquida- 
tion or  dissolution  or  winding  up  be  voluntary,  a  further  sum  equal 
to  twenty  per  cent,  of  such  par  amount ;  and  the  holders  of  record  of 
the  common  stock  shall  be  entitled,  to  the  exclusion  of  the  holders  of 
record  of  the  preferred  stock,  to  share  ratably  in  all  assets  of  the  Cor- 
poration then  remaining.     If  upon  any  such  liquidation,  dissolution 
or  winding  up  of  the  Corporation,  the  assets  thus  distributable  among 
the  holders  of  such  preferred  stock  shall  be  insufficient  to  permit  the 
payment  to  such  preferred  stockholders  of  the  preferential  amounts 
aforesaid,  then  the  entire  assets  of  the  Corporation  shall  be  distributed 
ratably  among  holders  of  said  preferred  stock.    The  term  "dividends 
accrued  or  in  arrears"  whenever  used  in  this  certificate  with  reference 
to  such  preferred  stock  shall  be  deemed  to  mean  that  amount  which 
shall  be  equal  to  seven  per  cent.  (7%)  per  annum  upon  the  par  value 
of  paid  stock  from  October  1,  1912,  the  date  of  distribution  or  redemp- 
tion as  the  case  may  be,  less  the  aggregate  amount  of  all  regular  seven 
per  cent,  preferred  dividends  paid  upon  said  stock,  plus  any  dividends 
declared  and  unpaid  under  clause  Fourth  of  subdivision  A. 

C.  The  Corporation  may,  subject  to  the  provisions  of  section  13 
of  chapter  5  of  said  Act  Concerning  Corporations,  redeem  the  whole 
or  any  part  of  the  preferred  stock  at  any  time  or  from  time  to  time 
by  lot  or  pro  rata  at  one  hundred  and  twenty  per  cent,  of  the  par 
value  thereof  plus  dividends  accrued  or  in  arrears,  upon  forty  days 
notice  and  by  such  method  as  shall  be  provided  from' time  to  time 
by  the  by-laws. 

1).  Without  the  affirmative  vote  or  written  consent  of  the  holders 
of  at  least  three-fourths  in  amount  of  the  outstanding  preferred  stock, 
the  Corporation  shall  not : 

(1)  Change  either  by  increase,  diminution  or  otherwise  the  voting 
power  of  either  the  preferred  or  common  stock  as  fixed  in  this  cer- 
tificate; or 


104         MATEEIALS    OF   CORPORATION    FINANCE 

(2)  Sell,  lease  or  otherwise  dispose  of  the  property,  franchise 
and  business  of  the  Corporation  in  their  entirety  or  any  stock  of  any 
subsidiary  company,  or  permit  any  subsidiary  company  to  make  such 
sale  or  other  disposition  of  its  property,  except  to  the  Corporation 
or  some  other  subsidiary  company;  or 

(3)  Create  or  permit  any  subsidiary  company  to  create  any  mort, 
gage  or  other  lien  to  secure  an  issue  of  bonds  or  otherwise,  or  permit 
any  subsidiary  company  to  issue  any  additional  bonds  under  any 
present  mortgage;  or 

(4)  Create  any  shares  of  stock  having  priority  over  or  on  a  parity 
with  the  authorized  preferred  stock,  or  permit  any  subsidiary  com- 
pany to  issue  any  shares  of  stock  without  acquiring  its  proportionate 
part  thereof;  or 

(5)  Issue  any  of  the  authorized  preferred  stock  in  excess  of  $15,- 
000,000  in  the  aggregate  except  for  the  acquisition  of  additional  in- 
come-producing oil  properties ;  or 

(6)  After  October  1,  1913,  issue  any  of  the  authorized  preferred 
stock,  in  excess  of  $12,500,000  in  the  aggregate,  unless  the  net  earn- 
ings or  profits  of  the  Corporation  available  for  dividends  on  the  pre- 
ferred stock  for  the  last  preceding  fiscal  year  of  twelve  months  shall 
have  been  at  least  equal  to  twice  the  annual  dividends  on  the  pre- 
ferred stock  outstanding  and  so  to  be  issued. 

E.  The  preferred  stock  shall  have  no  voting  power  except  as  above 
stated,  and  except  that  in  case  the  Corporation  shall  fail  for  four 
quarterly  periods  to  declare  and  pay  the  full  regular  quarterly  divi- 
dend on  the  preferred  stock,  then  and  so  long  as  there  shall  be  any 
arrears  of  dividends  upon  the  preferred  stock  the  holders  of  record 
of  the  preferred  stock  outstanding,  voting  as  a  class,  shall  be  entitled 
to  elect  the  remainder  of  the  board.  If,  however,  all  such  accrued 
instalments  and  arrearages  shall  be  paid  by  the  Corporation  at  any 
time,  then  and  thereupon  the  power  of  the  preferred  stockholders  to 
elect  directors  shall  cease,  subject,  however,  to  being  again  revived 
upon  any  subsequent  failure  of  the  Corporation  to  comply  with  the 
conditions  herein  stated. 


CHICAGO,  MILWAUKEE  &  ST.  PAUL  RAILWAY  CO.    105 


FROM     THE     ARTICLES     OF     ASSOCIATION     OF     THE 
CHICAGO,  MILWAUKEE  AND  ST.  PAUL  RAILWAY  CO. 

Third — Our  capital  stock  shall  not  exceed,  except  as  hereinafter 
provided,  $4,200,000  divided  into  42,000  shares,  which  said  shares 
shall  be  sub-divided  as  follows : 

An  amount  not  exceeding  $3,450,000,  or  34,500  shares,  shall  be  set 
apart  and  designated  as  "Preferred  Stock,"  and  the  full  sum  of  $100 
per  share  we  hereby  declare  and  acknowledge  to  be  paid  thereon,  except 
on  so  much  of  this  class  as  is  hereinafter  designated  as  "Scrip  Pre- 
ferred Stock";  and  on  this  scrip  stock  we  hereby  declare  and  ac- 
knowledge the  sum  of  one  dollar  per  share  to  be  paid. 

The  balance  of  said  stock  of  $750,000,  or  7,500  shares,  shall  be 
designated  as  common  stock;  and  we  hereby  declare  and  acknowledge 
the  full  sum  of  one  hundred  dollars  per  share  to  have  been  paid 
thereon. 

Of  the  said  $3,450,000  preferred  stock  an  amount  not  exceeding 
$2,200,000  at  par,  or  22,000  shares,  shall  be  set  apart  and  designated 
as  "scrip  preferred  stock";  the  scrip  preferred  stock  here  named,  or 
hereafter  named,  shall  not  at  any  time  exceed  the  amount  of  outstand- 
ing mortgage  bonds  hereinafter  named. 

The  scrip  preferred  stock  shall  not  be  subject  to  any  assessment,  and 
shall  entitle  the  person  in  whose  name  it  stands  upon  our  books  to 
all  the  rights  and  privileges  of  other  stockholders,  except  that  it  shall 
not  entitle  the  holder  to  any  dividend  or  other  profit  or  increase 
from  the  income  or  assets  of  this  company. 

It  shall  be  issued  in  certificates  of  five  and  ten  shares  each,  and 
shall  accompany  each  mortgage  bond  of  the  company.  The  holder 
thereof  shall  have  the  right  at  any  time  within  ten  days  after  any 
dividend  shall  have  been  declared  and  become  payable  on  the  pre- 
ferred stock,  to  make  the  scrip  preferred  stock  attached  to  his  bond 
full  paid  stock  upon  the  surrender  to  the  company  of  the  mortgage 
bond  named  by  its  number  in  his  scrip  certificate,  and,  upon  sur- 
rendering said  scrip  certificate  and  bond,  he  shall  be  entitled  to 
receive  therefor  the  same  number  of  shares  of  preferred  full  paid 
stock  and  entitled  to  dividends. 

The  said  preferred  stock,  except  said  scrip  stock,  shall  be  entitled 
to  a  dividend  of  seven  per  centum  per  annum  from  the  net  earnings 
of  each  current  year  after  payment  of  interest  on  all  the  mortgage 
bonds,  if  the  company  earn  so  much  during  the  current  year,  and 
before  the  payment  of  dividends  to  any  other  class  of  stockholders; 
but  the  company  may  reserve  a  reasonable  working  capital  or  surplus 


106         MATERIALS    OF    CORPORATION    FINANCE 

before  the  dividend  shall  be  declared  or  paid  on  said  preferred  stock, 
while  surplus  shall  not  exceed  at  any  time,  the  aggregate  sum  of 
$250,000  over  and  above  the  floating  or  unfunded  debt  and  the  accrued 
interest  on  the  mortgage  bonds.  If  the  net  earnings  of  the  company 
are  not  as  much  as  seven  per  cent,  in  any  one  year  then  the  said 
preferred  stock  shall  receive,  for  that  year,  a  dividend  of  whatever 
the  said  net  earnings  are  after  the  payment  of  interest  on  the  mortgage 
bonds  and  the  reasonable  reserve  for  a  working  capital  as  above  de- 
scribed. Said  preferred  stock  shall  not  have  any  claim  upon  the 
earnings  of  any  other  year  for  the  non-pa3^ment  of  dividends  of  any 
preceding  year.  And  whenever  the  company  earns  sufficient  over  and 
above  the  payment  of  interest  on  the  bonds  and  the  reserve  above 
named  to  pay  a  greater  sum  than  seven  per  cent,  on  said  outstanding 
preferred  stock  and  seven  per  cent,  on  the  common  stock,  then  the 
said  preferred  stock  shall  share  pro  rata  with  the  common  stock  in 
such  earnings. 


FROM  THE  CERTIFICATE  OF  INCORPORATION    10? 


FROM  THE  CERTIFICATE  OF  INCORPORATION  OF  THE 
MAY  DEPARTMENT  STORES  COMPANY. 

(a)  The  number  of  shares  of  which  the  capital  stock  shall  consist 
is  Two  Hundred  Thirty-two  Thousand  Five  Hundred  (232,500)  of 
the  par  value  of  One  Hundred  ($100)  Dollars  each,  of  which  Eighty- 
two   Thousand   Five   Hundred    (82,500)    shares  shall   be   preferred 
stock  and  One  Hundred  Fifty  Thousand   (150,000)   shares  shall  be 
common  stock.     The  amount  of  capital  with  which  the  corporation 
will  begin  business  is  Two  Thousand  Five  Hundred  ($2,500)  Dollars. 

(b)  The  holders  of  the  preferred  stock  shall  be  entitled  to  receive, 
and  the  corporation  shall  be  obligated  to  pay,  but  only  out  of  the 
surplus  or  net  profits  of  the  corporation,  dividends  at  the  rate  of 
seven  per  cent,  per  annum  payable  quarter-yearly  on  the  first  days  of 
October,  January,  April  and  July  in  each  year,  the  first  quarter- 
yearly  dividends  being  payable  on  October  1,  1910;  and  said  dividends 
upon  said  preferred  stock  shall  be  paid  or  set  apart  before  any  divi- 
dend shall  be  paid  or  set  apart  on  the  common  stock.      Said  dividends 
on  the  preferred  stock  shall  be  cumulative,  so  that  if  the  corporation 
shall  fail  on  any  dividend  day  to  pay  such  dividends  or  any  part 
thereof  on  all  of  the  issued  and  outstanding  preferred  stock,  such 
deficiency  in  the  dividends  shall  be  fully  paid,  but  without  interest, 
before  any  dividends  shall  be  paid  or  set  apart  on  the  common  stock. 
Subject  to  the  foregoing  provisions,  said  preferred  stock  shall  not, 
however,  be  entitled  to  participate  in  any  other  or  additional  earnings 
or  profits  of  the  corporation. 

(c)  The  whole  of  the  preferred  stock,  or  any  part  thereof,  may 
be  redeemed  at  any  time  at  the  option  of  the  Board  of  Directors,  upon 
three  months'  previous  written  or  published  notice  to  the  holders  of 
record  of  such  stock  given  in  such  manner  as  may  be  prescribed  by 
the  by-laws,  or  by  resolution  of  its  Board  of  Directors,  by  paying 
therefor  in  cash  the  par  value  of  said  preferred  stock,  and  in  addition 
thereto  all  unpaid  accrued  dividends  thereon  at  the  date  fixed  for 
such  redemption,  and  also  a  bonus  of  Twenty-five  ($25)  dollars  for 
each  share  of  preferred  stock  so  redeemed.    If  at  any  time  less  than 
the  whole  of  the  preferred  stock  then  issued  and  outstanding  shall 
be  called  for  redemption,  only  such  proportion  of  the  said  stock  held 
by  each  preferred  stockholder  shall  be  redeemed  as  the  total  amount 
of  stock  then  called  for  redemption  shall  bear  to  the  total  amount  of 
preferred  stock  of  the  corporation  then  outstanding. 

(d)  Between  the  first  day  of  July,  1910,  and  the  first  dny  of  July, 
1013,  there  shall  be  set  apart  in  and  for  each  year,  out  of  the  surplus 

5 


108         MATERIALS    OF    CORPORATION    FINANCE 

or  net  profits  of  the  Company,  after  all  accrued  dividends  upon  all 
preferred  stock  then  outstanding  shall  have  been  paid  or  set  apart,  a 
sum  of  money  not  less  than  One  Hundred  Fifty  Thousand  ($150,000) 
Dollars  in  a  fund  to  be  known  as  "Special  Surplus  Account."  Be- 
tween said  first  day  of  July,  1910,  and  said  first  day  of  July,  1913, 
said  Special  Surplus  Account  so  set  apart  may,  at  the  option  of  the 
Board  of  Directors  of  the  corporation,  be  held  by  the  corporation  and 
added  to  its  general  surplus,  or  may  be  used  at  any  time  wholly  or 
partially  for  the  acquisition  of  preferred  stock.  After  the  first  day 
of  July,  1913,  there  shall  be  set  apart  in  said  Surplus  Account  in 
and  for  each  year  (so  long  as  there  shall  be  any  preferred  stock 
outstanding),  out  of  the  surplus  or  net  profits  of  the  Company,  after 
all  accrued  dividends  upon  all  preferred  stock  then  outstanding 
shall  have  been  paid,  a  sum  sufficient'  to  acquire  at  least  three  per 
cent.  (3%)  of  the  largest  amount  in  par  value  of  said  preferred  stock 
that  shall  have  been  at  any  one  time  issued  and  outstanding. 

In  each  year  after  the  first  day  of  July,  1913,  the  corporation 
shall  acquire  with  the  funds  of  said  Special  Surplus  Account  at 
least  three  per  cent.  (3%)  of  the  largest  amount  in  par  value  of 
said  preferred  stock'  that  shall  have  been  at  any  one  time  issued  and 
outstanding.  Said  preferred  stock  shall  be  acquired  by  redemption 
or  purchase  at  the  lowest  prices  at  which  the  same  may  be  obtainable 
by  the  Company,  but  in  no  event  exceeding  the  par  value  thereof 
plus  accrued  and  unpaid  dividends  and  a  bonus  of  twenty-five  per 
cent.  (25%)  upon  the  par  value  thereof,  and  shall  be  acquired  in 
such  manner  as  the  Board  of  Directors  may  from  time  to  time  choose, 
either  at  public  or  private  sale,  and  no  preferred  stock  thus  acquired 
shall  be  reissued  by  the  Company.  All  preferred  stock  acquired  for 
said  Special  Surplus  Account,  as  hereinbefore  provided,  shall,  as  soon 
as  acquired,  be  cancelled,  and  the  capital  stock  of  the  corporation  shall 
from  time  to  time  be  accordingly  reduced  in  accordance  with  require- 
ments of  the  Stock  Corporation  Law.  If  in  any  year  the  amount 
actually  set  apart  in  said  Special  Surplus  Account  out  of  the  net 
profits  of  the  Company  is  less  than  the  amount  required  to  be  so  set 
apart,  then  such  deficiency  shall  be  made  good  out  of  the  net  profits 
of  subsequent  years  before  any  dividends  shall  be  declared  or  paid 
upon  the  common  stock.  If,  in  any  year,  the  amount  actually  set 
apart  in  said  Special  Surplus  Account  is  more  than  the  amount  re- 
quired to  be  so  set  apart,  then  such  excess  may  be  credited  to  the 
amount  required  to  be  set  apart  in  subsequent  years. 

(e)  In  no  event  shall  any  dividend  be  paid  or  declared  on  the 
common  stock  in  or  for  any  year  (if  prior  to  July  1,  1913)  until  the 
sum  of  $150,000  shall  have  been  set  apart  for  such  year  in  said  Special 


FROM  THE  CERTIFICATE  OF  INCORPORATION        109 

Surplus  Account,  nor  until  (if  subsequent  to  July  1,  1913)  there  shall 
have  been  first  set  apart  for  such  year  in  said  Special  Surplus  Account 
a  sum  sufficient  to  acquire,  and  there  shall  have  been  acquired,  out  of 
said  Special  Surplus  Account  an  amount  of  preferred  stock  equal  to 
three  per  cent.  (3%)  of  the  largest  amount  in  par  value  of  said  pre- 
ferred stock  that  shall  have  been  at  any  one  time  issued  and  out- 
standing, nor  so  long  as  there  shall  be  any  arrears  in  respect  of  said 
Special  Surplus  Account  or  in  the  acquisition  of  preferred  stock 
therefor. 

No  dividend  whatever  shall  be  paid  or  declared  upon  the  common 
stock  until  there  shall  have  been  first  accumulated  and  set  apart  in 
said  Special  Surplus  Account  at  least  the  sum  of  $250,000  (such 
sum  being  either  in  the  form  of  cash  or  its  equivalent,  or  of  preferred 
stock  theretofore  acquired  and  cancelled  by  the  Company),  nor  shall 
any  dividend  be  paid  or  declared  upon  the  common  stock  which  would 
reduce  said  Special  Surplus  Account  below  $250,000.  No  dividend 
in  excess  of  4%  per  annum  in  and  for  any  one  year  shall  be  paid 
or  declared  on  the  common  stock  until  and  unless  there  shall  have 
been  first  accumulated  and  set  apart  in  said  Special  Surplus  Account 
at  least  the  sum  of  $1,000,000  (such  sum  being  either  in  the  form 
of  cash  or  its  equivalent,  or  of  preferred  stock  theretofore  acquired 
and  cancelled  by  the  Company),  nor  shall  any  dividend  in  excess 
of  4%  per  annum  in  and  for  any  one  year  be  paid  or  declared  on 
the  common  stock  which  would  reduce  said  Special  Surplus  Account 
below  $1,000,000. 

The  Special  Surplus  Account  may  be  used  for  the  payment  of  divi- 
dends on  the  preferred  stock,  provided  there  are  no  other  funds  of 
the  Company  applicable  for  that  purpose,  and  provided  further  that  all 
encroachments  upon  or  arrears  in  said  fund  shall  be  first  made  good 
before  any  dividend  shall  thereafter  at  any  time  be  paid  or  declared 
on  the  common  stock. 

(f)  Subject  to  the  foregoing  provisions,  and  not  otherwise,  divi- 
dends at  such  rate  as  may  be  determined  by  the  Board  of  Directors, 
may  be  declared  and' paid  on  the  common  stock  from  time  to  time 
out  of  the  remaining  surplus  or  net  profits  of  the  Company. 

(g)  From  time  to  time  the  preferred  stock  and  the  common  stock 
may  be  increased  according  to  law,  and  may  be  issued  in  such  amounts 
and  proportions  as  shall  be  determined  by  the  Board  of  Directors,  and 
a-  may  be  permitted  by  law,  but  the  preferred  stock  by  this  certificate 
authorized  shall  not  be  increased  unless  such  increase  shall  have  been 
previously  authorized   by   the  consent  of  at  least  three-fourths  in 
interest  of  the  issued  and  outstanding  stock  of  the  Company  of  each 
class,  preferred  and  common,  given  separately,  in  person  or  by  proxy, 


110         MATEEIALS    OF    CORPORATION    FINANCE 

at  a  meeting  regularly  called  for  that  purpose,  or  by  the  unanimous 
consent  of  all  the  stockholders  in  writing. 

(h)  Upon  any  dissolution  or  liquidation  of  said  corporation  or  in 
the  event  of  its  insolvency,  or  upon  any  distribution  of  capital,  there 
shall  be  paid  to  the  holders  of  the  preferred  stock  the  par  value 
thereof  and  the  amount  of  all  unpaid  accrued  dividends  thereon, 
before  any  sum  shall  be  paid,  or  any  assets  distributed,  among  the 
holders  of  the  common  stock;  and  after  the  payment  to  the  holders 
of  the  preferred  stock  of  its  par  value,  and  the  unpaid  accrued  divi- 
dends thereon,  the  remaining  assets  and  funds  of  the  corporation 
shall  be  divided  among  and  paid  to  the  holders  of  the  common  stock 
according  to  their  respective  shares. 

(i)  The  entire  voting  power  for  the  election  of  directors  shall 
be  vested  in  the  common  stock,  except  as  in  this  paragraph  otherwise 
provided.  The  preferred  stock  shall  have  no  voting  power  in  the 
elections  for  directors,  unless  and  until  two  quarterly  dividends  pay- 
able thereon  shall  be  in  default.  Immediately  upon  the  happening 
of  such  event  and  thereafter  until  such  defaults,  and  all  defaults 
subsequent  thereto,  shall  have  been  made  good,  the  common  stock 
shall  have  no  voting  power  of  the  corporation  for  directors,  and  the 
entire  voting  power  in  the  elections  for  directors  shall  become  and 
remain  vested  exclusively  in  the  holders  of  the  preferred  stock. 

At  all  stockholders'  meetings,  except  as  expressly  otherwise  provided 
in  this  certificate  of  incorporation,  each  share  of  stock  of  the  corpora- 
tion, both  preferred  and  common,  shall  be  entitled  to  one  vote. 


TRANSFERS  OF   CERTIFICATES   AND   SHARES     111 


TRANSFERS  OF  CERTIFICATES  AND  SHARES 
OF   STOCK.1 

§  162.  How  title  to  certificates  and  shares  may  be  transferred. 
Title  to  a  certificate  and  to  the  shares  represented  thereby  can  be 
transferred  only, 

(a)  By  delivery  of  the  certificate  indorsed  either  in  blank  or  to  a 
specified  person  by  the  person  appearing  by  the  certificate  to  be  the 
owner  of  the  shares  represented  thereby,  or 

(b)  By  delivery  of  the  certificate  and  a  separate  document  contain- 
ing a  written  assignment  of  the  certificate  or  a  power  of  attorney  to 
sell,  assign  or  transfer  the  same  or  the  shares  represented  thereby, 
signed  by  the  person  appearing  by  the  certificate  to  be  the  owner  of 
the  shares  represented  thereby.    Such  assignment  or  power  of  attorney 
may  be  either  in  blank  or  to  a  specified  person. 

The  provisions  of  this  section  shall  be  applicable  although  the  char- 
ter or  articles  of  incorporation  or  code  of  regulations  or  by-laws  of 
the  corporation  issuing  the  certificate  and  the  certificate  itself  pro- 
vide that  the  shares  represented  thereby  shall  be  transferable  only  on 
the  books  of  the  corporation  or  shall  be  registered  by  a  registrar  or 
transferred  by  a  transfer  agent. 

§  163.  Powers  of  those  lacking  full  legal  capacity  and  of  fidu- 
ciaries not  enlarged.  Nothing  in  this  article  shall  be  construed  as 
enlarging  the  powers  of  an  infant  or  other  person  lacking  full  legal 
capacity,  or  of  a  trustee,  executor  or  administrator,  or  other  fiduciary, 
to  make  a  valid  indorsement,  assignment  or  power  of  attorney. 

§  164.  Corporation  not  forbidden  to  treat  registered  holder  as 
owner.  Nothing  in  this  article  shall  be  construed  as  forbidding  a 
corporation, 

(a)  To  recognize  the  exclusive  right  of  a  person  registered  on  its 
books  as  the  owner  of  shares  to  receive  dividends,  and  to  vote  as  such 
owner,  or 

(b)  To  hold  liable  for  calls  and  assessments  a  person  registered 
on  its  books  as  the  owner  of  shares. 

§  165.  Title  derived  from  certificate  extinguishes  title  derived 
from  a  separate  document.  The  title  of  a  transferee  of  a  certificate 
under  a  power  of  attorney  or  assignment  not  written  upon  the  cer- 
tificate, and  the  title  of  any  person  claiming  under  such  transferee, 
shall  cease  and  determine  if,  at  any  time  prior  to  the  surrender  of 
the  certificate  to  the  corporation  issuing  it,  another  person,  for  value 

i  From  the  Personal  Property  Law  of  New  York  Stnte  na  amended  by  Laws 
H>H.  Thin  is  the  uniform  Stock  Transfer  Law,  adopted  in  Massachusetts, 
Pennsylvania  and  New  York. 


112         MATERIALS    OF   CORPORATION    FINANCE 

in  good  faith,  and  without  notice  of  the  prior  transfer,  shall  pur- 
chase and  obtain  delivery  of  such  certificate  with  the  indorsement 
of  the  person  appearing  by  the  certificate  to  be  the  owner  thereof, 
or  shall  purchase  and  obtain  delivery  of  such  certificate  and  the 
written  assignment  or  power  of  attorney  of  such  person,  though  con- 
tained in  a  separate  document. 

§  166.  Who  may  deliver  a  certificate.  The  delivery  of  a  cer- 
tificate to  transfer  title  in  accordance  with  the  provisions  of  section 
one  hundred  and  sixty-two  is  effectual,  except  as  provided  in  section 
one  hundred  and  sixty-eight,  though  made  by  one  having  no  right  of 
possession  and  having  no  authority  from  the  owner  of  the  certificate 
or  from  the  person  purporting  to  transfer  the  title. 

§  167.  Indorsement  effectual  in  spite  of  fraud,  duress,  mistake, 
revocation,  death,  incapacity  or  lack  of  consideration  or  authority. 
The  indorsement  of  a  certificate  by  the  person  appearing  by  the  cer- 
tificate to  be  the  owner  of  the  shares  represented  thereby  is  effectual, 
except  as  provided  in  section  one  hundred  and  sixty-eight,  though  the 
indorser  or  transferor1 

(a)  Was  induced  by  fraud,  duress  or  mistake  to  make  the  indorse- 
ment or  delivery,  or 

(b)  Has  revoked  the  delivery  of  the  certificate,  or  the  authority 
given  by  the  indorsement  or  delivery  of  the  certificate,  or 

(c)  Has  died  or  become  legally  incapacitated  after  the  indorse- 
ment, whether  before  or  after  the  delivery  of  the  certificate,  or 

(d)  Has  received  no  consideration. 

§  168.  Rescission  of  transfer.  If  the  indorsement  or  delivery 
of  a  certificate, 

(a)  Was  procured  by  fraud  or  duress,  or 

(b)  Was  made  under  such  mistake  as  to  make  the  indorsement 
or  delivery  inequitable;  or 

If  the  delivery  of  a  certificate  was  made 

(c)  Without   authority  from   the   owner,   or 

(d)  After  the  owner's  death  or  legal  incapacity,  the  possession 
of  the  certificate  may  be  reclaimed  and  the  transfer  thereof  rescind- 
ed, unless : 

1.  The  certificate  has  been  transferred  to  a  purchaser  for  value 
in  good  faith  without  notice  of  any  facts  making  the  transfer  wrong- 
ful, or 

2.  The  injured  person  has  elected  to  waive  the  injury,  has  been 
guilty  of  laches  in  endeavoring  to  enforce  his  rights. 

Any  court  of  appropriate  jurisdiction  may  enforce  specifically  such 
right  to  reclaim  the  possession  of  the  certificate  or  to  rescind  the 
i  So  in  original. 


TRANSFERS    OF   CERTIFICATES   AND    SHARES    113 

transfer  thereof  and,  pending  litigation,  may  enjoin  the  further  trans- 
fer of  the  certificate  or  impound  it. 

§  169.  Rescission  of  transfer  of  certificate  does  not  invalidate 
subsequent  transfer  by  transferee  in  possession.  Although  the 
transfer  of  a  certificate  or  of  shares  represented  thereby  has  been 
rescinded  or  set  aside,  nevertheless,  if  the  transferee  has  possession 
of  the  certificate  or  of  a  new  certificate  representing  part  or  the  whole 
of  the  same  shares  of  stock,  a  subsequent  transfer  of  such  certificate 
by  the  transferee,  mediately  or  immediately,  to  a  purchaser  for  value 
in  good  faith,  without  notice  of  any  facts  making  the  transfer  wrong- 
ful, shall  give  such  purchaser  an  indefeasible  right  to  the  certificate 
and  the  shares  represented  thereby. 

§  170.  Delivery  of  unindorsed  certificate  imposes  obligation  to 
indorse.  The  delivery  of  a  certificate  by  the  person  appearing  by 
the  certificate  to  be  the  owner  thereof  without  the  indorsement 
requisite  for  the  transfer  of  the  certificate  and  the  shares  represented 
thereby,  but  with  intent  to  transfer  such  certificate  or  shares,  shall 
impose  an  obligation,  in  the  absence  of  an  agreement  to  the  con- 
trary, upon  the  person  so  delivering,  to  complete  the  transfer  by 
making  the  necessary  indorsement.  The  transfer  shall  take  effect  as 
of  the  time  when  the  indorsement  is  actually  made.  This  obligation 
may  be  specially  enforced. 

§  171.  Ineffectual  attempt  to  transfer  amounts  to  a  promise  to 
transfer.  An  attempted  transfer  of  title  to  a  certificate  or  to  the 
shares  represented  thereby  without  delivery  of  the  certificate  shall 
have  the  effect  of  a  promise  to  transfer  and  the  obligation,  if  any, 
imposed'  by  such  promise  shall  be  determined  by  the  law  governing  the 
formation  and  performance  of  contracts. 

§  172.  Warranties  on  sale  of  certificate.  A  person  who  for 
value  transfers  a  certificate,  including  one  who  assigns  for  value  a 
claim  secured  by  a  certificate,  unless  a  contrary  intention  appears, 
warrants : 

(a)  That  the  certificate  is  genuine, 

(b)  That  he  has  a  legal  right  to  transfer  it,  and 

(c)  That  he  has  no  knowledge  of  any  fact  which  would  impair  the 
validity  of  the  certificate. 

In  the  case  of  an  assignment  of  a  claim  secured  by  a  certificate,  the 
liability  of  the  assignor  upon  such  warranty  shall  not  exceed  the 
amount  of  the  claim. 

§  173.  No  warranty  implied  from  accepting  payment  of  a  debt. 
A  mortgagee,  pledgee  or  other  holder  for  security  of  a  certificate  who 
in  good  faith  demands  or  receives  payment  of  the  debt  for  which 
such  certificate  is  security,  whether  from*  a  party  to  a  draft  drawn 


114         MATERIALS    OF    CORPORATION    FINANCE 

for  such  debt,  or  from  any  other  person,  shall  not  by  so  doing  be 
deemed  to  represent  or  to  warrant  the  genuineness  of  such  certificate, 
or  the  value  of  the  shares  represented  thereby. 

§  174.  No  attachment  or  levy  upon  shares  unless  certificate  sur- 
rendered or  transfer  enjoined.  No  attachment  or  levy  upon  shares 
of  stock  for  which  a  certificate  is  outstanding  shall  be  valid  until  such 
certificate  be  actually  seized  by  the  officer  making  the  attachment  or 
levy,  or  be  surrendered  to  the  corporation  which  issued  it,  or  its  trans- 
fer by  the  holder  be  enjoined.  Except  where  a  certificate  is  lost  or 
destroyed,  such  corporation  shall  not  be  compelled  to  issue  a  new 
certificate  for  the  stock  until  the  old  certificate  is  surrendered 
to  it. 

§  175.  Creditor's  remedies  to  reach  Certificate.  A  creditor  whose 
debtor  is  the  owner  of  a  certificate  shall  be  entitled  to  such  aid  from 
courts  of  appropriate  jurisdiction,  by  injunction  and  otherwise,  in 
attaching  such  certificate  or  in  satisfying  the  claim  by  means  there- 
of as  is  allowed  at  law  or  in  equity,  in  regard  to  property  which  can- 
not readily  be  attached  or  levied  upon  by  ordinary  legal  process. 

§  176.  There  shall  be  no  lien  or  restriction  unless  indicated  on 
certificate.  There  shall  be  no  lien  in  favor  of  a  corporation  upon 
the  shares  represented  by  a  certificate  issued  by  such  corporation  and 
there  shall  be  no  restriction  upon  the  transfer  of  shares  so  represented 
by  virtue  of  any  by-law  of  such  corporation,  or  otherwise,  unless  the 
right  of  the  corporation  to  such  lien  or  the  restriction  is  stated  upon 
the  certificate. 

§  177.  Alteration  of  certificate  does  not  divest  title  to  shares. 
The  alteration  of  a  certificate,  whether  fraudulent  or  not  and  by 
whomsoever  made,  shall  not  deprive  the  owner  of  his  title  to  the 
certificate  and  the  shares  originally  represented  thereby,  and  the 
transfer  of  such  a  certificate  shall  convey  to  the  transferee  a  good  title 
to  such  certificate  and  to  the  shares  originally  represented  thereby. 

§  178.  Lost  or  destroyed  certificate.  Where  a  certificate  has 
been  lost  or  destroyed,  a  court  of  competent  jurisdiction  may  order 
the  issue  of  a  new  certificate  therefor  on  service  of  process  upon  the 
corporation  and  on  reasonable  notice  by  publication,  and  in  any  other 
way  which  the  court  jn  ay  direct,  to  all  persons  interested,  and  upon 
satisfactory  proof  of  such  loss  or  destruction  and  upon  the  giving 
of  a  bond  with  sufficient  surety  to  be  approved  by  the  court  to  protect 
the  corporation  or  any  person  injured  by  the  issue  of  a  new  certificate 
from  any  liability  or  expense,  which  it  or  they  may  incur  by  reason 
of  the  original  certificate  remaining  outstanding.  The  court  may 
also  in  its  discretion  order  the  payment  of  the  corporation's  rea- 
sonable costs  and  counsel  fees.  The  issue  of  a  new  certificate  under 


TRANSFERS    OF   CERTIFICATES   AND    SHARES    115 

an  order  of  the  court  as  provided  in  this  section  shall  not  relieve  the 
corporation  from  liability  in  damages  to  a  person  to  whom  the  original 
certificate  has  been  or  shall  be  transferred  for  value  without  notice 
of  the  proceedings  or  of  the  issuance  of  the  new  certificate. 

§  179.  Rule  for  cases  not  provided  for  by  this  act.  In  any  case 
not  provided  for  by  this  act,  the  rules  of  law  and  equity,  including 
the  law  merchant,  and  in  particular  the  rules  relating  to  the  law  of 
principal  and  agent,  executors,  administrators  and  trustees,  and  to 
the  effect  of  fraud,  misrepresentation,  duress  or  coercion,  mistake, 
bankruptcy  or  other  invalidating  cause,  shall  govern. 

§  180.  Interpretation  shall  give  effect  to  purpose  of  uniformity. 
This  act  shall  be  so  interpreted  and  construed  as  to  effectuate  its 
general  purpose  to  make  uniform  the  law  of  those  states  which  en- 
.  ct  it. 

§  181.  Definition  of  indorsement.  A  certificate  is  indorsed  when 
an  assignment  or  a  power  of  attorney  to  sell,  assign  or  transfer  the 
certificate  or  the  shares  represented  thereby  is  written  on  the  certifi- 
cate and  signed  by  the  person  appearing  by  the  certificate  to  be  the 
owner  of  the  shares  represented  thereby,  or  when  the  signature  of 
such  person  is  written  without  more  upon  the  back  of  the  certificate. 
In  any  of  such  cases  a  certificate  is  indorsed  though  it  has  not  been 
delivered. 

§  182.  Definition  of  person  appearing  to  be  the  owner  of  cer- 
tificate. The  person  to  whom  a  certificate  was  originally  issued  is 
the  person  appearing  by  the  certificate  to  be  the  owner  thereof,  and 
of  the  shares  represented  thereby,  until  and  unless  he  indorses  the 
certificate  to  another  specified  person,  and  thereupon  such  other  spec- 
ified person  is  the  person  appearing  by  the  certificate  to  be  the  owner 
thereof  until  and  unless  he  also  indorses  the  certificate  to  another 
specified  person.  Subsequent  special  indorsements  may  be  made  with 
like  effect. 

§  183.  Other  definitions.  1.  In  this  article,  unless  the  context 
or  subject-matter  otherwise  requires — 

"Certificate"  means  a  certificate  of  stock  in  a  corporation  organized 
under  the  laws  of  this  state  or  of  another  state  whose  laws  are  con- 
sistent with  this  act. 

"Delivery"  means  voluntary  transfer  of  possession  from  one  person 
to  another. 

"Person"  includes  a  corporation  or  partnership  or  two  or  more 
persons  having  a  joint  or  common  interest. 

To  "purchase"  includes  to  take  as  mortgagee  or  as  pledgee. 

"Purchaser"  includes  mortgagee  and  pledgee. 

"Shares"  means  a  share  or  shares  of  stock  in  a  corporation  organ- 


116         MATERIALS    OF    CORPORATION    FINANCE 

ized  under  the  laws  of  this  state  or  of  another  state  whose  laws  are 
consistent  with  this  act. 

"State"  includes  state,  territory,  district  and  insular  possession  of 
the  United  States. 

"Transfer"  means  transfer  of  legal  title. 

"Title"  means  legal  title  and  does  not  include  a  merely  equitable  or 
beneficial  ownership  or  interest. 

"Value"  is  any  consideration  sufficient  to  support  a  simple  contract. 
An  antecedent  or  pre-existing  obligation,  whether  for  money  or  not, 
constitutes  value  where  a  certificate  is  taken  either  in  satisfaction 
thereof  or  as  security  therefor. 

2.  A  thing  is  done  "in  good  faith"  within  the  meaning  of  this  act, 
when  it  is  in  fact  done  honestly,  whether  it  be  done  negligently  or 
not. 

§  184.  Article  does  not  apply  to  existing  certificates.  The  pro- 
visions of  this  article  apply  only  to  certificates  issued  after  the  taking 
effect  of  this  article. 

§  185.  Inconsistent  legislation  repealed.  All  acts  or  parts  of  acts 
inconsistent  with  this  article  are  hereby  repealed. 


STOCK  TRANSFER  TAX  LAW  OF  NEW  YORK      117 


STOCK  TRANSFER  TAX  LAW  OF  NEW  YORK 

§  270.    AMOUNT  OF  TAX 

There  is  hereby  imposed  and  shall  immediately  accrue  and  be  col- 
lected a  tax,  as  herein  provided,  on  all  sales,  or  agreements  to  sell,  or 
memoranda  of  sales  of  stock,  and  upon  any  and  all  deliveries  or  trans- 
fers of  shares  or  certificates  of  stock,  in  any  domestic  or  foreign  asso- 
ciation, company  or  corporation,  made  after  the  first  day  of  June, 
nineteen  hundred  and  five,  whether  made  upon  or  shown  by  the  books 
of  the  association,  company  or  corporation,  or  by  any  assignment  in 
blank,  or  by  any  delivery,  or  by  any  paper  or  agreement  or  memoran- 
dum or  other  evidence  of  sale  or  transfer,  whether  intermediate  or 
final,  and  whether  investing  the  holder  with  the  beneficial  interest  in 
or  legal  title  to  said  stock,  or  merely  with  the  possession  or  use  thereof 
ifor  any  purpose,  or  to  secure  the  future  payment  of  money,  or  the 
ifuture  transfer  of  any  stock,  on  each  hundred  dollars  of  face  value  or 
(fraction  thereof,  two  cents,  except  in  cases  where  the  shares  or  cer- 
tificates of  stock  are  issued  without  designated  monetary  value,  in 
which  cases  the  tax  shall  be  at  the  rate  of  two  cents  for  each  and  every 
share  of  such  stock.  It  shall  be  the  duty  of  the  person  or  persons  mak- 
ing or  effectuating  the  sale  or  transfer  to  procure,  affix  and  cancel  the 
stamps  and  pay  the  tax  provided  by  this  article.  It  is  not  intended 
by  this  act  to  impose  a  tax  upon  an  agreement  evidencing  the  deposit 
of  stock  certificates  as  collateral  security  for  money  loaned  thereon, 
which  stock  certificates  are  not  actually  sold,  nor  upon  such  stock  cer- 
tificates so  deposited,  nor  upon  mere  loans  of  stock  or  the  return  there- 
of. The  payment  of  such  tax  shall  be  denoted  by  an  adhesive  stamp  or 
stamps  affixed  as  follows :  In  the  case  of  a  sale  or  transfer,  where  the 
evidence  of  the  transaction  is  shown  only  by  the  books  of  the  associa- 
tion, company  or  corporation,  the  stamp  shall  be  placed  upon  such 
books,  and  it  shall  be  the  duty  of  the  person  making  or  effectuating 
such  sale  or  transfer  to  procure  and  furnish  to  the  association,  company 
or  corporation  the  requisite  stamps,  and  of  such  association,  company 
or  corporation  to  affix  and  cancel  the  same.  Where  the  transaction  is 
effected  by  the  delivery  or  transfer  of  a  certificate,  the  stamp  shall  be 
placed  upon  the  surrendered  certificate  and  canceled ;  and  in  cases  of 
an  agreement  to  sell,  or  where  the  sale  is  effected  by  delivery  of  the 
certificate  assigned  in  blank,  there  shall  be  made  and  delivered  by  the 
seller  to  the  buyer,  a  bill  or  memorandum  of  such  sale  to  which  the 
stamp  provided  for  by  this  article  shall  be  affixed  and  canceled.  Every 
such  bill  or  memorandum  of  sale  or  agreement  to  sell  shall  show  the 
date  of  the  transaction  which  it  evidences,  the  name  of  the  seller,  the 


118         MATERIALS    OF    CORPORATION    FINANCE 

stock  to  which  it  relates,  and  the  number  of  shares  thereof.  All  such 
bills  or  memoranda  of  sale  shall  bear  a  number  upon  the  face  thereof 
and  no  more  than  one  such  bill  or  memorandum  of  sale  made  by  the 
seller  on  any  given  day  shall  bear  the  same  number.  The  aforesaid 
identification  number  of  the  bill  or  memorandum  of  sale  shall  in  all 
cases  be  entered  and  recorded  in  the  book  of  account  required  to  be 
kept  by  section  two  hundred  and  seventy-six  of  this  chapter;  and  no 
further  tax  is  hereby  imposed  upon  the  delivery  of  the  certificate  of 
stock,  or  upon  the  actual  issue  of  a  new  certificate  when  the  original 
certificate  of  stock  is  accompanied  by  the  duly  stamped  memorandum 
of  sale  as  herein  provided.  (Tax  Law,  Art.  12,  §270;  thus  amended 
by  L.  1913,  chap.  779,  in  effect  July  1,  1913.) 

§  273.     CANCELING  STAMPS;  PENALTY  FOR  FAILURE 

In  every  case  where  an  adhesive  stamp  shall  be  used  to  denote  the 
payment  of  the  tax  provided  by  this  article,  the  person  using  or  affix- 
ing the  same  shall  write  or  stamp  thereupon  the  initials  of  his  name 
and  the  date  upon  which  the  same  shall  be  attached  or  used,  and  shall 
cut  or  perforate  the  stamp,  in  a  substantial  manner,  so  that  such  stamp 
cannot  be  again  used;  and  if  any  person  makes  use  of  an  adhesive 
stamp  to  denote  the  payment  of  the  tax  imposed  by  this  article,  with- 
out so  effectually  canceling  the  same,  such  person  shall  be  deemed 
guilty  of  a  misdemeanor,  and  upon  conviction  thereof  shall  pay  a  fine 
of  not  less  than  two  hundred  nor  more  than -five  hundred  dollars  or 
be  imprisoned  for  not  less  than  six  months,  or  both,  in  the  discretion 
of  the  court.  (Thus  amended  by  L.  1911,  chap.  352,  in  effect  June 
15,  1911.) 

§  275A.    REGISTRATION;  PENALTY  FOR  FAILURE 

Every  person,  firm,  company,  association  or  corporation  engaged  in 
whole  or  in  part  in  the  making  or  negotiating  of  sales,  agreements  to 
sell,  deliveries  or  transfers  of  shares  or  certificates  of  stock,  or  con- 
ducting or  transacting  a  stock  brokerage  business,  and  every  stock 
association,  company  or  corporation  which  shall  maintain  a  principal 
office  or  place  of  business  within  the  state  or  which  shall  keep  or  cause 
to  be  kept  within  the  state  of  New  York  a  place  for  the  sale,  transfer 
or  delivery  of  its  stock,  shall  within  ten  days  after  the  amendment  to 
this  section  shall  take  effect  if  such  certificate  shall  not  have  been 
theretofore  filed,  or  if  at  the  time  this  act  shall  take  effect,  not  engaged 
in  such  business  or  maintaining  such  principal  office  or  place  of  busi- 
ness or  such  a  place  for  the  sale  or  transfer  of  its  stock,  within  ten 
days  after  engaging  in  such  business  or  after  establishing  such  prin- 
cipal office  or  place  of  business  or  such  place  for  the  sale  or  transfer 


STOCK  TRANSFER  TAX  LAW  OF  NEW  YORK      119 

of  its  stock  as  the  case  may  be,  file  in  the  office  of  the  comptroller  a 
certificate  setting  forth  the  name  under  which  such  business  is,  or  is 
to  be,  conducted  or  transacted,  and  the  true  or  real  full  name  or  names 
of  the  person  or  persons  conducting  or  transacting  the  same,  with  the 
post-office  address  or  address  of  said  person  or  persons,  unless  the 
party  so  certifying  be  a  corporation,  in  which  event  it  shall  set  forth 
its  said  principal  office  or  place  of  business  and  when  and  where  in- 
corporated. Said  certificate  shall  be  executed  and  duly  acknowledged 
by  the  person  or  persons  so  conducting  or  intending  to  conduct  said 
business  or  by  the  president  or  secretary  of  the  corporation  as  the  case 
may  be. 

In  the  event  of  a  change  in  the  persons  composing  such  firm,  com- 
pany or  association  or  of  the  address  of  any  such  person,  firm,  com- 
pany, association  or  corporation,  or  termination  of  such  business  or 
relationship,  a  like  certificate  setting  forth  the  facts  with  respect  to 
such  change  or  termination  shall  within  ten  days  thereafter  be  filed 
in  the  office  of  the  comptroller. 

Any  such  person,  firm,  company,  association  or  corporation  who 
shall  fail  to  comply  with  the  provisions  of  this  section  shall  be  guilty 
of  a  misdemeanor,  and  upon  conviction  thereof  shall  pay  a  fine  of  not 
less  than  one  hundred  dollars  nor  more  than  five  hundred  dollars  or  be 
imprisoned  for  not  more  than  six  months  or  by  both  such  fine  and 
imprisonment,  in  the  discretion  of  the  court.  (Thus  amended  by  L. 
1914,  Chapter  206,  in  effect  April'  7,  1914.) 

§  276.    BOOKS  AND  RECORDS  TO  BE  KEPT  BY  CORPORATIONS  AND 
OTHERS;  PENALTIES;  POWERS  OF  STATE  COMPTROLLER 

Every  person,  firm,  company,  association  or  corporation,  engaged 
in  whole  or  in  part  in  the  making  or  negotiating  of  sales,  agreements 
to  sell,  deliveries  or  transfers  of  shares  or  certificates  of  stock,  or  con- 
ducting or  transacting  a  brokerage  business,  shall  keep  or  cause  to  be 
kept  at  some  accessible  place  within  the  state  of  New  York,  a  just 
and  true  book  of  account,  in  such  form  as  may  be  prescribed  by  the 
comptroller,  wherein  shall  be  plainly  and  legibly  recorded  in  separate 
columns,  the  date  of  making  every  sale,  agreement  to  sell,  delivery  or 
transfer  of  shares  or  certificates  of  stock,  the  name  of  the  stock  and 
the  number  of  shares  thereof,  the  face  value  of  the  stock,  the  name  of 
the  seller  or  transferrer,  the  name  of  the  purchaser  or  transferee  and 
the  number  and  face  value  of  the  adhesive  stamp-  allixed  and  the 
identifying  number  of  the  bill  or  memorandum  of  sale  as  provided  for 
by  section  two  hundred  and  seventy  of  this  chapter. 

Every  association,  company,  or  corporation  shall  keep  or  cause  to 
be  kept  at  some  accessible  place  within  the  state  of  New  York,  a  stock 


120         MATERIALS    OF   CORPORATION   FINANCE 

certificate  book  and  a  just  and  true  book  of  account,  transfer  ledger  or 
register,  in  such  form  as  may  be  prescribed  by  the  comptroller,  wherein 
shall  be  plainly  and  legibly  recorded  in  separate  columns  the  date  of 
making  every  transfer  of  stock,  the  name  of  the  stock  and  the  number 
of  shares  thereof,  the  serial  number  of  each  surrendered  certificate,  the 
name  of  the  party  surrendering  such  certificate,  the  serial  number  of 
the  certificate  issued  in  exchange  therefor,  the  number  of  shares  cov- 
ered by  said  certificate,  the  name  of  the  party  to  whom  said  certificate 
was  issued  and  evidence  of  the  payment  of  the  tax  provided  for  by 
section  two  hundred  and  seventy  of  this  chapter,  which  evidence,  how- 
ever, shall  be  provided  in  one  of  the  following  manners  and  not  other- 
wise, to  wit: 

(a)  By  attaching  to  the  stock  certificate  surrendered  for  transfer, 
the  stamps  required  for  such  transfer,  or 

(b)  If  the  stamps  are  not  attached  to  the  certificate,  but  are  at- 
tached to  the  bill  or  memorandum  of  sale  effecting  or  evidencing  the 
transfer  of  such  certificate,  by  attaching  to  said  certificate  the  said  bill 
or  memorandum  of  sale  with  stamps  attached,  or 

(c)  If  the  stamps  covering  the  transfer  are  attached  to  a  bill  or 
memorandum  effecting  a  transfer  of  one  or  more  certificates  or  to  one 
or  more  certificates  included  in  said  transfer,  a  notation  must  be  made 
upon  such  certificates,  bill  or  memorandum,  as  the  case  may  be,  clearly 
specifying  and  identifying  the  certificate  or  certificates  of  stock  to  the 
sale  or  transfer  of  which  the  said  stamps  apply,  or 

(d)  If  the  bill  or  memorandum  bearing  such  stamps  is  not  at- 
tached to  the  surrendered  certificate  or  certificates  to  which  it  applies, 
a  notation  must  be  made  upon  such  bill  or  memorandum  stating  the 
serial  number  or  numbers  of  the  certificates  to  which  said  bill  or 
memorandum  applies,  as  provided  by  section  two  hundred  and  seventy 
of  this  chapter.     It  shall  also  retain  and  keep  all  surrendered  or  can- 
celed shares  or  certificates  of  its  stock  and  all  memoranda  relating 
to  the  sale  or  transfer  of  any  thereof.     All  such  books  of  account, 
transfer  ledgers,  registers  and  stock  certificate  books,  shall  be  re- 
tained and  kept  as  aforesaid  for  a  period  of  at  least  two  years  subse- 
quent to  the  date  of  the  last  entry  made  therein  as  herein  required ; 
and  all  such  surrendered  or  canceled  shares  or  certificates  of  stock 
and  memoranda  relating  to  the  sale  or  transfer  of  stock,  shall  be 
retained  and  kept  for  a  period  of  at  least  two  years  from  the  date 
of  the  delivery  thereof.    For  the  purpose  of  ascertaining  whether  the 
tax  imposed  by  this  article  has  been  paid,  all  such  books  of  account, 
transfer   ledgers,   registers,   stock  certificate   books,    surrendered   or 
canceled  shares  or  certificates  of  stock  and  memoranda  relating  to 
the  sale  or  transfer  thereof,  shall  at  all  times  between  the  hours  of 


STOCK  TRANSFER  TAX  LAW  OF  NEW  YORK      121 

ten  o'clock  in  the  forenoon  and  three  o'clock  in  the  afternoon,  ex- 
cept Saturdays,  Sundays  and  legal  holidays,  be  open  to  examination 
by  the  comptroller  or  his  duly  authorized  representative. 

The  comptroller  may  enforce  his  right  to  examine  such  books  of 
account  and  bills  or  memoranda  of  sale  or  transfer ;  and  such  transfer 
ledger,  register  and  stock  certificate  books  and  surrendered  or  can- 
celed shares  or  certificates  of  stock  by  mandamus.  If  the  comptroller 
ascertains  that  the  tax  provided  for  in  this  article  has  not  been  paid, 
he  shall  bring  an  action  in  his  name  as  such  comptroller,  in  any  court 
of  competent  jurisdiction  for  the  recovery  of  such  tax  and  for  any 
penalty  incurred  by  any  person  under  the  provisions  of  this  article. 

Every  person,  firm,  company,  association  or  corporation  who  shall 
fail  to  keep  such  book  of  account  or  bills  or  memoranda  of  sale  or 
transfer,  or  transfer  ledger,  register  or  stock  certificate  book  or  sur- 
rendered or  canceled  shares  or  certificates  of  stock  as  herein  required, 
or  who  alters,  cancels,  obliterates  or  destroys  any  part  of  said  records 
or  makes  any  false  entry  therein,  or  who  shall  refuse  to  permit  the 
comptroller  or  any  of  his  authorized  representatives  freely  to  examine 
any  of  said  books,  records  or  papers  at  any  of  the  times  herein  pro- 
vided, or  who  shall  in  any  other  respect  violate  any  of  the  provisions 
of  this  section  shall  be  deemed  guilty  of  a  misdemeanor  and  on  con- 
viction thereof  shall  for  each  and  every  such  offense  pay  a  fine  of  not 
less  than  five  hundred  dollars  nor  more  than  five  thousand  dollars, 
or  be  imprisoned  not  less  than  three  months  nor  more  than  two  years, 
or  both,  in  the  discretion  of  the  court.  (Thus  amended  by  L.  1913, 
chap.  779,  in  effect  July  1,  1913.) 

§278.    EFFECT  OF  FAILURE  TO  PAY  TAX. 

N"o  transfer  of  stock  made  after  June  first,  nineteen  hundred  and 
five,  on  which  a  tax  is  imposed  by  this  article,  and  which  tax  is  not 
paid  at  the  time  of  such  transfer,  shall  be  made  the  basis  of  any 
action  or  legal  proceedings,  nor  shall  proof  thereof  be  offered  in  evi- 
dence in  any  court  in  this  state. 


122         MATERIALS    OP    CORPORATION    FINANCE 


RULINGS  OF  THE  STATE  COMPTROLLER  GOVERNING 
THE  COLLECTION  OF  TAXES  ON  TRANSFERS  OF 
STOCK. 

For  the  information  of  the  public  the  Comptroller  issues  the  follow- 
ing brief  statement  of  the  more  general  rules  and  regulations 
governing  the  imposition  and  collection  of  stock  transfer  taxes, 
prepared  pursuant  to  the  rulings  made  by  the  Attorney-General. 

1.  The  application  and  scope  of  the  Stock  Transfer  Tax  Law  has 
been  considerably  broadened  by  the  amendments  thereto,  effected  by 
chapter  352  of  the  Laws  of  1911,  chapter  292  of  the  Laws  of  1912, 
chapter  779  of  the  Laws  of  1913,  and  chapter  206  of  the  Laws  of 
1914,   with  the  result  that  the  rulings  heretofore  made   asserting 
exemptions  from  the  tax  are  not  now  as  a  rule  controlling. 

2.  By  the  statute  as  amended,  a  tax  is  imposed  upon  all  sales  or 
agreements  to  sell  and  upon  all  deliveries  or  transfers  of  shares  or 
certificates  of  stock  of  any  and  all  associations,  companies  and  cor- 
porations, whether  domestic  or  foreign  at  the  rate  of  two  cents  on 
each  hundred  dollars  of  face  value  or  fraction  thereof,  except  where 
shares  or  certificates  of  stock  are  issued  without  designated  monetary 
value,  in  which  case  the  tax  shall  be  two  cents  for  each  and  every 
share  of  such  stock. 

3.  The  statute  does  not  apply  to  the  original  issue  of  stock;  but 
all  sales  or  transfers  made  subsequent  thereto,  whether  intermediate 
or  final,  are  taxable. 

4.  It  is  not  necessary  to  render  it  taxable  that  the  transaction 
involve  a  sale.    By  the  statute,  as  amended,  a  tax  is  imposed  upon 
all  sales  or  transfers  of  shares  or  certificates  of  stock,  whether  operat- 
ing to  convey  the  beneficial  interest  in  or  merely  the  legal  title  to  said 
stock,  or  possession  thereof  for  any  purpose.    The  only  exceptions  to 
this  rule  are  those  expressly  provided  for  in  section  270  of  the  law. 

5.  The  transfer  to  and  from  voting  trustees  is  taxable,  also  the 
transfer  of  voting  trust  certificates. 

6.  The  mere  surrender  of  a  certificate  of  stock  for  reissue  in 
smaller  denominations  is  not  taxable;  but  if  reissued  in  part  to  the 
original  owner  and  in  part  to  a  third  party  it  is  taxable  to  the  extent 
of  the  transfer  to  the  third  party. 

7.  Likewise  the  mere  surrender  of  a  certificate  of  stock  held  by  a 
deceased  person  for  issuance  in  the  name  of  his  executor  or  adminis- 
trator is  not  taxable ;  but  all  transfers  made  by  the  latter,  whether  to 
trustees,  legatees  or  other  persons,  are  taxable. 


RULINGS    OF    THE    STATE    COMPTROLLER         123 

8.  The  law  applies  to  the  stock  of  foreign  as  well  as  domestic  cor- 
porations and  to  residents  and  non-residents  alike. 

9.  While  the  law  has  not  extra  territorial  operation,  nevertheless, 
where  it  appears  that  the  transfer  of  the  stock  on  the  corporate  books 
within  this  State  is  essential  to  render  the  transfer  effectual,  it  sub- 
jects it  to  a  tax  although  in  all  other  respects  made  without  the 
State. 

10.  It  is  the  duty  of  the  person  making  or  effectuating  the  sale 
or  transfer  to  pay  the  required  tax  by  procuring,  affixing  and  cancel- 
ing the  stamps,  except  that  where  a  sale  or  transfer  is  shown  only  by 
the  books  of  the  corporation,  the  person  making  the  sale  must  secure, 
and  the  corporation  affix  and  cancel  the  stamps  to  its  books.     (Sec. 
270.) 

11.  Where  the  sale  or  transfer  is  effected  by  the  delivery  or  trans- 
fer of  a  certificate  the  stamp  must  be  placed  upon  the  surrendered 
certificate.     In  case  of  an  agreement  to  sell,  or  where  the  sale  is 
effected  by  the  delivery  of  the  certificate  assigned  in  blank,  there 
must  be  made  and  delivered  by  the  seller  to  the  buyer  a  bill  or  memo- 
randum of  such  sale,  to  which  the  stamps  shall  be  affixed  and  can- 
celed.    This  bill  or  memorandum  with  stamp  attached  must  be  af- 
fixed to  the  certificate,  or  properly  identified  as  provided  by  section 
276,  when  presented  for  transfer. 

A  strict  compliance  with  these  requirements  will  be  insisted  upon. 

12.  Every  such  bill  or  memorandum  of  sale,  agreement  to  sell  or 
sales  ticket  must  show: 

(a)  The  date  of  the  transaction  which  it  evidences. 

(b)  The  name  of  the  seller. 

(c)  The  stock  to  which  it  relates  and  the  number  of  shares  there- 

of; and  all  such  memoranda  of  sale  or  sales  tickets  as 
are  not  used  for  the  purpose  of  transfer  must  be  kept 
by  the  broker  for  two  years  from  their  respective  dates. 

(d)  And  an  identifying  number  as  provided  by  section  270. 

13.  All  persons  liable  for  the  payment  of  the  tax  and  all  persons 
acting  as  agents  or  brokers  for  any  such  persons  or  for  the  corpora- 
tion whose  stock  is  transferred,  who  in  any  manner  assists  in  con- 
summating a  sale  or  transfer  without  payment  of  the  required  tax,  are 
guilty  of  a  misdemeanor. 

14.  Likewise  corporations,  and  persons  acting  as  transfer  agents 
for  corporations,  are  forbidden  to  transfer  stock  on  the  books  of  the 
corporation  until  the  required  tax  has  been  paid;  and  for  a  failure 
to  perform  this  duty  they  are  guilty  of  a  misdemeanor. 

15.  Every  stamp  used  to  denote  the  payment  of  the  tax  must  be 
canceled  by  the  user  by  writing  or  stamping  thereon  the  initials  of 


124         MATERIALS    OP    CORPORATION    FINANCE 

his  name  and  the  date  upon  which  the  stamp  is  attached  or  used.  He 
must  also  cut  or  perforate  the  stamp  in  a  substantial  manner  so  that 
it  cannot  again  be  used.  A  failure  so  to  do  renders  the  party  guilty 
of  a  misdemeanor. 

16.  Under  no  circumstances  may  a  stamp  erroneously  attached  to 
a  certificate  or  memorandum  be  removed.     An  adequate  remedy  in 
such  cases,  in  the  nature  of  a  refund,  is  provided  by  section  280  of 
the  act. 

17.  Every  broker  is  required  to  keep  a  just  and  true  book  of  ac- 
count in  the  form  prescribed  by  the  Comptroller  wherein  shall  be 
plainly  and  legibly  recorded  in  separate  columns: 

(a)  The  date  of  making  every  sale,  agreement  to  sell,  delivery  or 

transfer  of  shares  or  certificates  of  stock. 

(b)  The  name  of  the  stock  and  the  number  of  shares  thereof. 

(c)  The  face  value  thereof. 

(d)  The  name  of  the  seller  or  transferrer. 

(e)  The  name  of  the  purchaser  or  transferee. 

(f)  The  identifying  number  of  the  bill  or  memorandum  of  sales 

as  provided  by  section  270. 

These  books  must  be  kept  for  a  period  of  at  least  two  years  sub- 
sequent to  the  date  of  such  entry  made  therein  and  are  subjected  to 
examination  by  the  Comptroller  or  his  representative  at  all  times  be- 
tween 10  A.  M.  and  3  P.  M.  (Saturdays,  Sundays  and  legal  holidays 
excepted.) 

18.  Every  corporation  or  its  transfer  agent  shall  keep  a  just  and 
true  book  of  account  in  the  form  prescribed  by   the   Comptroller 
wherein  shall  be  plainly  and  legibly  recorded  in  separate  columns : 

(a)  The  date  of  making  every  transfer  of  stock. 

(b)  The  name  of  the  stock  and  the  number  of  shares  thereof. 

(c)  The  serial  number  of  each  surrendered  certificate. 

(d)  The  name  of  the  party  surrendering  each  certificate. 

(e)  The  serial  number  of  the  certificate  issued  in  exchange  there- 

for. 

(f)  The  number  of  shares  represented  b}'.said  certificate. 

(g)  The  name  of  the  party  to  whom  said  certificate  was  issued, 
(h)     The  evidence  of  the  payment  of  the  tax  as  provided  by  sec- 
tion 276. 

It  shall  also  keep  and  retain  a  stock  certificate  book  and  all  sur- 
rendered or  canceled  shares  of  certificates  of  its  stock  and  memoranda 
relating  to  the  sale  thereof  for  a  period  of  two  years  from  the  date  of 
the  delivery  thereof. 

All  such  books  and  papers  are  subject  to  the  examination  by  the 
Comptroller  or  his  representative  at  any  time  between  the  hours  of 


RULINGS    OF   THE    STATE    COMPTROLLER         125 

10  A.  M.  and  3  P.  M.  (Saturdays,  Sundays  and  legal  holidays  ex- 
cepted.) 

19.  It  is  imperative  that  these  books,  records  and  memoranda  be 
kept  and  retained  strictly  in  the  form  and  manner  provided  by  the 
statute  and  severe  penalties  are  imposed  for  a  failure  so  to  do. 

20.  Severe  penalties,  civil  and  criminal,  are  also  provided  by  the 
act  for  the  illegal  sale  or  use  of  stamps,  for  the  removal  or  re-use 
thereof,  for  the  failure  to  pay  the  tax  imposed  and  for  the  violation 
of  the  other  requirements  of  the  statute.     Furthermore,  the  failure 
to  pay  the  tax  constitutes  an  absolute  defense  to  an  action  to  recover 
the  purchase  price  of  the  stock. 

21.  Every  person,  firm,  company,  association  or  corporation  en- 
gaged in  whole  or  in  part  in  the  making  or  negotiating  of  sales,  agree- 
ments to  sell,  deliveries  or  transfers  of  shares  or  certificates  of  stock, 
or  conducting  or  transacting  a  stock  brokerage  business,  shall  within 
ten  days  after  July  1,  1913,  or  within  ten  days  after  engaging  in 
such  business,  file  with  the  State  Comptroller,  either  in  Albany  or 
New  York  City,  a  certificate  setting  forth  the  name  under  which 
such  business  is  or  is  to  be  conducted  or  transacted  and  the  true  and 
real  full  names  of  the  person  or  persons  conducting  or  transacting  the 
same,  with  the  post-office  address  or  addresses  of  said  persons,  or  in 
the  event  of  a  change  in  the  persons  conducting  such  business  or 
change  of  address,  like  certificate  setting  forth  the  facts  shall  within 
ten  days  thereafter  be  filed.     Such  certificate  shall  be  duly  acknowl- 
edged.   A  failure  to  perform  this  duty  is  a  misdemeanor. 

22.  Every  stock  association,  company  or  corporation  which  shall 
maintain  a  principal  office  or  place  of  business  within  the  state  or 
which  shall  keep  or  cause  to  be  kept  within  the  State  of  New  York 
a  place  for  the  sale,  transfer  or  delivery  of  its  stock  shall  within  ten 
days  after  April  7,  1914,  if  such  certificate  shall  not  have  been  there- 
tofore filed,  or  within  ten  days  after  engaging  in  or  maintaining  a 
place  for  puch  business,  file  with  the  State  Comptroller,  either  in 
Albany  or  New  York  City,  a  certificate  setting  forth  the  name  of  the 
company,  the  place  of  business  and  when  and  where  incorporated,  or 
in  the  event  of  a  change  in  the  persons  or  change  of  address  like  cer- 
tificate setting  forth  the  facts  shall  within  ten  days  thereafter  be 
filed.     Such  certificates  shall  be  duly  acknowledged  by  the  president 
or  secretary  of  the  corporation.    A  failure  to  perform  this  duty  is  a 
misdemeanor. 

23.  The  Comptroller  will  be  pleased  at  any  time  to  advise  inter- 
ested parties  as  to  the  provisions  and  requirements  of  the  law. 

WILLIAM  SOHMER,  Comptroller, 

State  of  New  York, 
Mav  1.  1914.  Albany,  N.  Y. 


126         MATEEIALS    OF    CORPORATION    FINANCE 

STOCK  EXCHANGE  BY-LAWS  AND  RULES1 
Stock  Exchange  Rules  for  Transaction  or  Conduct  of  Business 

ARTICLE  XX 
Hours  of  Business 

SEC.  1.  The  Exchange  shall  be  opened  for  the  entrance  of  mem- 
bers upon  every  business  day  at  thirty  minutes  after  nine  o'clock 

A.    M. 

At  ten  o'clock  the  Chairman  shall  announce  that  the  Exchange 
is  open  for  the  transaction  of  business,  and  it  shall  so  remain  until 
three  o'clock  p.  M.,  when  he  shall  announce  it  to  be  closed.  On 
half-holidays  the  closing  shall  be  at  twelve  o'clock,  noon. 

SEC.  2.  The  Exchange  shall  not  be  closed  at  any  time  between 
the  hours  named  in  the  preceding  section,  except  by  order  of  the 
Governing  Committee. 

SEC.  3.  Dealings  upon  the  Exchange  shall  be  limited  to  the  in- 
terval between  the  hours  above  named;  and  a  fine  of  fifty  dollars 
for  each  offense  shall  be  imposed  by  the  Chairman,  upon  any  mem- 
ber who  shall  make  any  bid,  offer  or  transaction  before  or  after  those 
hours.  Loans  of  money  or  securities  may  be  made  after  the  official 
closing  of  the  Exchange. 

SEC.  4.  Dealing  upon  any  other  Exchange  in  the  City  of  New- 
York  or  publicly  outside  of  the  Exchange,  either  directly  or  in- 
directly, in  securities  listed  or  quoted  on  the  Exchange,  is  forbidden ; 
any  violation  of  this  rule  shall  be  deemed  to  be  an  act  detrimental 
to  the  interest  or  welfare  of  the  Exchange. 

ARTICLE  XXI 
Calls 

The  appointment  and  arrangement  of  Calls  of  Stocks  or  Bonds  shall 
be  under  the  control  and  direction  of  the  Committee  of  Arrangements. 

ARTICLE  XXII 
Contracts  Subject  to  the  Rules  of  the  Exchange 

All  contracts  of  a  member  of  the  Exchange,  or  of  a  firm  having  a 
member  of  the  Exchange  as  a  general  partner,  with  any  other  member 
of  the  Exchange,  or  with  any  other  firm  having  a  member  of  the  Ex- 
change as  a  general  partner,  for  the  purchase,  sale,  borrowing,  loaning 

i  Article  XX  of  the  Stock  Exchange  Constitution,  By-Laws  and  Rules  of 
the  New  York  Stock  Exchange. 


STOCK   EXCHANGE    BY-LAWS   AND   RULES        127 

or  hypothecation  of  securities,  or  for  the  borrowing,  loaning,  or  pay- 
ment of  money,  whether  occurring  upon  the  floor  of  the  Exchange  or 
elsewhere,  are  contracts  subject  to  the  rules  of  the  Exchange. 

ARTICLE  XXIII 
Bids  and  Offers 

SEC.  1.  All  bids  and  offers  made  and  accepted  in  accordance  with 
these  rules  shall  be  binding. 

SEC.  2.  All  offers  to  buy  or  sell  securities  shall  be  for  100  shares 
of  stock  or  for  $10,000  par  value  of  bonds,  unless  otherwise  stated. 

Offers  to  buy  or  sell  specific  amounts,  other  than  as  above  stated, 
may  be  made  at  the  same  time  and  may  be  independently  accepted. 

SEC.  3.     Bids  and  offers  may  be  made  only  as  follows : 

(a)     "Cash,"  t.  e.,  for  delivery  upon  the  day  of  contract ; 

(6)  "Eegular  Way,"  i.  e.,  for  delivery  upon  the  business  day  fol- 
lowing the  contract ; 

(c)  "At  three  days,"  t.  e.,  for  delivery  upon  the  third  day  following 
the  contract; 

(d)  "Buyer's"  or  "Seller's"  options  for  not  less  than  four  days 
nor  more  than  sixty  days. 

Bids  and  offers  under  each  of  these  specifications  may  be  made 
simultaneously,  as  being  essentially  different  propositions,  and  may  be 
separately  accepted  without  precedence  of  one  over  another. 

Bids  and  offers  made  without  stated  conditions  shall  be  considered 
to  be  in  the  "Regular  Way." 

On  transactions  for  more  than  three  days  written  contracts  shall  be 
exchanged  on  the  day  following  the  transaction,  and  shall  carry  inter- 
est at  the  legal  rate,  unless  otherwise  agreed;  on  such  contracts  one 
day's  notice  shall  be  given,  at  or  before  2  :15  p.  M.,  before  the  securities 
shall  be  delivered  prior  to  the  maturity  of  the  contract. 

On  offers  to  buy  "Seller's  Option"  or  to  sell  "Buyer's  Option,"  the 
longest  option  shall  have  precedence.  On  offers  to  buy  "Buyer's  Op- 
tion" or  to  sell  "Seller's  Option,"  the  shortest  option  shall  have  prece- 
dence. 

SEC.  4.  All  contracts  falling  due  on  holidays  or  half-holidays  ob- 
served by  the  Exchange  shall  be  settled  on  the  preceding  business  day, 
except  that  when  two  or  more  consecutive  days  are  holidays  or  half- 
holidays,  contracts  falling  due  on  other  than  the  first  of  such  days  shall 
be  settled  on  the  next  business  day. 

Loans  of  money  or  securities  made  on  the  day  preceding  a  holiday  or 
half-holiday  observed  by  the  Exchange  shall  mature  on  the  succeeding 
business  day,  unless  otherwise  specified. 


128         MATERIALS    OF    CORPORATION    FINANCE 

SEC.  5.  Bids  or  offers  shall  not  be  made  at  a  less  variation  than 
one-eighth  of  one  per  cent. 

SEC.  6.  Bids  and  offers  shall  be  made  on  the  basis  of  a  percentage 
of  the  par  value  of  the  securities  dealt  in,  unless  otherwise  ordered  by 
the  Governing  Committee. 

SEC.  7.  Any  member  violating  any  of  the  above  provisions  of  this 
Article  shall  be  fined  by  the  Chairman  in  an  amount  not  exceeding 
twenty  dollars ;  for  a  repetition  of  the  offense,  he  shall  be  liable  to  sus- 
pension for  a  period  not  exceeding  ten  days. 

SEC.  8.  Fictitious  transactions  are  forbidden.  Any  member  vio- 
lating this  rule  shall  be  liable  to  suspension  for  a  period  not  exceeding 
twelve  months. 

SEC.  9.     No  offers  to  buy  or  sell  privileges  to  receive  or  deliver  secu 
rities  shall  be  made  publicly  at  the  Exchange,  under  penalty  of  a  fine 
of  twenty-five  dollars  for  each  offense. 


ARTICLE  XXIV 
Comparisons — Liability  on  Contracts 

SEC.  1.  It  shall  be  the  duty  of  every  member  to  report  each  of  his 
transactions  as  promptly  as  possible  at  his  office,  where  he  shall  furnish 
opportunity  for  prompt  comparison. 

SEC.  2.  It  shall  be  the  duty  of  the  SELLER  to  compare,  or  to  en- 
deavor to  compare,  each  transaction  at  the  office  of  the  Buyer,  not  later 
than  one  hour  after  the  closing  of  the  Exchange.  Nothing  in  this 
Article  shall  be  construed  to  justify  a  refusal  to  compare  before  the 
closing  of  the  Exchange. 

SEC.  3.  It  shall  be  the  duty  of  the  BUYER  to  investigate,  before  10 
o'clock  A.  M.  of  the  day  after  the  purchase,  each  transaction  which  has 
not  been  compared  by  the  Seller. 

SEC.  4.  Neglect  of  a  member  to  comply  with  the  provisions  of  Sec- 
tion 1  or  2  hereof  shall  render  him  liable  to  a  fine  not  exceeding  fifty 
dollars,  to  be  imposed  by  the  Committee  of  Arrangements. 

SEC.  5.  Comparison  shall  be  made  by  an  exchange  of  an  original 
and  a  duplicate  comparison  ticket ;  the  party  to  whom  the  comparison 
ticket  is  presented  shall  retain  the  original,  if  it  be  correct,  and  imme- 
diately return  the  duplicate  duly  signed. 

An  exchange  of  Clearing-House  tickets  shall  constitute  a  com- 
parison. 

SEC.  6.  Should  a  difference  be  discovered  in  an  attempt  to  com- 
pare, the  exact  liability  of  the  disputants  shall  be  promptly  established 
by  purchase,  sale  or  mutual  agreement. 


STOCK    EXCHANGE    BY-LAWS   AND   RULES        129 

SEC.  7.  If  an  original  party  to  a  transaction  gives  up  his  principal, 
the  latter  shall  have  the  same  duties  in  the  matter  of  comparison  as 
the  original  party. 

SEC.  8.  No  comparison  or  failure  to  compare,  and  no  notification 
or  acceptance  of  notification,  shall  have  the  effect  of  creating  or  of  can- 
celing a  contract,  or  of  changing  the  terms  thereof,  or  of  releasing  the 
original  parties  from  liability. 

SEC.  9.  No  party  to  a  contract  shall  be  compelled  to  accept  a  sub- 
stitute principal,  unless  the  name  proposed  to  be  substituted  shall  be 
declared  in  making  the  offer  and  as  a  part  thereof. 

Orders  for  the  receipt  or  delivery  of  securities,  issued  by  the  Clear- 
ing-House,  shall,  however,  be  binding  and  enforceable  upon  members 
or  firms  using  the  facilities  of  the  Clearing-House. 

SEC.  10.  When  written  contracts  shall  have  been  exchanged  the 
signers  thereof  only  are  liable. 

AETICLE  XXV 
Payment  and  Delivery 

SEC.  1.  In  all  deliveries  of  securities,  the  party  delivering  shall 
have  the  right  to  require  the  purchase  money  to  be  paid  upon  delivery ; 
if  delivery  is  made  by  transfer,  payment  may  be  required  at  time  and 
place  of  transfer. 

SEC.  2.  The  Receiver  of  shares  of  stock  shall  have  the  option  of 
requiring  the  delivery  to  be  made  either  in  certificates  therefor  or  by 
transfer  thereof ;  except  that  in  cases  where  personal  liability  attaches 
to  ownership,  the  Seller  shall  have  the  right  to  make  delivery  by 
transfer. 

The  right  to  require  receipt  or  delivery  by  transfer  shall  not  obtain 
while  the  transfer  books  are  closed. 

SEC.  3.  Deliveries  of  securities  on  contracts  subject  to  the  rules  of 
the  Exchange  shall  in  all  cases  conform  to  the  requirements  for  regu- 
larity which  may  be  made,  from  time  to  time,  by  the  Committee  on 
Securities. 

SEC.  4.  The  Buyer  must,  not  later  than  two-fifteen  o'clock  P.  M., 
accept  and  pay  for  all,  or  any  portion  of  a  stock  contracted 
for  which  may  be  tendered  in  lots  of  one  hundred  shares 
or  multiples  thereof;  and  he  may  buy  in  "under  the  rule" 
the  undelivered  portion,  in  accordance  with  the  provisions  of 
Article  XXVIII. 

This  rule  shall  also  apply  to  contracts  for  bonds  when  tender  is 
made  in  lots  of  ten  thousand  dollars  or  multiples  thereof. 


130         MATEEIALS    OF    CORPORATION    FINANCE 

ARTICLE  XXVI 
Settlement  of  Contracts 

SEC.  1.  All  deliveries  of  securities  must  be  made  before  quarter 
after  two  o'clock  P.  M.,  and  when  deliveries  are  not  made  by  that  time 
the  contract  may  be  closed  "under  the  rule"  in  the  manner  provided 
in  Article  XXVIII  of  these  Rules.  In  the  absence  of  any  notice  or 
agreement  the  contract  shall  continue  without  interest  until  the  follow- 
ing business  day;  but  in  every  case  of  non-delivery  of  securities  the 
party  in  default  shall  be  liable  for  any  damages  which  may  accrue 
thereby;  and  all  claims  for  such  damages  must  be  made  before  three 
o'clock  p.  M.  on  the  business  day  following  the  default. 

SEC.  2.  The  neglect  or  failure  of  a  member  or  firm  to  exchange 
Clearing-House  tickets  on  a  contract,  in  conformity  with  the  "Rules 
for  Clearing,"  shall  constitute  a  default;  and  such  defaulted  contract 
may  be  closed  as  provided  in  Article  XXVIII;  except  that  the  limit 
of  time  for  delivery  of  notice  of  intention  to  close  such  contract  shall 
be  ten-thirty  o'clock  A.  M.  of  the  following  business  day,  and  the  time 
for  closing  shall  not  be  before  eleven  o'clock  A.  M. 

SEC.  3.  Parties  receiving  securities  shall  not  deduct,  from  the 
purchase  price,  any  damages  claimed  for  non-delivery,  except  by  the 
consent  of  the  party  delivering  the  same. 

SEC.  4.  Notice  for  the  return  of  loans  of  money,  or  of  securities 
not  admitted  to  the  Clearing-House,  must  be  given  before  one  o'clock 
P.  M.  Notice  for  the  return  of  loans  of  securities  admitted  to  the 
Clearing-House  must  be  given  before  three-thirty  o'clock  p.  M.,  except 
on  half -holidays  observed  by  the  Exchange,  when  such  notice  must  be 
given  before  twelve-thirty  o'clock  p.  M.  All  such  notices  shall  be  con- 
sidered as  in  full  force  until  delivery  is  made. 

SEC.  5.  On  half-holidays  observed  by  the  Exchange,  securities  sold 
specifically  for  "Cash"  must  be  delivered  and  received  at  or  before 
eleven-thirty  o'clock  A.  M.  In  case  of  default  the  contract  may  be 
closed  after  eleven-forty  o'clock  A.  M.  "under  the  rule/'  in  manner 
provided  in  Article  XXVIII. 

ARTICLE  XXVII 
Clearing-House 

SEC.  1.  There  shall  be  a  Clearing-House  for  the  purpose  of  acting 
as  the  common  agent  of  the  members  of  the  Exchange  in  receiving  and 
delivering  such  securities  as  may  from  time  to  time  be  designated  by 
the  Clearing-House  Committee. 

SEC.  2.     Nothing  in  the  conduct  of  the  business  of  clearing  shall 


STOCK   EXCHANGE   BY-LAWS   AND   RULES        131 

attach  any  liability  to  the  Exchange,  or  to  any  member  of  the  Clear- 
ing-House  Committee,  and  delays  on  the  part  of  the  Clearing-House 
shall  not  attach  any  liability  to  members  who  are  clearing. 

SEC.  3.  The  Clearing-House  Committee  shall  designate  from  time 
to  time  the  securities  which  shall  be  cleared,  and,  in  all  transactions 
in  such  securities,  the  deliveries  shall  be  made  through  the  Clearing- 
House,  unless  otherwise  specially  stipulated  in  the  bid  or  offer  or  other- 
wise agreed  upon. 

SEC.  4.  The  "Rules  for  Clearing"  and  the  "Rules  for  Dealing" 
adopted  by  the  Governing  Committee,  and  all  amendments  thereto, 
shall  be  binding  upon  the  members  of  the  Exchange  equally  with  the 
laws  included  in  the  Constitution. 

Amendments  to  "Rules  for  Clearing"  or  to  "Rules  for  Dealing"  may 
be  adopted  by  a  vote  of  two-thirds  of  all  the  existing  members  of  the 
Governing  Committee  and  need  not  be  submitted  to  the  members  of 
the  Exchange  for  approval. 

ARTICLE  XXVIII 
Closing  Contracts  "Under  the  Rule  " 

SEC.  1.  When  the  insolvency  of  a  member  or  firm  is  announced  to 
the  Exchange,  members  having  contracts  subject  to  the  rules  of  the 
Exchange  with  the  member  or  firm,  shall  without  unnecessary  delay 
proceed  to  close  the  same.  If  the  contracts  involve  securities  admitted 
to  quotation  upon  the  Exchange  the  closing  must  be  in  the  Exchange, 
either  officially  by  the  Chairman,  or  by  personal  purchase  or  sale.  If 
the  contracts  involve  securities  not  dealt  in  on  the  Exchange,  the  pur- 
chase or  sale  of  such  securities  must  be  promptly  made  in  the  best 
available  market.  Should  a  contract  not  be  closed,  as  above  provided, 
the  price  of  settlement  shall  be  fixed  by  the  price  current  at  the  time 
when  such  contract  should  have  been  closed  under  this  rule. 

SEC.  2.  A  contract  which  has  not  been  fulfilled  according  to  the 
terms  thereof  may  be  officially  closed  "under  the  rule"  by  the  Chair- 
man, as  herein  provided. 

Notice  of  intention  to  make  such  closing  of  a  contract  must  be  deliv- 
ered, at  or  before  two-thirty  o'clock  P.  M.,  at  the  registered  office  ad- 
dress of  the  member  or  firm  in  default.  And  the  Chairman  shall  not 
close  such  contract  before  two  thirty-five  o'clock  P.  M. 

SEC.  3.  Every  notice  of  intention  to  close  a  contract  "under  the 
rule,"  because  of  non-delivery,  shall  be  in  writing;  and  shall  state  the 
name  of  the  member  or  firm  by  whom  the  order  is  given,  also  for  whose 
account — all  of  which  shall  be  announced  by  the  Chairman  before  clos- 
ing the  contract. 


132         MATERIALS    OF    CORPORATION    FINANCE 

The  closing  of  a  contract  "under  the  rule,"  made  in  conformity  with 
such  notice,  shall  be  also  for  the  account  and  liability  of  each  succeed- 
ing party  in  interest. 

SEC.  4.  Notice  of  intention  to  close  a  contract  "under  the  rule" 
may  be  given  upon  the  entire  amount  in  default  or  upon  any  portion 
thereof,  but  in  this  latter  case  for  not  less  than  one  hundred  shares  of 
stock  or  ten  thousand  dollars  of  bonds. 

SEC.  5.  When  notice  that  a  contract  will  be  closed  "under  the  rule" 
is  received  too  late  for  transmission  to  other  members  or  firms  inter- 
ested in  such  contract,  within  the  times  stated  therefor,  the  notified 
member  or  firm  who  is  unable  to  so  transmit  said  notice  may,  immedi- 
ately after  the  official  closing  "under  the  rule/'  re-establish  such  con- 
tract by  a  new  purchase  or  sale  in  the  "regular  way";  and  any  loss 
arising  therefrom  shall  be  a  valid  claim  against  the  successive  party  or 
parties  in  interest. 

SEC.  6.  When  a  member  has  issued  a  notice  of  intention  to  close  a 
contract  "under  the  rule,"  for  default  in  delivery,  he  must  receive  and 
pay  for  securities  due  upon  such  contract  if  tendered  at  his  office 
within  five  minutes  of  the  official  time  for  closing;  or  thereafter,  if 
tendered  at  the  rostrum  of  the  Exchange,  before  the  Chairman  has 
closed  the  contract. 

SEC.  7.  When  a  contract  has  been  closed  "under  the  rule,"  the 
member  or  firm  who  gave  the  order  must  give  prompt  notice  of  such 
closing  to  the  member  or  firm  in  default. 

Notification  to  successive  parties  in  interest  must  be  transmitted 
without  delay,  and  claims  for  damages  arising  therefrom  must  be  made 
prior  to  three  o'clock  P.  M.  of  the  business  day  following  the  closing  of 
the  contract. 

SEC.  8.  When  a  contract  has  been  closed  "under  the  rule"  the 
Chairman  shall  endorse  upon  the  order  therefor  the  name  of  the  pur- 
chaser or  seller,  the  price  and  the  hour  at  which  such  contract  is  closed, 
and  deliver  the  order  to  the  Secretary  of  the  Exchange,  who  shall 
ascertain  whether  the  money  difference,  if  any,  has  been  paid.  I  f  such 
difference  shall  not  be  paid  within  twenty-four  hours  after  the  closing 
of  the  contract,  the  Secretary  shall  report  such  default  to  the  President. 

SEC.  9.  When  a  contract  is  closed  "under  the  rule,"  any  member 
or  firm  accepting  the  bid  or  offer,  as  made  by  the  Chairman,  and  not 
complying  promptly  therewith,  shall  be  liable  for  any  damages  result- 
ing therefrom. 

The  member  or  firm,  for  whose  account  a  contract  is  being  closed 
"under  the  rule,"  shall  not  be  permitted  to  accept  the  bid  or  offer  made 
by  the  Chairman. 

SEC.  10.     When  a  loan  of  money  is  not  paid  at  or  before  two-fifteen 


STOCK   EXCHANGE    BY-LAWS   AND   RULES        133 

o'clock  P.  M.  of  the  day  upon  which  it  becomes  due,  the  borrower  shall 
be  considered  as  in  default,  and  the  lender  may  sell  "under  the  rule" 
the  securities  pledged  therefor,  or  so  much  thereof  as  may  be  necessary 
to  liquidate  the  loan,  in  the  manner  prescribed  in  the  foregoing  Sec- 
tions of  this  Article. 

ARTICLE  XXIX 
Irregularity  in  Securities 

"Reclamation  for  irregularity  in  a  security,  when  such  irregularity 
affects  only  its  currency  in  the  market,  must  be  made  within  ten  days 
from  day  of  delivery  of  the  security. 

ARTICLE  XXX 
Disagreement  on  Terms  of  Contract 

When  a  disagreement  arising  from  a  transaction  in  securities  shall 
be  discovered,  the  money  difference  shall  forthwith  be  established  by 
purchase  or  sale  by  the  Chairman,  or  by  mutual  agreement. 

ARTICLE  XXXI 

Deposits  on  Contracts 

SEC.  1.  Mutual  cash  deposits  of  not  exceeding  ten  per  cent,  may 
be  required  at  any  time  .by  either  party  to  a  contract.  Whenever  the 
margin  of  either  party  becomes  reduced  to  five  per  cent,  by  reason  of 
changes  in  the  market  value  of  the  securities,  further  deposits  may  be 
called,  from  time  to  time,  sufficient  to  restore  the  impaired  margin. 

SEC.  2.  The  holder  of  a  due-bill  issued  for  the  dividend  on  stock 
contracted  for  may  require  the  maker  of  the  due-bill  to  deposit  the  full 
amount  due  thereon,  in  a  Trust  Company,  payable  to  the  joint  order 
of  both  parties. 

SEC.  3.  When  deposits  are  called  before  two  o'clock  P.  M.,  they 
must  be  made  at  or  before  two-thirty  o'clock  of  the  same  day ;  if  called 
after  two  o'clock  P.  M.  they  must  be  made  at  or  before  ten-thirty  o'clock 
A.  M.  of  the  following  business  day. 

On  half-holidays  observed  by  the  Exchange,  deposits  called  before 
eleven  o'clock  A.  M.  must  be  made  at  or  before  eleven-thirty  o'clock 
A.  M.  ;  if  called  after  eleven  o'clock  A.  M.  they  must  be  made  at  or  before 
ten-thirty  o'clock  A.  M.  of  the  next  business  day. 

SEC.  4.  Failure  of  either  party  to  a  contract  to  comply  with  a  de- 
mand for  a  deposit  shall  constitute  a  default;  and  the  other  party  to 
the  contract  may  report  such  default  to  the  Chairman,  and  instruct 
him  to  re-establish  the  contract  forthwith,  by  a  new  purchase  or  sale 


134         MATERIALS    OP    CORPORATION    FINANCE 

"under  the  rule/'  and  any  difference  arising  therefrom  shall  be  paid 
to  the  party  entitled  thereto. 

Written  notice  of  intention  to  re-establish  the  contract  shall  be  sent 
to  the  office  of  the  party  in  default. 

SEC.  5.  Unless  otherwise  mutually  agreed,  deposits  on  contracts 
shall  be  made  in  the  New  York  Life  Insurance  and  Trust  Company. 

ARTICLE  XXXII 
Dividends — Interest — Premium 

SEC.  1.  On  the  day  of  closing  of  the  transfer  books  of  a  corporation 
for  a  dividend  upon  its  shares  all  transactions  therein  for  "Cash"  shall 
be  "dividend  on"  up  to  the  time  officially  designated  for  the  closing  of 
transfers ;  all  transactions  on  that  day  other  than  for  "Cash"  shall  be 
"ex-dividend." 

Should  the  closing  of  transfers  occur  upon  a  holiday  or  half-holiday, 
observed  by  the  Exchange,  transactions  on  the  preceding  business  day, 
other  than  for  "Cash"  shall  be  "ex-dividend." 

SEC.  2.  The  buyer  shall  be  entitled  to  receive  all  interest,  divi- 
dends, rights  and  privileges,  except  voting  power,  which  may  pertain  to 
the  securities  contracted  for,  and  for  which  the  transfer  books  shall 
close  during  the  pendency  of  the  contract. 

When  such  contract  shall  mature  before  the  official  date  for  payment 
of  interest  or  dividend,  the  seller  shall  deliver  a  due-bill  therefor 
signed  or  endorsed  by  him. 

When  a  security  is  sold  before  the  day  of  closing  books  for  "Rights" 
(and  is  quoted  "ex-Rights"  on  that  day),  and  is  delivered  thereafter, 
the  buyer  shall  on  its  delivery  pay  only  the  market  price  of  the  security 
"ex-Rights."  He  shall  pay  the  balance  due  on  the  contract,  when  the 
seller  delivers  the  "Rights,"  at  any  time  on  or  before  the  day  set  by  the 
Committee  on  Securities  for  settlement  of  contracts  in  "Rights." 

When  a  security  is  loaned  before  the  day  of  closing  books  for 
"Rights"  (and  is  quoted  "ex-Rights"  on  that  day),  and  is  returned 
thereafter,  the  lender  shall  on  its  return  pay  only  the  market  price  of 
the  security  "ex-Rights."  He  shall  pay  the  balance  due  on  the  con- 
tract, when  the  borrower  delivers  the  "Rights,"  at  any  time  on  or  be- 
fore the  day  set  by  the  Committee  on  Securities  for  settlement  of  con- 
tracts in  "Rights." 

SEC.  3.  A  charge  of  one  per  cent,  may  be  made  for  collecting  divi- 
dends. For  scrip  or  stock  dividends  the  charge  shall  be  computed 
upon  the  market  value  of  such  scrip  or  stock. 

No  charge  shall  be  made  for  collecting  dividends  accruing  on  securi- 
ties deliverable  on  a  contract. 


STOCK   EXCHANGE    BY-LAWS   AND   RULES        135 

SEC.  4.  Offers  to  buy  or  sell  dividends  shall  not  be  made  publicly 
on  the  Exchange.  The  Chairman  shall  impose  a  fine  of  twenty-five 
dollars  for  each  violation  of  this  rule. 

SEC.  5.  When  securities  are  borrowed  or  loaned  the  sum  agreed 
upon,  either  as  interest  for  carrying  or  as  premium  for  use,  shall  be 
paid  whether  such  securities  are  delivered  or  not. 

SEC.  6.  When  money  or  securities  are  loaned  at  a  premium  said 
premium  shall  apply  to  the  day  for  which  the  loan  is  made. 

ARTICLE  XXXIII 
Transfer  and  Registry 

SEC.  1.  Corporations  whose  shares  are  admitted  to  dealings  upon 
the  Exchange  will  be  required  to  maintain  a  Transfer  Agency  and  a 
Registry  office  in  the  City  of  New  York,  Borough  of  Manhattan. 
Both  the  Transfer  Agency  and  the  Registrar  must  be  acceptable  to 
the  Committee  on  Stock  List,  and  the  Registrar  must  file  with  the  Sec- 
retary of  the  Exchange  an  agreement  to  comply  with  the  requirements 
of  the  Exchange  in  regard  to  registration. 

SEC.  2.  When  a  corporation  purposes  to  increase  its  authorized 
capital  stock,  thirty  days'  notice  of  such  proposed  increase  must  be 
officially  given  to  the  Exchange,  before  such  increase  may  be  admitted 
to  dealings. 

SEC.  3.  When  the  capital  stock  of  a  corporation  is  increased 
through  conversion  of  convertible  bonds,  already  listed,  the  issuing 
corporation  shall  give  immediate  notice  to  the  Exchange  and  the  Com- 
mittee on  Stock  List  may,  thereupon,  authorize  the  registration  of  such 
shares  and  add  them  to  the  list. 

SEC.  4.  The  Governing  Committee  may  suspend  dealings  in  the 
securities  of  any  corporation  previously  admitted  to  quotation  upon 
the  Exchange,  or  it  may  summarily  remove  any  securities  from  the  list. 

SEC.  5.  After  the  admission  of  a  security  to  dealings  upon  the 
Exchange  no  change  in  the  form  of  certificate,  or  of  the  Transfer 
Agency  or  the  Registrar  of  Shares,  or  of  the  Trustee  of  Bonds  shall  be 
made  without  the  approval  of  the  Committee  on  Stock  List. 

ARTICLE  XXXIV 
Commissions 

SEC.  1.  Commissions  shall  be  charged  and  paid,  under  all  circum- 
stances, upon  all  purchases  or  sales  of  securities  dealt  in  upon  the  Ex- 
change; and  shall  be  absolutely  net,  and  free  from  all  or  any  rebate- 
ment,  return,  discount  or  allowance  in  any  shape  or  manner  whatso- 
ever, or  by  any  method  or  arrangement,  direct  or  indirect;  and  no 


136 

bonus,  nor  any  percentage  or  portion  of  the  commission,  shall  be  given, 
paid  or  allowed,  directly  or  indirectly,  or  as  a  salary,  or  portion  of  a 
salary,  to  any  clerk  or  person,  for  business  sought  or  procured  for  any 
member  of  the  Exchange. 

SEC.  2.  All  commissions  shall  be  calculated  upon  the  par  value  of 
securities  and  the  rates  shall  be  as  follows : 

(a)  On  business  for  parties  not  members  of  the  Exchange,  includ- 
ing joint-account  transactions  in  which  a  non-member  is  interested, 
transactions  for  partners  not  members  of  the  Exchange,  and  for  firms 
of  which  the  Exchange  member  or  members  are  special  partners  only, 
the  commission  shall  be  not  less  than  one-eighth  of  one  per  cent. 

(&)  On  business  for  members  of  the  Exchange,  the  commission 
shall  be  not  less  than  one-thirty-second  of  one  per  cent.,  except  when  a 
principal  is  given  up,  in  which  case  the  commission  shall  be  not  less 
than  one-fiftieth  of  one  per  cent. 

(c)  On  Mining  Shares,  Subscription  Rights,  and  Notes  of  Cor- 
porations, such  rates,  to  members  and  non-members,  as  may  be  deter- 
mined, from  time  to  time,  by  the  Committee  on  Commissions  with  the 
approval  of  the  Governing  Committee. 

(d)  Government  and  Municipal  Securities  are  exempted  from  the 
provisions  of  this  Article. 

SEC.  3.  A  firm  having  as  a  general  partner  a  member  of  the  Ex- 
change shall  be  entitled  to  have  its  business  transacted  at  the  rates  of 
commission  hereinbefore  prescribed  for  members.  A  member  of  the 
Exchange  cannot  confer  this  privilege  upon  more  than  one  firm  at  any 
one  time. 

The  privileges  provided  for  under  this  Section  can  only  be  con- 
ferred upon  a  Branch  House  in  this  country  when  established  under 
the  same  name  as  the  parent  firm  and  in  which  the  partners  and  their 
respective  interests  are  identical  with  those  of  the  parent  firm. 

SEC.  4.  A  proposition  for  the  transaction  of  business,  at  less  than 
the  minimum  rates  of  commission  herein  provided,  shall  constitute  a 
violation  of  this  article. 

SEC.  5.  A  member  suspended  by  the  Governing  Committee  shall 
not,  during  the  time  of  his  suspension,  be  entitled  to  have  his  busi- 
ness transacted  at  member's  rates  of  commission. 

A  member  who  is  in  suspension  by  reason  of  insolvency  may  have  his 
business  transacted  at  member's  rates. 

SEC.  6.  If  the  Governing  Committee  shall,  by  a  majority  vote  of 
all  its  existing  members,  determine  that  a  member  of  the  Exchange 
has  violated  the  provisions  of  this  Article,  it  shall  suspend  such  mem- 
ber, for  the  first  offense,  for  such  period  not  less  than  one  year  nor 
more  than  five  years,  as  a  majority  of  the  members  of  said  Committee 


STOCK   EXCHANGE    BY-LAWS   AND   RULES        137 

present  may  determine.  A  member  adjudged  guilty  of  a  second  of- 
i'rnse,  by  a  majority  vote  of  all  the  existing  members  of  the  Governing 
Committee,  shall  be  expelled  by  a  like  vote. 

ARTICLE  XXXV 
Office  Address — Partnerships — Branch  Offices 

SEC.  1.  Every  member  shall  register  with  the  Secretary  an  address, 
and  subsequent  changes  thereof,  where  notices  may  be  served.  The 
registered  address  of  every  member  transacting  business  upon  the 
Exchange  must  be  in  its  vicinity. 

SEC.  2.  When  a  member  shall  form  a  partnership  he  shall  immedi- 
ately register  the  same  with  the  Secretary ;  official  announcement  there- 
of shall  be  made  to  the  Exchange  and  notice  posted  upon  the  bulletin 
for  ten  days.  Notice  of  dissolution  of  partnership  must  be  given  in 
like  manner. 

SEC.  3.  No  person  shall  be  eligible  to  either  general  or  special  part- 
nership in  more  than  one  registered  firm  at  the  same  time. 

This  law  shall  not  obtain,  however,  when  a  member  of  a  registered 
firm  forms  a  partnership  in  a  foreign  country  under  the  same  or  dif- 
ferent name  from  that  of  his  firm  in  this  country ;  provided,  however, 
that  the  firm  in  said  foreign  country  shall  not  derive  any  benefit  from 
the  privileges  which  attach  to  members  of  firms  registered  at  the  Stock 
Exchange. 

SEC.  4.  A  member  shall  not  form  a  partnership  with  a  suspended 
member  of  the  Exchange,  nor  with  any  person  who  has  been  expelled 
therefrom ;  nor  with  any  insolvent  person,  or  with  any  person  who  may 
have  previously  been  a  member  of  the  Exchange,  and  against  whom  any 
member  holds  a  claim,  arising  out  of  transactions  made  during  the 
time  of  such  membership,  and  which  has  not  been  released,  or  settled  in 
accordance  with  the  laws  of  the  Exchange. 

A  member,  who  is  a  special  partner  in  a  firm,  does  not  thereby  con- 
fer any  of  the  privileges  of  the  Exchange  on  such  firm. 

SEC.  5.  A  member  of  the  Exchange  who  is  a  general  partner  in  a 
firm  represented  thereon  is  liable  to  the  same  discipline  and  penalties 
for  any  act  or  omission  of  said  firm  as  if  the  same  were  committed  by 
him  personally ;  but  the  Governing  Committee  may  in  its  discretion  by 
a  vote  of  not  less  than  thirty  members  relieve  him  from  the  penalty 
therefor. 

SEC.  6.  Members  may,  by  the  consent  and  approval  of  the  Commit- 
tee on  Commissions,  establish  Branch  Offices.  Such  offices  must  be 
in  charge  of  either  a  partner,  or  of  a  manager  or  clerk  acceptable  to 
said  Committee. 

The  member  or  firm  establishing  a  Branch  Office  shall  register  it 


138         MATERIALS    OF    COEPORATION    FINANCE 

with  the  Secretary  of  the  Exchange,  and  shall  be  directly  responsible 
for  the  conduct  of  its  business. 

The  managing  clerk  and  all  other  employees  must  be  paid  fixea 
salaries,  not  varying  with  the  business. 

No  agents  for  the  solicitation  of  business,  shall  be  employed  on  any 
other  than  the  foregoing  basis. 

SEC.  7.  Whenever  it  shall  appear  to  the  Governing  Committee  that 
a  member  has  formed  a  partnership,  or  established  a  branch  office,  or 
is  individually  or  through  any  member  of  his  firm,  interested  in  a 
partnership  in  a  foreign  country,  whereby  the  interest  or  good  repute 
of  the  Exchange  may  suffer,  the  Committee  may  require  the  dissolu- 
tion of  such  partnership,  the  discontinuance  of  the  interest  in  said  for- 
eign partnership,  or  of  such  branch  office,  as  the  case  may  be. 

SEC.  8.  Any  member  failing  to  comply  with  any  requirement  of 
this  article,  or  with  any  requirement  of  the  Governing  Committee  in 
regard  thereto,  shall  be  liable  to  suspension  for  a  period  not  exceeding 
one  year. 

ARTICLE  XXXVI. 
Disorderly  Conduct. 

SEC.  1.  Indecorous  language,  or  an  act  subversive  of  good  order 
and  decorum,  or  serious  interference  with  the  personal  comfort  or 
safety  of  another  person  is  forbidden.  Any  member  who  shall  violate 
this  rule,  within  the  limits  of  any  department  of  the  Exchange,  may 
be  fined  by  the  Chairman,  or  by  the  Committee  of  Arrangements,  in  a 
sum  not  exceeding  fifty  dollars ;  or  upon  complaint  made  may  be  sum- 
moned before  the  Governing  Committee  and  suspended  for  a  period 
not  exceeding  sixty  days. 

SEC.  2.  The  Committee  of  Arrangements  may  make  rules  to  gov- 
ern the  conduct  of  members  upon  the  Exchange;  it  may  impose  a  fine, 
not  exceeding  fifty  dollars,  for  each  violation  thereof,  or  may  report 
the  delinquent  to  the  Governing  Committee,  who  may  suspend  him  for 
a  period  not  exceeding  sixty  days. 

SEC.  3.  Betting  or  offering  to  bet,  upon  the  floor  of  the  Exchange. 
is  forbidden.  A  member  violating  this  rule  shall  be  subject  to  tbe 
penalties  prescribed  in  the  preceding  Section  of  this  Article. 

ARTICLE  XXXVII. 
Minutes — Visitors — Communications. 

SEC.  1.     Members  shall  have  access  to  the  minutes  of  the  Exchange. 
SBC.  2.     Visitors  shall  not  be  admitted  to  the  floor  of  the  Exchange 


STOCK   EXCHANGE   BY-LAWS   AND   RULES        139 

except  by  permission  of  the  President  or  the  Committee  of  Arrange- 
ments. 

SEC.  3.  Communications  shall  not  be  read  to  the  Exchange  with- 
out the  consent  of  the  President  or  the  Committee  of  Arrangements. 

ARTICLE  XXXVIII. 

Alterations  of  the  Constitution. 

The  Governing  Committee  may  make  additions,  alterations  or 
amendments  to  the  Constitution  by  a  majority  vote  of  all  its  existing 
members.  Every  proposed  addition,  alteration  or  amendment  must 
be  presented,  in  writing,  at  a  regular  meeting  of  the  Governing  Com- 
mittee, and  referred  to  the  Committee  on  Constitution,  which  shall 
report  thereon  at  the  next  regular  meeting  of  the  Governing  Commit- 
tee, or  at  a  special  meeting  called  for  the  sole  purpose  of  considering  it. 
Action  thereon  may  be  postponed  to  a  fixed  date  by  a  vote  of  two-thirds 
of  the  members  of  the  Governing  Committee  present.  Such  alterations 
when  adopted  by  the  Governing  Committee  shall  be  submitted  to  the 
Exchange  and  shall  stand  as  the  law  of  the  Exchange,  if  not  disap- 
proved within  one  week  by  a  majority  vote  of  the  entire  membership. 

No  alteration  of  Article  XVIII  shall  ever  be  made  which  will  im- 
pair, in  any  essential  particular,  the  obligation  of  each  member  to  con- 
tribute, as  therein  provided,  to  the  provision  for  the  families  of  de- 
ceased members. 

RESOLUTIONS  ADOPTED  BY  THE  GOVERNING  COMMITTEE. 

Advertising. 

FEBRUARY  9,  1898. 

"That  in  future  the  publication  of  an  advertisement  of  other  than 
a  strictly  legitimate  business  character,  by  a  member  of  the  Exchange, 
shall  be  deemed  an  act  detrimental  to  the  interest  and  welfare  of  the 
Exchange." 

Arbitrage  Dealings. 

FEBRUARY  9,  1898. 

"Whereas,  The  so-called  Arbitrage  business  or  trading  between  this 
Exchange  and  that  of  any  other  city  in  the  United  States,  based  upon 
quotations  from  the  floor  of  this  Exchange,  has  resulted  in  practically 
ignoring  the  commission  law ;  therefore 

"Resolved,  That  in  the  judgment  of  this  Committee  the  sending  of 
continuous  quotations  or  quotations  at  frequent  intervals  by  members 
of  this  Exchange,  from  the  floor  of  the  Exchange,  is  detrimental  to  the 
interest  and  welfare  of  the  Exchange,  and  that  any  member  engaging 


140         MATERIALS    OF   CORPORATION   FINANCE 

in  such  business  or  trading  shall  be  proceeded  against  under  Section  8 
of  Article  XVII  of  the  Constitution ; 

"Resolved,  That  the  Committee  of  Arrangements  be  and  they  here- 
by are  authorized  and  instructed  to  prevent  the  transaction  of  any  such 
business  or  trading  by  any  member  of  this  Exchange,  and  to  prefer 
charges  against  any  member  engaging  therein." 

Foreign  Arbitrage — Joint  Accounts. 

APRIL  20, 1911. 
(To  take  effect  July  1,  1911.) 

"Whereas,  The  so-called  Arbitrage  business  by  means  of  joint  ac- 
count trading  between  this  Exchange  and  foreign  cities,  where  each 
party  interested  charges  a  commission  or  allowance,  has  resulted  in 
practically  nullifying  the  Commission  Law;  therefore 

"Resolved,  That  any  business,  domestic  or  foreign,  for  the  joint  ac- 
count of  a  member  of  the  Exchange  and  a  non-member,  where  each 
party  in  interest  charges  a  commission  or  allowance,  is  hereby  pro- 
hibited. 

"Resolved,  That  any  business,  domestic  or  foreign,  conducted  under 
an  arrangement  of  accounts,  not  joint  account  in  name,  but  designed  to 
produce  results  similar  to  those  of  the  above  described  joint  account,  is 
hereby  prohibited." 

Bids  and  Offers. 

DECEMBER  14,  1898. 

"That  where  parties  have  orders  to  buy  and  orders  to  sell  the  same 
security,  said  parties  must  offer  said  security,  whether  it  be  stock  or 
bonds,  at  one-eighth  per  cent,  higher  than  their  bid  before  making 
transactions  with  themselves." 

Rules  Covering  Bids  and  Offers. 

MARCH  30,  1910. 
(Amended  May  12,  1911.) 

1.  That  the  recognized  quotation  on  stocks  shall  be  public  bids  and 
offers  on  lots  of  100  shares. 

2.  All  bids  and  offers  on  larger  lots  shall  be  considered  to  be  for  any 
part  thereof  in  lots  of  100  shares  or  of  multiples  thereof,  whether  so 
stated  in  the  bid  or  offer  or  not. 

3.  If  a  bid  is  made  for  a  larger  lot  of  stock  above  the  price  at 
which  smaller  lots  are  offered,  or  if  a  transaction  is  made  in  a  larger 
lot  above  the  price  at  which  smaller  lots  are  offered,  such  bidder  or 
buyer  shall  be  compelled  to  buy  any  or  all  of  the  smaller  lots  which  were 
publicly  offered  at  the  time,  at  the  lower  price,  up  to  the  amount  of  the 
bid  for  the  larger  lot.    If  the  bid  for  the  larger  lot  is  accepted,  and  the 


STOCK   EXCHANGE   BY-LAWS   AND   RULES        141 

buyer  is  unwilling  to  buy  more,  the  seller  must  give  up  to  the  members 
who  were  publicly  offering  to  sell  at  the  lower  price,  such  amounts  as 
they  were  publicly  offering  to  sell  at  the  lower  price,  if  such  claim  is 
made  immediately. 

4.  If  an  offer  is  made  to  sell  a  larger  lot  of  stock  below  the  price 
which  is  bid  for  smaller  lots,  or  if  a  transaction  is  made  in  a  larger  lot 
below  the  price  which  is  bid  for  smaller  lots,  such  member  offering  to 
sell,  or  the  seller,  shall  be  compelled  to  sell  any  or  all  of  the  smaller 
lots  which  were  publicly  bid  for  at  the  time,  at  the  higher  price,  up  to 
the  amount  of  the  offer  of  the  larger  lot.     If  the  offer  of  the  larger  lot 
is  accepted,  and  the  seller  is  unwilling  to  sell  more,  the  buyer  must  give 
up  to  the  members  who  were  publicly  bidding  the  higher  price,  such 
amounts  as  they  were  publicly  bidding  for,  at  the  higher  price,  if  such 
claim  is  made  immediately. 

5.  A  member  may  sell  on  offer  the  largest  amount  bid  for  without 
regard  to  priority  of  bids.     Should  the  offer  be  of  an  amount  larger 
than  the  largest  bid,  the  balance  shall  go  to  the  next  largest  bidder  in 
sequence ;  bids  for  equal  amounts  being  on  a  par. 

A  member  may  buy  on  bids  under  the  same  rule. 

6.  Attention  is  directed  to  the  resolution  of  the  Governing  Com- 
mittee adopted  October  26,  1892,  which  reads  as  follows: 

<fWTien  a  purchase  or  sale  is  claimed  by  a  party  who  states  that  he 
had  on  the  floor  a  prior  or  better  bid  or  offer  such  claim  shall  not  be 
sustained  if  the  bid  or  offer  was  not  made  with  the  publicity  and  fre- 
quency necessary  to  make  the  existence  of  such  bid  or  offer  generally 
known  at  the  time  of  the  transaction." 

7.  Disputes  arising  from  a  question  as  to  priority  of  bid  or  offer, 
if  not  settled  by  agreement  between  the  members  interested,  shall  be 
settled  by  vote  of  the  members  knowing  of  the  transaction  in  question. 

Disputes  as  to  the  application  of  rules  relating  to  the  transaction 
in  question,  if  not  settled  by  agreement  between  the  members  inter- 
ested, shall  be  settled  by  any  member  of  the  Committee  of  Arrange- 
ments. 

8.  The  above  rules  shall  not  apply  to  lots  of  less  than  100  shares, 
nor  to  active  openings  when  bids  and  offers  are  simultaneous. 

Members  Dealing  with   Themselves  —  Specialists 

MARCH  30,  1910. 
(To  take  effect  April  4,  1910.) 

"Resolved,  That  any  member  of  the  Exchange  who,  while  acting 
M  a  broker,  either  as  a  'Specialist'  or  otherwise,  shall  buy  or  sell 
directly  or  indirectly  for  his  own  account,  for  account  of  a  partner, 
or  for  any  account  in  which  he  has  an  interest,  the  securities,  the 


142         MATEKIALS    OF   COBPOBATION   FINANCE 

order  for  the  purchase  or  sale  of  which  has  been  accepted  by  him 
for  execution,  shall  be  deemed  guilty  of  conduct  or  proceeding  in- 
consistent with  just  and  equitable  principles  of  trade,  and  shall  be 
subject  to  the  penalties  provided  in  Article  XVII,  Section  6,  of  the 
Constitution. 

"The  foregoing  rule  shall  not  apply  to  the  act  of  a  member  who 
by  reason  of  his  neglect  to  execute  an  order  is  compelled  to  take 
or  to  supply  on  his  own  account  the  securities  named  in  the  order; 
in  such  case  the  member  is  not  acting  as  a  broker  and  shall  not  charge 
a  commission. 

"A  member,  acting  as  a  broker,  is  permitted  to  report  to  his  prin- 
cipal a  transaction  as  made  with  himself,  only  when  he  has  orders 
both  to  buy  and  to  sell  and  not  to  give  up,  and  then  he  must  add 
to  his  name  on  the  report,  'On  order,'  or  words  to  that  effect." 

Bucket-shops 

MAY   19,   1909. 

"That  any  member  of  this  Exchange  who  is  interested  in,  or  asso- 
ciated in  business  with,  or  whose  office  is  connected,  directly  or  in- 
directly, by  public  or  private  wire  or  other  method  or  contrivance 
with,  or  who  transacts  any  business  directly  or  indirectly  with  or 
for,  any  organization,  firm  or  individual  engaged  in  the  business 
of  dealing  in  differences  or  quotations  (commonly  called  a  bucket- 
shop)  shall,  on  conviction  thereof,  be  deemed  to  have  committed  an 
act  or  acts  detrimental  to  the  interest  and  welfare  of  this  Exchange." 

Clearing  Charges 

NOVEMBER  23,  1881. 

"That  in  transactions  where  orders  are  received  from  a  non- 
member,  wherein  the  broker  filling  the  order  is  directed  to  give  up 
another  broker  or  clearing-house,  the  responsibility  of  collecting  the 
full  commission  of  one-eight  per  cent,  shall  rest  with  the  broker  or 
clearing-house  settling  the  transaction." 

OCTOBER  24,  1894. 

"That  in  transactions  where  orders  are  received  from  a  member 
on  which  a  clearing  firm  is  given  up  by  said  member  or  by  his  order, 
the  responsibility  of  collecting  the  full  commission  of  one-thirty- 
second  of  one  per  cent,  shall  rest  with  said  clearing  firm ;  and  it  shall 
be  the  duty  of  the  broker  who  executes  such  orders  to  report  the 
transactions  to  the  clearing  firm  and  render  to  them  and  collect 
his  bill  therefor  at  the  rate  of  one-fiftieth  of  one  per  cent. ;  and  also 
that  where  a  broker  executes  an  order  for  a  member  and  clears  the 
security  himself,  he  must  charge  one-thirty-second  of  one  per  cent." 


STOCK  EXCHANGE   BY-LAWS   AND   RULES       143 

DECEMBER  28,  1911. 

"That  hereafter  when  a  member  of  the  Exchange  receives  and  de- 
livers securities  for  another  member,  the  clearing  charge  for  said  serv- 
ice may  be  a  matter  of  mutual  agreement." 

JANUARY  24,  1912. 

"That  the  Governing  Committee  rules  that  in  the  matter  of  clear- 
ing charges  between  members  of  the  Exchange,  said  charges  shall 
be  based  upon  a  stipulated  sum  of  money  for  each  one  hundred 
shares  of  stock  or  ten  thousand  dollars  of  bonds,  or  portions  thereof." 

"The  payment  of  a  certain  sum  of  money  for  any  period  of  time 
for  said  service,  irrespective  of  the  number  of  shares  or  amount  of 
bonds  cleared,  is  forbidden." 

Clerks  in  Nominal  Positions. 

JANUARY  23,  1901. 

"That  the  employment  of  a  clerk  or  clerks  in  a  nominal  position 
because  of  the  business  obtained  by  such  clerk  or  clerks  for  their 
employer,  is  a  violation  of  the  rules.  Articles  XXXIV  and  XXXV 
of  the  Constitution." 

Clerks,  Speculative  Transactions  for. 

MARCH  30,  1910. 
(To  take  effect  April  4,  1910.) 

"That  the  taking  or  carrying  of  a  speculative  account,  or  the  mak- 
ing of  a  speculative  transaction,  in  which  a  clerk  of  the  Exchange, 
or  of  a  member  of  the  Exchange,  or  of  a  bank,  trust  company,  banker 
or  insurance  company,  is  directly  or  indirectly  interested,  unless  the 
written  consent  of  the  employer  has  been  first  obtained,  shall  be 
deemed  an  act  detrimental  to  the  interest  and  welfare  of  the  Ex- 
change." 

Responsibility  for  Accounts — Fictitious  Names,  etc. 

"That  every  member  of  the  Exchange  be  required  to  use  due  dili- 
gence to  learn  the  essential  facts  relating  to  every  account  accepted 
by  himself  or  by  his  clerks  or  representatives,  and  also  relating  to 
the  possible  use  of  a  name  for  the  account  other  than  that  of  the 
party  interested." 

Commissions. 

Reciprocal  Business. 

APRIL  14,  1897. 

"That  transacting  or  offering  to  transact  business  in  grain,  produce, 
cotton  or  other  commodities,  without  commission,  or  for  a  nominal 


144         MATERIALS   OF   CORPORATION   FINANCE 

commission,  by  any  member  of  this  Exchange  or  firm  represented 
therein,  for  a  customer  dealing  in  securities  dealt  in  at  the  Ex- 
change, is  a  method  or  arrangement  for  rebatement  of  commissions, 
and  is  a  violation  of  the  commission  law. 

"That  giving  or  offering  to  give  reciprocal  business  in  grain, 
produce,  cotton  or  other  commodities  dependent  upon  the  amount 
of  Stock  Exchange  business  received  is  a  method  or  arrangement 
for  rebatement  of  commissions  and  is  a  violation  of  the  commission 
laws." 

Commission  on  Mining  Shares. 

APRIL  13,  1910. 

"That  the  rates  of  commission  on  mining  shares  shall  be  based 
upon  selling  price,  regardless  of  par  value,  and  shall  not  be  less  than 
the  following,  for  each  one  hundred  shares: 

For  Non-  For  Members,  For  Members, 

Selling  at                         Members,  if  cleared.  if  given  up. 

$10  and  above $12.50  $3.12y3                 $2.00 

Below  $10    6.25  1.56%                   1.00 

Taking  Over  or  Accepting  Transactions. 

APRIL  12,  1911. 

"Whenever  a  non-member  of  this  Exchange  shall  cause  to  be  ex- 
ecuted in  any  market  outside  of  the  United  States  any  order  or 
orders  for  the  purchase  or  sale  of  securities  listed  on  this  Exchange, 
other  than  Government,  State  or  Municipal  securities,  and  said  pur- 
chase or  sale  shall  be  accepted  by  a  member  or  a  firm  who  are  mem- 
bers of  this  Exchange,  for  the  account  of  said  non-member,  one- 
eighth  of  one  per  cent,  commission  shall  be  charged  said  non-member 
in  addition  to  any  commission  charged  by  the  party  or  parties  making 
the  transaction." 

Commissions. 

(Bunched  Orders.) 

JUNE  12,  1912. 

The  Committee  on  Commissions  reported  to  the  Governing  Com- 
mittee that  complaint  had  been  made  that  a  custom  prevails  upon 
the  Floor  of  what  is  called  "bunched"  orders  —  that  is,  when  one 
member  has  300  shares  of  stock  to  sell,  another  200  and  another  500, 
they  "bunch"  the  lots,  one  of  said  members  offering  the  entire  lot  of 
1,000  shares;  if  he  succeeds  in  disposing  of  said  lot,  it  is  not  the 
custom  for  him  to  charge  his  associates  in  the  sale  any  commission. 

The  Committee  on  Commissions  expressed  the  opinion  that  such 
an  arrangement  or  custom  is  contrary  to  the  commission  law  and 


STOCK   EXCHANGE   BY-LAWS   AND   RULES        145 

should  not  be  permitted,  and  asked  the  confirmation  of  said  opinion 
by  the  Governing  Committee. 

On  motion,  said  opinion  was  confirmed. 

Commission  on  Government  Securities 

JUNE  12,  1907. 

"That  the  Commission  Law,  in  Subdivision  d,  Section  2,  Article 
XXXIV,  of  the  Constitution,  which  reads  as  follows: 

"  'Government  and  Municipal  Securities  are  exempted  from  the 
provisions  of  this  article/  refers  only  to  securities  of  the  United 
States,  Porto  Rico  or  the  Philippine  Islands,  and  of  States  and  Muni- 
cipalities therein." 

Comparisons. 

NOVEMBER  9,  1904. 

"That  when  a  mistake  in  comparison  is  made,  either  by  a  mem- 
ber in  person  or  by  his  clerks,  thereby  causing  a  loss  to  another  mem- 
ber, or  when  a  failure  to  promptly  fulfill  the  duties  imposed  by  the 
comparison  law  causes  a  loss  to  another  member,  the  member  sus- 
taining the  loss  may  bring  a  suit  before  the  Arbitration  Committee, 
joining  as  defendants,  if  he  so  elects,  any  or  all  of  the  parties  con- 
cerned, and  the  Arbitration  Committee  may  render  such  verdict  against 
any  or  all  of  the  defendants  as  the  facts  in  the  case  may  warrant." 

Interest 

MARCH  26,  1902. 

"That  any  agreement  or  arrangement  entered  into  between  a  mem- 
ber or  his  firm,  and  his  or  their  customer,  whereby  special  and  un- 
usual rates  of  interest  are  stipulated  for,  or  money-advances  upon 
unusual  terms  are  made  a  condition,  in  connection  with  the  conduct- 
ing of  an  account,  with  intent  thereby  to  give  special  or  unusual 
advantages  to  such  customer,  for  the  purpose  of  securing  his  business, 
shall  be  deemed  to  be  a  violation  of  Article  XXXIV  of  the  Constitu- 
tion, commonly  known  as  the  Commission  Law." 

Money  Loans — Interest. 

OCTOBER  25,  1899. 
"When  a  member  has  contracted  to  borrow  money  on  collateral, 
the  simple  payment  of  the  interest  by  the  borrower  to  the  lender, 
after  three  o'clock  P.  M.,  without  actually  effecting  or  properly  en- 
deavoring to  effect  a  loan,  shall  be  held  to  be  an  evasion  of  the  con- 
tract and  an  act  detrimental  to  the  interest  and  welfare  of  the  Ex- 
change, and  the  offending  member  may  be  proceeded  against  under 
Section  8,  Article  XVII,  of  the  Constitution." 


146 

Stamp  Tax 

MAY  24,  1905. 

"That  in  the  judgment  of  the  Governing  Committee  any  member 
of  the  Exchange  who,  by  agreement  or  otherwise,  directly  or  indirectly, 
assumes  or  bears  for  his  own  account,  or  relieves  his  principal  from 
any  part  of  the  Stamp  Tax  imposed  by  the  Act  of  the  Legislature  of 
the  State  of  New  York,  approved  April  15,  1905,  is  guilty  of  a  vio- 
lation of  Article  XXXIV  of  the  Constitution  relating  to  commis- 
sions." 

Failure  to  Affix  Stamps 

NOVEMBER  9,  1910. 

"The  Governing  Committee  calls  the  attention  of  members  to 
the  following  resolution  adopted  on  May  26,  1905 : 

'In  order  to  constitute  a  good  delivery  after  June  1,  1905,  all 
deliveries  on  sales  of  stock,  whether  by  Clearing-House  delivery 
ticket  or  by  certificate  of  stock,  must  be  accompanied  by  a  sales  ticket 
stamped  in  accordance  with  the  Act  of  the  Legislature  of  the  State 
of  New  York,  adopted  April  19,  1905,  providing  for  a  Tax  on 
Transfers  of  Stock.' 

"Any  wilful  failure  on  the  part  of  a  member  to  affix  the  stamps 
required  by  Article  XII  of  the  Tax  Law  relating  to  the  Tax  on  Trans  • 
fers  of  Sales  of  Stock,  will  be  deemed  by  the  Governing  Committee  an 
act  detrimental  to  the  interest  and  welfare  of  the  Exchange." 

Telephones 

NOVEMBER  8,  1911. 

"That  the  resolution  adopted  by  the  Governing  Committee  on 
March  28,  1900,  be  amended  by  striking  out  the  words  'Sec.  8,'  and 
inserting  in  lieu  thereof  the  words  'Sec.  10/  so  that  said  resolution 
as  amended  shall  read  as  follows,  viz.: 

"Eesolved,  That  the  privilege  of  telephonic  communication  be- 
tween the  offices  of  members  and  the  building  of  the  New  York  Stock 
Exchange  shall  not  be  enjoyed  as  of  right  but  shall  rest  in  the  dis- 
cretion of  the  Committee  of  Arrangements  or  the  Governing  Com- 
mittee, and  that  the  Committee  of  Arrangements  shall  have  power 
in  their  discretion,  at  any  time,  and  from  time  to  time,  to  withhold 
such  privilege  from  any  member,  and  to  disconnect,  or  cause  to  be 
disconnected,  any  private  telephone  in  the  Stock  Exchange  building. 
Said  Committee  shall  also  have  power  in  their  discretion,  at  any  time, 
and  from  time  to  time,  to  deprive  any  member  of  the  privilege  of 
using  any  public  telephone  in  the  Stock  Exchange  building;  said 


STOCK   EXCHANGE    BY-LAWS   AND   RULES        147 

Committee  shall  not  be  obliged  to  assign  any  reason  or  cause  for  any 
action  taken  by  them  under  this  resolution. 

"Any  member  aggrieved  by  any  decision  of  the  Committee  of  Ar- 
rangements under  this  resolution  shall  have  the  right  to  appeal  there- 
from to  the  Governing  Committee,  and  to  appear  in  person  before 
the  Governing  Committee  to  be  heard  upon  such  appeal. 

"No  such  appeal  shall  suspend  the  operation  of  the  decision  ap- 
pealed from. 

"Every  decision  of  the  Committee  of  Arrangements  by  which  the 
privilege  of  telephonic  communication  with  the  Stock  Exchange  build- 
ing shall  be  withheld  from  any  member,  pursuant  to  this  resolution, 
shall  be  immediately  posted  upon  the  bulletin  board  in  the  Ex- 
change, and  every  member  of  the  Exchange  shall  be  deemed  to  have 
notice  thereof.  If  after  any  such  notice  shall  have  been  posted,  any 
member  of  the  Stock  Exchange  shall  furnish  to  the  member  named 
therein,  or  to  his  partner  or  firm  or  office  any  facilities  for  com- 
munication between  the  office  of  such  member  and  the  Stock  Exchange 
building,  or  between  the  office  of  the  member  named  in  such  notice 
and  the  office  of  any  other  member  of  the  Exchange  by  means  of 
private  wire,  telephone  or  any  electric  or  other  device,  contrivance 
or  apparatus,  he  may  be  suspended  by  the  Governing  Commit- 
tee for  a  period  not  exceeding  two  months,  pursuant  to  the  provisions 
of  Sec.  10,  Article  XVII,  of  the  Constitution  of  the  Exchange." 

Telephone  or  Telegraph  Connections. 

MAT  9,  1900. 
(To  take  effect  on  June  1,  1900.) 

"First. — That  hereafter  no  member  of  the  Stock  Exchange  and 
no  firm  of  which  such  member  is  a  partner,  shall  establish  telephonic 
or  telegraphic  wire  connection  between  the  office  of  such  member  or 
firm  and  the  office  of  any  firm  or  individual  not  a  member  of  the 
Stock  Exchange  transacting  a  banking  or  brokerage  business,  unless 
application  therefor  shall  first  be  made  to  the  Committee  of  Arrange- 
ments, and  shall  have  been  approved  by  them. 

"Second.  —  Every  such  telephonic  or  telegraphic  wire  connection 
which  shall  be  so  authorized  by  the  Committea  of  Arrangements,  as 
well  as  all  existing  telephonic  or  telegraphic  wire  connections  of  the 
same  character,  shall  be  registered  with  the  Committee  of  Arrange- 
ments, who  shall  make  such  regulations  governing  the  matter  as  they 
shall  deem  necessary. 

"Third.  —  That  the  Committee  of  Arrangements  shall  have  power, 
at  any  time,  in  their  discretion,  to  order  any  connection  of  the  char- 
acter described  in  these  resolutions  to  be  discontinued. 


148         MATERIALS    OF   CORPORATION   FINANCE 

"Fourth.  —  While  members  of  the  Stock  Exchange  may  connect 
their  offices  by  wire  with  the  offices  of  non-members,  in  accordance 
with  the  provisions  of  these  resolutions,  and  pay  for  such  wire  connec- 
tion, nevertheless  no  such  member  shall  directly  or  indirectly,  by  him- 
self or  through  his  firm,  pay  the  cost  of  telegraph  operators  or  any 
other  expense  pertaining  to  non-members'  offices. 

"Fifth.  —  No  office  in  the  City  of  New  York  of  any  member  of 
the  Stock  Exchange,  or  of  any  firm  of  which  such  member  is  a  part- 
ner, shall  be  connected  by  telegraphic  or  telephonic  wire  with  any 
point  outside  of  the  City  of  New  York  unless  such  wire  shall  be 
furnished  by  a  telegraph  or  telephone  company  approved  by  the 
Committee  of  Arrangements.  Said  Committee  shall  from  time  to 
time  formulate  a  list  of  such  approved  companies. 

"Sixth.  — Any  member  violating  any  provision  of  these  resolutions, 
or  any  regulation  made  by  the  Committee  on  Arrangements  in  pur- 
suance thereof,  shall  be  deemed  guilty  of  an  act  detrimental  to  the 
interest  and  welfare  of  the  Exchange." 

Privileges 

FEBRUARY  14,  1912. 

''When  securities  are  received  or  delivered  on  a  privilege  for  a  non- 
member,  one-eighth  of  one  per  cent,  commission  must  be  charged 
whether  said  securities  are  received  or  delivered  upon  the  day  of 
expiration  of  said  privilege  or  prior  thereto." 

Margins  —  Improper  Use  of  Customers'  Securities  —  Reckless  and 
Unbusinesslike  Dealing 

FEBRUARY  13,  1913. 

"That  the  acceptance  and  carrying  of  an  account  for  a  customer, 
either  a  member  or  a  non-member,  without  proper  and  adequate  mar- 
gin may  constitute  an  act  detrimental  to  the  interest  and  welfare  of 
the  Exchange,  and  the  offending  member  may  be  proceeded  against 
under  Section  8  of  Article  XVII  of  the  Constitution. 

"That  the  improper  use  of  a  customer's  securities  by  a  member 
or  his  firm,  is  an  act  not  in  accordance  with  just  and  equitable 
principles  of  trade,  and  the  offending  member  shall  be  subject  to 
the  penalties  provided  in  Section  6  of  Article  XVII  of  the  Consti- 
tution. 

"That  reckless  or  unbusinesslike  dealing  is  contrary  to  just  and 
equitable  principles  of  trade,  and  the  offending  member  shall  be  sub- 
ject to  the  penalties  provided  in  Section  6  of  Article  XVII  of  the 
Constitution,  in  every  case  in  which  the  offense  does  not  come  within 
the  provisions  of  Section  5  of  Article  XVI  thereof." 


STOCK   EXCHANGE    BY-LAWS   AND    RULES       149 

Sales  With  No  Change  of  Ownership 

FEBRUARY  5,  1913. 

Resolved,  That  no  Stock  Exchange  member  or  member  of  a 
Stock  Exchange  firm  shall  give,  or  with  knowledge  execute,  orders 
for  the  purchase  or  sale  of  securities  which  would  involve  no  change 
of  ownership. 

The  punishment  for  this  offense  shall  be  as  prescribed  in  Section  8 
of  Article  XXIII  of  the  Constitution  regarding  fictitious  transactions. 


RULES   OF  COMMITTEE   ON   STOCK   LIST        151 


RULES  OF  COMMITTEE  ON  STOCK  LIST  OF  NEW  YORK 
STOCK  EXCHANGE. 

NEW  YORK  STOCK  EXCHANGE. 

JULY  1,  1912. 

This  Committee  will  meet  on  Mondays  at  3 :30  p.  M. 

An  application  signed  by  an  executive  officer  of  a  corporation 
must  be  filed  with  the  Secretary  of  the  Stock  Exchange,  and  on  notice 
six  additional  printed  or  typewritten  copies  must  be  filed  on  or  before 
the  Wednesday  prior  to  date  set  for  consideration. 

Every  application  must  be  accompanied  by  a  check  for  Fifty  Dollars 
for  each  $1,000,000,  or  portion  thereof,  of  the  par  value  of  each  class 
of  security.  Checks  should  be  drawn  to  the  order  of  "Treasurer  of 
the  New  York  Stock  Exchange." 

REQUIREMENTS  FOR  ORIGINAL  LISTINGS. 
RAILROAD  CORPORATIONS. 

Application  for  an  original  listing  of  the  capital  stock  of  railroad 
corporations  shall  recite  the  title  of  the  corporation,  date  of  organi- 
zation and  authority  for  same;  special  rights  or  privileges  under 
charter;  amount  of  capital  stock  authorized,  issued,  and  applied  for; 
par  value;  rate  of  dividend;  voting  power;  whether  capital  stock  is 
full  paid  and  non-assessable;  whether  personal  liability  attaches  to 
ownership ;  whether  preferred  stock  is  authorized,  whether  cumulative 
or  non-cumulative;  preference  as  to  dividends  and  distribution  of 
assets;  location  and  route  of  road;  description  of  property  and  total 
mileage  in  operation;  contemplated  extensions;  total  equipment; 
amount  of  mortgage  lien,  amount  of  other  indebtedness  or  liability, 
jointly  or  severally,  for  leases,  guarantees,  rentals  and  car  trusts,  and 
terms  of  payment  thereof;  distribution  of  securities;  application  of 
proceeds;  income  account  for  one  year  and  balance  sheet  of  recent 
date;  name  and  location  of  transfer  agent  and  registrar;  address  of 
main  office  of  corporation;  list  of  officers  and  directors  (classified) ; 
date  and  place  of  annual  meeting;  end  of  fiscal  year. 

Application  for  bonds  shall  recite  in  addition  the  full  title ;  denomi- 
nations; amount  authorized,  outstanding,  applied  for,  with  numbers, 
and  authority  for  issue;  date  and  maturity;  rates  of  interest,  when 
and  where  payable ;  distribution ;  names  of  trustees ;  redemption  by 
sinking  fund  or  otherwise;  terms  of  exchange  or  convertibility  into 
other  securities;  whether  issued  only  in  coupon  form,  registerable 
as  to  principal,  or  fully  registered,  or  both,  and  if  the  latter,  whether 
interchangeable;  purposes  of  issue  and  application  of  proceeds;  terms 


152         MATERIALS    OF   CORPORATION   FINANCE 

of  issue  of  additional  amounts;  trustees'  obligation  to  declare  prin- 
cipal and  interest  due  and  payable  in  event  of  default,  and  restrictions 
or  limitations  of  unusual  character;  a  tabulated  list  of  properties 
owned,  leased  and  operated,  showing  those  covered  by  the  mortgage 
or  other  indenture  under  which  the  bonds  are  issued;  those  covered 
by  prior  liens;  indebtedness  of  leased  companies  or  companies  con- 
trolled by  ownership  of  bonds  and  stocks,  and  the  amount  of  such 
bonds  and  stocks  owned,  authorized,  issued,  assumed,  guaranteed,  or 
deposited  as  collateral. 

If  bonds  are  convertible  into  stock,  file  certified  copy  of  the  action 
of  stockholders  and  directors  authorizing  issue  and  reservation  of 
stock  to  be  held  specifically  for  such  conversion. 

When  bonds  are  issued  to  replace  other  liens,  the  Committee  will 
require  evidence  of  the  satisfaction  of  such  liens,  or  a  certificate  of 
trustee  that  prior  lien  bonds  are  held  under  the  terms  of  the  mortgage 
or  indenture. 

A  copy  of  the  mortgage  or  indenture  must  be  furnished,  including 
a  certificate  from  the  County  Clerk  in  each  county  in  which  the 
mortgaged  property  is  located,  that  the  mortgage  or  indenture  has 
been  recorded  in  such  county.  Should  the  laws  of  the  State  not 
require  a  record  to  be  made  in  the  several  counties,  a  copy  of  cer- 
tificate of  the  Secretary  of  the  State,  showing  the  legal  record,  shall 
be  filed  with  the  copy  of  mortgage  or  indenture.  This  copy  must 
be  certified  by  the  Trustee  to  be  a  true  copy. 

When  a  mortgage  or  indenture  provides  that  bonds  may  be  issued 
interchangeably  in  coupon  and  registered  form,  each  registered  bond 
issued  thereunder  shall  bear  a  legend  reciting  the  number  or  numbers 
of  the  coupon  bond  or  bonds  reserved  for  exchange  of  such  registered 
bond  in  substantially  the  following  form : 

The  within  bond  is  issued  in  lieu  of  or  in  exchange  for  (a)  coupon  bond(s), 
numbered for  $1,000  (each,  none  of)  which  bond(s)  is  (not)  con- 
temporaneously outstanding,  and  (a)  coupon  bond(s)  bearing  the  said  serial 
number (s)  will  be  issued  in  exchange  for  this  bond  upon  its  surrender  and 
cancellation. 

A  registered  bond  not  interchangeable  shall  bear  the  following : 

The  within  bond  is  issued  in  lieu  of  or  in  exchange  for  (a)  coupon  bond(s), 
numbered for  $1,000  (each,  none  of)  which  bond(s)  is  (not)  con- 
temporaneously outstanding. 

The  Committee  recommends  that  when  fully  registered  bonds 
are  to  be  issued,  they  shall  be  made  interchangeable  with  coupon 
bonds. 

When  mortgages  or  indentures  provide  for  the  issuance  of  coupon 
bonds  of  the  denomination  of  100  dollars,  the  Committee  recom- 


RULES    OF   COMMITTEE    ON    STOCK   LIST        153 

mends  that  any  ten  such  bonds  be  exchangeable  into  coupon  bonds 
for  1,000  dollars  each,  and  that  each  unit  consisting  of  ten  100  dollar 
bonds  bear  a  number  together  with  an  affixed  letter  (A  to  J)  repre- 
senting a  1,000  dollar  bond  reserved  for  exchange,  and  that  each  100 
dollar  bond  bear  the  following  legend: 

For  this  bond  and  nine  other  bonds  of  the  same  denomination  and  serial 
number,  bearing  affixed  letters  A  to  J,  a  coupon  bond  for  $1,000  is  held  in 
reserve  and  is  not  contemporaneously  outstanding,  and  on  the  surrender 
and  cancellation  of  ten  $100  bonds  of  said  series  a  coupon  bond  for  $1,000 
will  be  issued  in  exchange  therefor  bearing  the  lowest  serial  number  reserved 
for  such  purpose. 

When  bonds  are  to  be  denominated  in  foreign  moneys,  the  Com- 
mittee recommends  that  the  standard  of  value  in  United  States  gold 
coin  be  stated,  and  that  the  text  of  all  such  bonds  be  in  the  English 
language  with  the  foreign  text  in  a  parallel  column.  The  English 
text  shall  govern  the  interpretation  in  all  such  issues. 

(For  papers  and  agreements  to  be  filed,  see  pages  156  and  157. 

CORPORATIONS  OTHER  THAN  RAILROADS 

Application  for  an  original  listing  of  securities  of  corporations 
other  than  railroads  shall  recite  the  title  of  the  corporation,  date 
of  organization  and  authority  for  same;  amount  of  capital  stock 
authorized,  issued  and  applied  for;  par  value;  rate  of  dividend; 
voting  power;  whether  capital  stock  is  full  paid  and  non-assessable; 
whether  personal  liability  attaches  to  ownership;  whether  preferred 
stock  is  authorized,  whether  cumulative  or  non-cumulative ;  preference 
as  to  dividends  and  distribution  of  assets,  and  redemption;  whether 
an  original  organization  or  a  consolidation  of  several  previously  ex- 
isting firms  or  corporations;  if  a  consolidation,  a  concise  history  of 
its  organization,  and  the  names  and  locations  of  constituent  com- 
panies owned  in  entirety  or  otherwise,  and  amounts  of  authorized, 
issued  and  owned  stocks  of  same;  full  description  of  the  property, 
real,  personal  and  leased;  real  estate  owned  in  fee,  acreage  and  loca- 
tion, and  the  character  of  buildings  thereon;  nature  and  character  of 
product;  business  to  be  transacted;  duration  of  charter  and  charters 
of  subsidiary  companies;  special  rights  and  privileges  conveyed  to 
the  corporation  under  its  charter,  or  to  directors  under  by-laws;  in- 
come account  for  one  year  and  balance  sheet  of  recent  date;  name 
and  location  of  transfer  agent  and  registrar ;  address  of  main  office  of 
corporation;  list  of  officers  and  directors  (classified) ;  date  and  place 
of  annual  meeting;  end  of  fiscal  year. 

For  bond  listings  the  requirements  are  substantially  the  same  as 
for  bonds  of  railroad  corporations,  page  156. 

(For  papers  and  agreements  to  be  filed,  see  page«  156  and  157. 


154         MATERIALS    OF   CORPORATION    FINANCE 

MINING   CORPORATIONS. 

Application  to  list  securities  of  mining  corporations  shall  recite 
details  of  original  organization  and  authorized  capitalization;  amount 
of  shares  outstanding,  amount  applied  for,  amount  of  shares  remain- 
ing unissued,  and  options  or  contracts  on  such  shares ;  whether  capital 
stock  is  full  paid  and  non-assessable;  par  value;  voting  power; 
whether  personal  liability  attaches  to  ownership;  whether  preferred 
stock  is  authorized,  whether  cumulative  or  non-cumulative;  prefer- 
ence as  to  dividends  and  distribution  of  assets,  and  redemption; 
bonded  indebtedness,  if  any,  with  date  of  issue,  maturity  and  rate  of 
interest;  list  and  numbers  of  patented  and  unpatented  claims;  full 
description  of  mineral  and  other  lands,  leases  and  water  rights,  smelt- 
ing and  concentrating  plants,  timber  and  fuel  supply,  owned  or  con- 
trolled; a  geological  description  of  the  country  in  which  the  mines 
are  located  showing  the  character  of  the  ore  produced,  the  proper 
method  of  treatment,  a  description  of  the  ore  bodies,  average  values, 
and  probabilities  on  further  exploration. 

A  history  of  the  property  giving  prior  workings  of  mine,  results 
obtained  and  production  each  year,  with  statement  of  receipts  and 
expenditures,  and  disposition  of  income ;  location  of  mines  and  prox- 
imity to  railway  or  other  common  carrier;  cost  of  mining,  trans- 
portation, milling  or  smelting;  balance  sheet  showing  assets  and 
liabilities ;  if  a  mining  development  and  an  income  account  not  avail- 
able, guarantee  of  an  amount  to  complete  development  and  afford 
working  capital;  statement  of  ore  reserves  compared  with  reserves 
of  previous  years  and  an  estimate  by  a  competent  mining  expert 
of  the  probable  life  of  the  mine;  a  balance  sheet  of  all  companies 
owned  or  controlled  by  stock  ownership  or  otherwise ;  name  and  loca- 
tion of  transfer  agent  and  registrar;  address  of  main  office  of  cor- 
poration; list  of  officers  and  directors  (classified);  date  and  place 
of  annual  meeting;  end  of  fiscal  year. 

For  bond  listings  the  requirements  are  substantially  the  same  as 
for  bonds  of  railroad  corporations,  page  156. 

(For  papers  and  agreements  to  be  filed,  see  pages  156  and  157. 

REORGANIZED  CORPORATIONS. 

Application  to  list  securities  of  a  corporation,  which  has  been 
insolvent,  or  has  been  reorganized,  shall  recite  a  concise  history  of 
the  corporation,  and  of  its  predecessor,  with  a  statement  of  the  reason 
for  its  reorganization;  history  of  proceedings  if  property  was  sold 
under  foreclosure ;  description  and  amount  of  all  securities  authorized, 
issued  and  applied  for  by  the  new  corporation;  tabulated  statement 


RULES   OF   COMMITTEE    ON    STOCK   LIST         155 

of  securities  issued  in  lieu  of,  or  exchanged  for  any  of  the  preceding 
issues;  purposes  and  terms  in  detail  under  which  additional  securi- 
ties of  the  reorganized  corporation  may  be  issued ;  amount  and  descrip- 
tion of  the  various  securities  which  have  been  retired,  canceled, 
deposited,  or  otherwise  held,  or  are  still  outstanding;  income  account 
of  the  predecessor  corporation  for  a  period  of  at  least  one  year  prior 
to  reorganization,  and  final  balance  sheet;  also  a  balance  sheet  of 
the  new  corporation  at  date  of  reorganization;  income  account  for 
one  year  and  balance  sheet  of  recent  date;  name  and  location  of 
transfer  agent  and  registrar;  address  of  main  office  of  corporation; 
list  of  officers  and  directors  (classified);  date  and  place  of  annual 
meeting;  end  of  fiscal  year. 

(For  papers  and  agreements  to  be  filed,  see  pages  156  and  157. 

CERTIFICATES   OF   DEPOSIT   IN   TRUST. 

Institutions,  firms,  corporations,  depositaries  of  securities  under 
plans  of  reorganization,  protective  or  associate  action  or  voting  trusts, 
are  requested  to  accept  on  deposit  only  such  securities  as  are  a 
delivery  on  the  Stock  Exchange;  provided,  that  in  any  case  where 
said  depositaries  find  it  necessary  to  accept  securities  which  are  not 
a  delivery,  they  shall  issue  therefor  a  distinctive  certificate  which 
will  indicate  the  irregularity.  Agreements  for  deposit  of  securities 
for  protective  or  associate  action  must  be  limited  to  a  specified  time 
for  continuance,  within  which  a  plan  of  reorganization  or  adjustment 
will  be  presented  to  the  certificate  holders  for  acceptance,  or  in  default 
thereof  such  holders  will  be  granted  opportunity  to  withdraw  the 
securities  represented  by  their  certificates,  and  terminate  their  agree- 
ment. Penalty  for  delay  in  depositing  securities  under  any  agree- 
ment should  not  be  imposed  until  all  holders  of  such  securities  have 
had  reasonable  opportunity  for  depositing,  after  the  listing  of  the 
certificates  of  deposit. 

Certificates  of  deposit  will  be  considered  as  representing  the  deposit 
of  coupon,  registered,  or  interchangeable  registered  bonds.  Certificates 
issued  for  deposit  of  non-interchangeable  registered  bonds  or  bonds 
not  a  delivery  on  the  Stock  Exchange  must  bear  on  their  face  evi- 
dence of  such  fact.  Certificates  of  deposit  for  securities,  whether  for 
reorganization,  protective  or  associate  action,  or  for  voting  trusts, 
must  bear  the  countersignature  of  some  institution  as  registrar  in 
same  manner  as  certificates  for  stock. 

(For  papers  and  agreements  to  be  filed,  see  pages  156  and  157. 
ADDITIONAL  AMOUNTS  OP  LISTED  SECURITIES 

Application  to  list  additional  amounts  of  listed  securities  shall 
refer  to  previous  applications  by  number ;  state  character  and  amount 


156         MATERIALS    OF   CORPORATION    FINANCE 

of  additional  issues  and  amounts  applied  for;  whether  issued  for 
cash,  property,  or  otherwise;  distribution;  application  of  proceeds; 
amount,  description  and  disposition  of  securities  exchanged  for  new 
issues;  additional  property  acquired  and  present  physical  condition; 
furnish  income  account  and  balance  sheet  of  recent  date;  attested 
copy  of  resolutions  of  stockholders  and  action  of  directors  as  to 
issuance  of  the  additional  securities,  and  opinion  of  counsel  as  to 
validity  of  issue;  trustee's  certificate  of  issue  of  additional  bonds 
under  terms  of  the  mortgage  or  indenture ;  certificate  from  the  Secre- 
tary of  State  or  other  authority  for  increase  in  capitalization. 

Thirty  days'  notice  of  any  proposed  increase  in  the  authorized 
capital  stock  of  a  corporation  shall  be  given  to  the  Stock  Exchange 
before  such  increase  shall  be  eligible  for  listing. 

The  registrar  shall  not  register  any  listed  stock  until  authorized 
by  this  Committee. 

When  the  capital  stock  of  a  corporation  is  increased  through  con- 
version of  bonds,  already  listed,  the  issuing  corporation  shall  give 
immediate  notice  to  the  Stock  Exchange,  and  this  Committee  may 
thereupon  add  said  stock  to  the  list  and  authorize  its  registration. 

(For  papers  and  agreements  to  be  filed,  see  below.) 

PAPERS  TO  BE  FILED  WITH  APPLICATIONS 

For  listing  stocks: 

Seven  copies  of  the  charter  or  articles  of  incorporation,  one  copy  to  be 
attested  by  the  Secretary  of  State  in  which  the  corporation  is  incorporated. 

Seven  copies  of  by-laws,  one  copy  to  be  attested  by  secretary  of  corporation. 

Seven  copies  of  leases  and  special  agreements,  one  copy  of  each  to  be  at- 
tested by  the  secretary  of  the  corporation. 

One  copy  of  resolutions  of  stockholders  authorizing  issue  and  of  the  action 
of  the  directors  thereunder,  each  attested  by  secretary  of  the  corporation. 

Opinion  of  counsel  (not  an  officer  or  director  of  the  corporation)  as  to 
legality  of  authorization  and  issue  of  securities. 

Certificate  of  proper  authority  for  issue. 

Certificate  of  registrar  as  to  amount  of  securities  registered  at  date  of  ap- 
plication. 

Report  of  a  duly  qualified  engineer  covering  the  actual  physical  condition 
of  the  property  as  of  recent  date. 

Map  of  the  property  and  contemplated  extensions. 

Specimens  of  all  securities  applied  for. 

In  addition  to  the  foregoing,  for  listing  bonds: 
Six  additional  copies  of  the  mortgage  or  indenture. 
Opinion  of  counsel  shall  cover — 

a  as  to  organization, 

b  as  to  validity  of  issue. 
Trustees'  certificate  shall  cover — 

a  as  to  acceptance, 


RULES   OF  COMMITTEE   ON    STOCK   LIST         157 

ft  as  to  issuance  under  the  terms  of  the  mortgage  or  indenture  with  num- 
bers and  amount  of  bonds  issued, 

o  as  to  securities  held, 

d  as  to  cancellation  or  cremation  or  deposit  of  underlying  securities, 
prior  liens,  etc. 

Also,  with  applications  for  reorganized  corporations: 

Certified  copies  of  legal  proceedings  and  order  of  Court  confirming  sale,  or 
other  authority  for  reorganization. 

Certified  copy  of  plan  of  reorganization. 

Opinion  of  counsel  that  the  proceedings  have  been  in  conformity  with  legal 
requirements,  that  the  title  to  the  property  is  vested  in  the  new  corporation, 
and  is  free  and  clear  from  all  liens  and  incumbrances,  except  as  distinctly 
specified. 

Certificate  of  cancellation,  deposit,  or  holding  of  prior  issues. 

Certified  copies  of  all  mortgages  or  indentures. 

AGREEMENTS 

Every  corporation  applying  to  list  securities  must  agree : 

That  it  will  not  dispose  of  its  interest  in  any  constituent  company, 
or  allow  any  of  said  companies  to  dispose  of  its  interests  in  other 
companies,  except  on  direct  authorization  of  stockholders  of  the 
holding  company. 

To  publish  at  least  once  in  each  year  and  submit  to  the  stock- 
holders, at  least  fifteen  days  in  advance  of  the  annual  meeting  of 
the  corporation,  a  detailed  statement  of  its  physical  and  financial 
condition,  an  income  account  covering  the  previous  fiscal  year,  and 
a  balance  sheet  showing  assets  and  liabilities  at  the  end  of  the  year; 
also  annually  an  income  account  and  balance  sheet  of  all  subsidiary 
companies ; 

To  maintain  a  transfer  office  or  agency  in  the  Borough  of  Man- 
hattan, City  of  New  York,  where  all  securities  shall  be  directly  trans- 
ferable, and  the  principal  of  all  securities  with  interest  or  dividends 
thereon  shall  be  payable; 

To  give  at  least  ten  days'  notice  in  advance  of  the  closing  of  the 
books  or  the  taking  of  a  record  of  stockholders  for  any  purpose.  The 
Committee  recommends  that  a  date  be  fixed  as  record  for  dividends, 
allotment  of  rights  and  stockholders'  meetings,  without  an  extended 
closing  of  the  transfer  books. 

To  notify  the  Stock  Exchange  in  the  event  of  the  issuance  of  any 
rights  or  subscriptions  to  or  allotments  of  its  securities  and  afford 
the  holders  of  listed  securities  a  proper  period  within  which  to  record 
their  interests,  and  that  all  rights,  subscriptions  or  allotments  shall 
be  transferable,  payable  and  deliverable  in  the  Borough  of  Manhattan, 
City  of  New  York. 


158         MATERIALS    OF   CORPORATION    FINANCE 

REMOVALS  OR  SUSPENSIONS   IN  DEALINGS  OF   LISTED  SECURITIES 

Whenever  it  shall  appear  that  the  outstanding  amount  of  any 
security  listed  upon  the  Stock  Exchange  has  become  so  reduced  as  to 
make  inadvisable  further  dealings  therein,  this  Committee  may  direct 
that  such  security  be  taken  from  the  list  and  further  dealings  therein 
prohibited. 

The  Governing  Committee  may  suspend  dealings  in  the  securities 
of  any  corporation  previously  admitted  to  quotation  upon  the 
Exchange,  or  may  summarily  remove  any  security  from  the  list. 

TRUSTEES   OF   MORTGAGES 

The  committee  recommends  that  a  trust  company  or  other  corpora- 
tion be  appointed  trustee  of  each  mortgage  or  indenture ;  but  when  a 
State  law  requires  the  appointment  of  a  local  individual  as  trustee, 
that  a  trust  company  or  other  corporation  be  appointed  as  co-trustee. 

The  Committee  will  not  accept  as  trustee  for  securities  an  officer  or 
director  of  the  applying  corporation,  nor  a  corporation  as  a  trustee  in 
which  an  officer  of  the  applying  corporation  is  an  executive  officer. 

The  Committee  will  not  accept  the  opinion  of  an  officer  or  director 
of  an  applying  corporation,  nor  of  a  firm  in  which  the  officer  or 
director  is  a  member,  as  counsel  on  any  legal  question  affecting  the 
corporation;  nor  will  it  accept  the  opinion  of  an  officer  or  director 
of  a  guarantor  corporation,  on  any  legal  question  affecting  the  issu- 
ance of  guaranteed  securities. 

Each  mortgage,  indenture  or  deed  of  trust  made  by  a  corporation 
or  constituting  a  lien  on  property  of  the  corporation  should  be  repre- 
sented by  a  separate  trustee. 

The  trustee  shall  present  a  certificate  accepting  the  trust,  giving 
the  numbers  and  amount  of  bonds  executed,  in  accordance  with  the 
terms  of  the  mortgage  or  indenture;  and  certifying  that  the  lien  has 
been  recorded,  that  collateral  has  been  deposited,  and  that  prior  obliga- 
tions, if  any,  have  been  canceled,  when  required  by  the  terms  of  the 
mortgage  or  indenture.  The  trustee  holding  securities  for  which 
listed  certificates  of  deposit  are  issued  must  notify  the  Stock  Exchange 
if  the  deposited  securities  are  changed  or  removed  for  any  reason. 
For  additional  issues  of  bonds,  the  trustee  must  certify  that  such 
increase  has  been  made  in  conformity  with  the  terms  of  the  mortgage 
or  indenture;  that  the  lien  has  been  recorded  against  any  new  prop- 
erty acquired,  that  the  required  additional  collateral  has  been  depos- 
ited, and  that  prior  obligations,  if  any,  have  been  canceled,  when  so 
required.  The  trustee  shall  notify  the  Stock  Exchange  of  the  hold- 
ing, cancelation,  or  retirement,  of  bonds  by  redemption,  or  through 
the  operation  of  the  sinking  fund,  or  by  purchase. 


RULES    OF  COMMITTEE    ON    STOCK   LIST         159 

TRANSFER  AND  REGISTRY 

Every  corporation  is  required  to  maintain  a  transfer  agency  and  a 
registry  office  in  the  Borough  of  Manhattan,  City  of  New  York. 
Both  the  transfer  agency  and  the  registrar  must  be  acceptable  to  this 
Committee;  the  registrar  must  file  with  the  Secretary  of  the  Stock 
Exchange  an  agreement  to  comply  with  the  requirements  in  regard 
to  registration. 

Certifications  of  registry  must  be  dated  and  must  bear  the  signa- 
ture of  a  duly  authorized  officer  of  the  corporation  acting  as  registrar. 

The  registrar  shall  not  register  any  listed  stock  until  authorized 
by  this  Committee. 

A  trust  company  or  other  agency  shall  not  at  the  same  time  act 
as  transfer  agent  and  registrar  of  a  corporation. 

When  a  company  has  its  stock  transferred  at  its  own  office,  a  trans- 
fer agent  or  transfer  clerk  shall  be  appointed  by  authority  of  the 
board  of  directors  to  countersign  certificates,  and  shall  be  an  indi- 
vidual other  than  an  officer  authorized  by  the  by-laws  of  the  company 
to  sign  certificates  of  stock. 

The  entire  amount  of  the  capital  stock  of  a  corporation  listed 
upon  the  Stock  Exchange  must  be  directly  transferable  at  the  trans- 
fer office  of  the  corporation  in  the  Borough  of  Manhattan,  City  of 
New  York. 

When  a  corporation  makes  transfer  of  its  shares  in  other  cities,  the 
certificates  issued  therefrom  shall  be  interchangeable,  and  identical 
with  the  New  York  certificates,  except  as  to  the  names  of  the  transfer 
agent  and  the  registrar,  and  the  combined  amounts  of  stocks  regis- 
tered in  all  cities  shall  not  exceed  the  amount  listed. 

Interchangeable  certificates  must  bear  a  legend  indicating  the  right 
of  transfer  in  New  York  and  other  cities. 

A  change  in  the  form  of  certificate,  of  the  transfer  agency,  of  the 
registrar,  or  of  the  trustee  of  bonds,  shall  not  be  made  without  the 
approval  of  this  Committee. 

The  Committee  recommends  that  the  text  of  bonds  and  certificates 
of  stock  shall  provide  for  direct  transfer  without  reference  to  the 
books  of  the  corporation. 

ENGRAVED    CERTIFICATES    REQUIRED 

Every  bond,  coupon,  or  certificate  of  stock  must  be  printed  from 
steel  plates  which  have  been  engraved  in  the  best  manner  and  which 
have  such  varieties  of  work  as  will  afford  the  greatest  security  against 
counterfeiting. 

Certificates  of  deposit  of  trust  companies,  banks  or  firms  for  securi- 


160         MATERIALS    OF   CORPORATION   FINANCE 

ties  deposited  under  reorganizations,  voting  trusts,  or  agreements  for 
legal  action,  must  be  engraved  and  printed  from  steel  plates  with 
engraved  border  and  engraved  underlying  tint. 

For  each  bond,  coupon,  certificate  of  stock  and  certificate  of  deposit 
there  must  be  at  least  two  steel  plates,  viz. :  A  face  plate  containing 
the  vignettes  and  lettering  of  the  descriptive  or  promissory  portion 
of  the  document  which  should  be  printed  in  black,  or  in  black  mixed 
with  a  color;  and  a  tint  plate  from  which  should  be  made  a  printing 
in  color  underlying  important  portions  of  the  face  printing.  The  im- 
pressions from  these  two  plates  must  be  so  made  upon  the  paper  thai; 
the  combined  effect  of  the  whole  if  photographed  would  be  a  con- 
fused mass  of  lines  and  forms,  and  so  give  as  effectual  security  as 
possible  against  counterfeiting  by  any  process. 

The  imprint  of  each  denomination  of  bonds  must  be  of  such  dis- 
tinctive appearance  and  color  as  to  make  it  readily  distinguishable 
from  other  denominations  and  issues.  It  is  required  for  each  class 
of  stock  issued  that  there  shall  be  a  distinctively  engraved  plate  for 
one  hundred  shares  with  said  denomination  engraved  thereon  in  words 
and  figures;  for  certificates  issued  for  smaller  amounts,  there  shall 
be  a  similar  plate,  distinctive  in  color,  for  each  issue;  there  shall  be 
engraved  thereon  some  device  whereby  the  exact  written  denomination 
of  the  certificate  may  be  distinctly  designated  by  perforation;  also 
conspicuously  the  words,  "Certificate  for  less  than  one  hundred 
shares." 

The  terms  of  redemption  by  sinking  fund  or  otherwise,  and  of  con- 
version into  other,  forms  of  securities  should  be  recited  in  the  text  of 
bonds. 

Certificates  of  stock  should  recite  ownership,  par  value,  and 
whether  shares  are  full  paid  and  non-assessable ;  terms  of  redemption, 
preference  as  to  dividends,  voting  power,  or  other  privilege,  including 
distribution  of  assets  in  the  event  of  dissolution  of  the  corporation; 
certificates  for  Common  and  Preferred  Stock  each  shall  recite  prefer- 
ences of  the  Preferred;  also  the  following  legend: 

This  certificate  is  not  valid  until  countersigned  by  the  transfer 
agent,  and  registered  by  the  registrar. 

A  power  of  attorney  upon  the  reverse  of  a  certificate  of  stock  must 
be  irrevocable  with  a  bill  of  sale  and  power  of  substitution.  The 
following  form  is  required: 

For  value  received hereby  sell,  assign  and  transfer  unto 

shares 

of  the  capital  stock  represented  by  the  within  certificate  and  do  hereby  irrev- 
ocably constitute  and  appoint 

attorney 


RULES    OF    COMMITTEE    ON    STOCK    LIST        161 

to  transfer  the  said  stock  on  the  books  of  the  within  named  company  with 
full  power  of  substitution  in  the  premises. 
Dated  .  .19.. 


In  presence  of 


Notice:  The  signature  to  this  assignment  must  correspond  with  the  name 
as  written  upon  the  face  of  the  certificate  in  every  particular  without  altera- 
tion or  enlargement,  or  any  change  whatever. 

This  Committee  will  object  to  any  security  upon  which  an  impress 
is  made  by  a  hand  stamp,  except  for  a  date  or  power  of  substitution. 

No  stock  certificate  or  bond  will  be  accepted  unless  it  has  been 
engraved  by  some  engraving  company  whose  work  this  Committee 
has  been  authorized  by  the  Governing.  Committee  to  pass  upon. 

The  name  of  the  engraving  company  must  appear  upon  the  face 
of  each  bond  and  certificate  of  stock  and  upon  the  face  of  each  coupon 
and  the  title  panel  of  the  bond. 

GEORGE  W.  ELY,  Secretary.  WM.  W.  HEATON,  Chairman. 


162         MATERIALS    OF    CORPORATION    FINANCE 


APPLICATION   FOR   LISTING 
A— 4107 

COMMITTEE   ON    STOCK    LIST,    NEW    YORK   STOCK    EXCHANGE 

PACIFIC    LIGHT    &    POWER    COMPANY 

FIRST  AND  REFUNDING  MORTGAGE  TWENTY- YEAR  FIVE  PER  CENT.  BONDS 

(International  Series) 

NEW  YORK,  April  30,  1912. 

Application  is  hereby  made  to  list  $5,295,000  of  an  authorized  is- 
sue of  $30,000,000  in  aggregate  principal  amount  of  the  Pacific  Power 
&  Light  Company  First  and  Refunding  Mortgage  Twenty-year  Five 
per  cent.  Gold  Bonds,  International  Series,  numbered  from  1  to  5,295, 
inclusive,  each  for  the  sum  of  $1,000  of  the  United  States  of  America, 
and  Registered  Bonds  for  $5,000  or  multiples  thereof,  for  which  the 
same  may  be  exchanged.  Said  bonds  are  also  (at  the  options  of  the 
holders)  payable  in  foreign  countries  in  foreign  currencies  as  fol- 
lows: £205.4.2,  sterling  money  of  Great  Britain,  or  4,200  German 
marks,  or  5,175  French  francs,  or  2,480  Dutch  guilders. 

The  Coupon  Bonds  are  subject  to  registry  as  to  principal,  and  the 
Coupon  and  Registered  Bonds  are  interchangeable.  Registered  Bonds 
are  of  the  denomination  of  $5,000  of  the  United  States,  or  £1,026.0.10, 
sterling  money  of  Great  Britain,  or  21,000  German  marks,  or  25,875 
French  francs,  or  12,400  Dutch  guilders,  or  any  multiple  thereof. 

These  bonds  are  secured  by  a  Mortgage  or  Deed  of  Trust  from 
Pacific  Power  &  Light  Company  to  United  States  Mortgage  &  Trust 
Company,  as  Trustee,  dated  August  1,  1910. 

The  Coupon  Bonds  are  dated  August  1,  1910,  and  the  Registered 
Bonds  are  dated  as  of  the  time  of  issue  (except  that  if  any  Regis- 
tered Bond  is  issued  on  August  1  or  February  1,  in  any  year,  it 
shall  be  dated  as  of  August  2  and  February  2,  respectively,  in  such 
year).  Said  bonds  mature  August  1,  1930,  and  bear  interest  at  the 
rate  of  Five  per  Cent,  per  annum,  payable  semi-annually  on  the  first 
days  of  February  and  August  in  each  year,  the  principal  being  pay- 
able at  the  office  or  agency  of  the  Company  in  the  City  of  New  York 
(the  Company  has  no  office  in  New  York;  its  agency,  however,  for 
the  payment  of  bonds  is  United  States  Mortgage  &  Trust  Company, 
55  Cedar  Street,  New  York,  N.  Y.),  or  at  the  holder's  option'  at  the 
Company's  office  or  agency  in  any  of  the  following  cities,  to  wit: 
Paris,  France;  London,  England;  Berlin,  Germany;  Amsterdam, 
Holland. 


APPLICATION    FOR   LISTING  163 

The  entire  issue  of  said  bonds  is  redeemable  (but  not,  except  in 
the  case  of  redemption  for  the  benefit  of  the  improvement  fund,  in 
less  part  than  all  thereof)  on  any  interest  date  at  not  more  than  One 
Hundred  and  Five  per  Cent,  of  the  principal  thereof  and  accrued 
interest  if  such  redemption  is  effected  not  later  than  December  31, 
1925.  If  such  redemption  is  effected  during  the  calendar  year  1926 
the  redemption  price  will  be  One  Hundred  and  Four  per  Cent,  of 
principal  and  accrued  interest.  It  will  be  One  Hundred  and  Three 
per  Cent,  of  principal  and  accrued  interest  during  the  year  1927,  One 
Hundred  and  Two  per  Cent,  during  the  year  1928,  and  One  Hun- 
dred and  One  per  Cent,  during  the  year  1929,  and  during  the  period 
between  January  1,  1930,  and  July  31,  1930,  both  inclusive.  Notice 
of  intention  to  redeem  is  required  to  be  given  by  publication  at  least 
once  a  week  for  four  successive  weeks  immediately  preceding  the 
date  fixed  for  redemption  in  one  newspaper  of  general  circulation 
published  in  the  City  of  New  York  and  one  newspaper  of  general 
circulation  published  in  the  City  of  Portland,  Oregon. 

Article  III  of  the  Mortgage  establishes  an  improvement  fund, 
whereby  a  cash  fund  is  payable  to  the  Trustee  on  August  1  of  each 
year  as  follows:  One  per  Cent,  annually  of  the  bonds  outstanding, 
including  underlying  bonds  and  outstanding  bonds  of  corporations 
whose  Capital  Stock  at  the  time  is  owned  by  the  Mortgagor  and 
pledged  under  the  Mortgage  from  1915  to  1919  inclusive;  Two  per 
Cent,  from  1920  to  1924  inclusive;  Three  per  Cent,  from  1925  to 
1929  inclusive.  The  maximum  payment  remains  at  Two  per  Cent., 
however,  when  in  any  twelve  months  ending  May  31  in  any  of  the 
years  from  1925  to  1929  inclusive  the  net  earnings  of  the  Company 
and  its  subsidiaries  equal  or  exceed  three  times  the  annual  interest 
charge  on  all  bonds  outstanding.  Money  in  the  improvement  fund 
may  be  used  for  improvements  and  betterments  to  the  property  or 
as  a  sinking  fund  for  the  redemption  of  the  First  and  Refunding 
Mortgage  Twenty-year  Gold  Bonds  on  the  same  basis  as  provided  in 
the  Mortgage  for  the  redemption  of  bonds. 

Section  1  of  Article  VI  of  the  Mortgage  provides  that  if  default 
in  payment  of  interest  or  any  payments  to  the  improvement  fund 
shall  continue  for  ninety  days,  or  any  other  default  under  said  Mort- 
gage, except  in  payment  of  principal,  shall  continue  for  ninety  days, 
after  notice  from  the  Trustee  or  any  bondholder,  then,  upon  the 
election  of  the  holders  of  a  majority  in  interest  of  the  bonds  secured 
thereby  and  then  outstanding,  evidenced  by  an  instrument  or  instru- 
ments in  writing  signed  by  them  and  delivered  to  the  Trustee,  the 
entire  principal  sum  secured  by  said  Mortgage  and  the  interest 
accrued  thereon  shall  become  and  be  immediately  due  and  payable, 


164         MATEEIALS    OF   COKPORATION   FINANCE 

subject,  however,  to  the  right  of  a  majority  in  interest  of  the  holders 
of  said  bonds  to  annul  such  election  and  'destroy  its  'effect  at  any- 
time before  sale  under  said  Mortgage. 

The  total  authorized  amount  of  the  Capital  Stock  of  the  Pacific 
Power  &  Light  Company  is  $3,500,000  Preferred  Stock,  $2,500,000 
Second  Preferred  Stock  and  $6,000,000  Common  Stock.  All  of  the 
Common  Stock,  $2,000,000  of  the  Preferred  Stock  and  $1,500,000 
of  the  Second  Preferred  Stock  are  outstanding. 

The  bonds  covered  by  this  application  were  issued  for  the  following 
purposes,  viz. : 

For  payment  of  unfunded  debt  of  Pacific  Power  & 

Light  Company  (Mtg.,  Art.  I,  Sec.  6,  p.  67) ...  $3,200,000 . 00 
For  Refunding  Underlying  Bonds  as  follows: 

Yakima  Water,  Light  &  Power  Company  First 
Mortgage  Five  per  Cent.  Gold  Bonds  (Mtg., 
Art.  I,  Sec.  7,  pp.  68-72) 133,000.00 

Northwest  Light  &  Water  Company  First  Mort- 
gage Five  per  Cent.  Gold  Bonds  (Mtg.,  Art. 
I,  Sec.  7,  pp.  68-72) 63,000.00 

Yakima  Valley  Power  Company  First  Mortgage 
Five  per  Cent.  Gold  Bonds  (Mtg.,  Art.  I,  Sec. 
7,  pp.  68-72) 14,000.00 

Walla  Walla  Gas  &  Electric  Company  First 
Mortgage  Six  per  Cent.  Bonds  (Mtg.,  Art.  I, 
Sec.  7,  pp.  68-72) 81,000.00 

Northwestern  Gas  &  Electric  Company  First 
and  Consolidated  Mortgage  Six  per  Cent. 
Sinking  Fund  Gold  Bonds  (Mtg.,  Art.  I,  Sec. 
7,  pp.  68-72) 526,000.00 

Astoria  Electric  Company  First  Mortgage 
Twenty-year  Six  per  Cent.  Gold  Bonds  (Mtg., 
Art.  I,  Sec.  7,  pp.  68-72) 150,000.00 

Walla  Walla  Valley  Traction  Company  First 
Mortgage  Five  per  Cent.  Sinking  Fund  Gold 
Bonds  (Mtg.,  Art.  I,  Sec.  7,  pp.  68-72) 363,000 . 00 

All  of  said  underlying  securities  have  been  re- 
tired and  cancelled,  except  in  the  case  of  the 
bonds  of  the  Walla  Walla  Valley  Traction 
Company.  In  that  case  $357,000  of  bonds 
and  $6,000  in  cash  have  been  pledged  with 
the  Trustee,  and  $363,000  of  bonds  of  Pacific 
Power  &  Light  Company  have  been  issued 
therefor. 

For  permanent  improvements  and  additions  in  ac- 
cordance with  the  provisions  of  the  Mortgage 
(Mtg.,  Art.  I,  Sec.  8,  p.  72) 765,000.00 

Total  bonds  issued  and  outstanding  to  date $5,295,000 . 00 

Balance,  issuable  as  follows 24,705,000.00 

For  an  amount  of  principal  equal  to  80%  (a) 
of  the  actual  cost,  reasonable  worth  and  re- 
placement value  to  the  Company  of  any  per- 
manent improvements  or  additions  to  its 
plants  or  property  other  than  shares  of  stock, 
bonds  or  other  securities,  or  (b)  of  the  actual 
cost  to  the  Company  of  mortgage  bonds  or 
shares  of  stock  (including  First  and  Refund- 
ing Mortgage  Five  per  Cent.  Gold  Bonds  of 


APPLICATION    FOR   LISTING  165 

the  Walla  Walla  Valley  Railway  Company) 
purchased  and  of  the  reasonable  worth  and 
replacement  value  of  the  property  represented 
by  such  mortgage  bonds  or  shares  of  stock, 
provided  the  net  earnings  of  the  Company 
and  of  underlying  corporations  for  twelve 
months  shall  be  not  less  than  twice  the  inter- 
est charge  upon  outstanding  bonds. 


$30,000,000.00 

Such  unissued  balance  may,  in  accordance  with  the  terms  of  the 
Mortgage,  be  issued  in  the  "International  Series"  in  which  the  bonds 
already  outstanding  have  been  issued,  or  in  any  of  the  other  series 
described  in  the  Mortgage,  viz.:  The  "American  Series,"  payable  in 
New  York  City  only;  the  "French  Series,"  payable  in  the  City  of 
Paris,  France,  only;  the  "English  Series,"  payable  in  the  City  of 
London,  England,  only;  the  "German  Series,"  payable  in  the  City 
of  Berlin,  Germany,  only;  and  the  "Netherlands  Series,"  payable  in 
the  City  of  Amsterdam,  Holland,  only;  but  in  the  construction  of 
all  bonds  the  English  language  shall  prevail. 

Pacific  Power  &  Light  Company  was  incorporated  on  June  15, 
1910,  under  the  laws  of  the  State  of  Maine  for  the  purpose  of  car- 
rying on  a  general  electrical  and  gas  business  with  broad  powers 
permitting  it  to  engage  (outside  of  the  State  of  Maine)  in  electrical, 
gas,  railway,  steam,  hot  water,  ice  and  water  businesses.  The  period 
of  its  duration  is  unlimited.  By  deeds  dated  in  July,  1910,  it  acquired 
electric  lighting,  power,  gas  and  street  railway  properties  in  Wash- 
ington, Oregon  and  Idaho,  formerly  owned  by  the  Northwestern  Cor- 
poration of  Philadelphia,  the  Northwest  Light  &  Water  Company, 
the  Yakima  Valley  Power  Company,  the  Astoria  Electric  Company 
and  the  Wasco  Warehouse  Milling  Company. 

All  of  the  physical  properties  and  assets  so  acquired  are  pledged 
under  the  Mortgage  securing  said  First  and  Refunding  Mortgage 
Twenty-year  Gold  Bonds,  said  Mortgage  covering  the  business,  fran- 
chises and  real  and  personal  properties  of  said  Company  situated 
in  Washington,  Oregon  and  Idaho,  and  any  and  all  other  property, 
real,  personal  and  mixed,  now  owned  or  hereafter  acquired  by  the 
Mortgagor  and  wheresoever  situated,  except  such  shares  of  stock, 
bonds,  and  other  securities  of  other  corporations  as  are  not  specifically 
mentioned  in  said  Mortgage  or  acquired  by  the  Company  subse- 
quent to  the  date  of  said  Mortgage  in  whole  or  in  part  by  the  use  of 
any  of  the  bonds  secured  thereby  or  the  proceeds  thereof,  or  made 
the  basis  for  the  issuance  of  bonds  secured  thereby.  At  the  time  of 
the  acquisition  of  said  properties  the  Pacific  Power  &  Light  Com- 
pany purchased  substantially  all  of  the  stock  of  the  Walla  Walla 
Valley  Railway  Company,  operating  an  electric  interurban  railroad 


166        MATERIALS   OF   CORPORATION   FINANCE 

from  Walla  Walla,  Washington  to  Freewater,  Oregon,  and  pledged 
Buch  stock  under  the  Mortgage  securing  said  First  and  Refunding 
Mortgage  Twenty-year  Gold  Bonds.  (All  references  in  this  appli- 
cation to  interurban  railroad  lines  are  to  those  of  said  Walla  Walla 
Valley  Railway  Company.  The  Pacific  Power  &  Light  Company 
does  not  itself  operate  any  interurban  lines.)  As  of  April  30,  1911, 
Pacific  Power  &  Light  Company  took  over  the  properties  formerly 
owned  by  the  Husum  Power  Company  operating  a  water  power  de- 
velopment on  the  White  Salmon  River,  Washington,  and  supplying 
electrical  energy  to  the  towns  of  White  Salmon  and  Bingen;  Klicki- 
tat  Light  &  Power  Company  operating  a  water  power  development 
in  Klickitat  County,  Washington  and  supplying  electrical  energy  to 
Goldendale;  Tucanon  Power  Company  operating  a  water  power  de- 
velopment on  the  Tucanon  River  and  supplying  electrical  energy  to 
Pomeroy,  Washington;  Dayton  Electric  Company  operating  a  water 
and  steam  plant  on  the  Touchet  River  and  supplying  electrical  energy 
to  Dayton,  Washington;  Waitsburg  Electric  Light  Company  operat- 
ing a  water  and  steam  plant  on  the  Touchet  River  and  supplying 
electrical  energy  to  Waitsburg,  Washington;  Prosser  Water  Company 
and  Prosser  Power  Company  operating  a  combined  hydraulic  and 
steam  plant  on  the  Yakima  River  at  Prosser,  Washington,  and  sup- 
plying electrical  energy  and  domestic  water  to  the  town  of  Prosser. 
These  properties  have  been  made  subject  to  the  lien  of  the  Mortgage. 
The  Pacific  Power  &  Light  Company  furnishes  electric  light  and 
power,  street  railway,  gas  and  water  service  in  many  communities,  as 
shown  by  the  following  list: 


NAME                                         CHARACTER  OF  SERVICE 

Astoria,              Oregon 

Electric  Light  and  Power.   Gas.     City  cars. 

*Athena, 

a           «               «< 

Bingen, 

«           a               it 

Dufur, 

a           a               a 

Freewater, 

"           "               "          Interurban   cars    (Walla 

Walla  Vy.  Ry.  Co.). 

Milton, 

Interurban  Cars  (Walla  Walla  Valley  Railway  Co.). 

Mosier, 

Electric  Light  and  Power. 

Pendleton, 

Gas. 

The  Dalles, 

*Weston, 

*Attalia,               Wa 

h. 

Ben  ton  City, 

Beverly, 

Centreville, 

Clarkston, 

Gas. 

Dayton, 
Goldendale, 

Ele 

trie  Lig 
i 

it  and  PC 

wer. 

Grand  View, 

Granger, 

Huntsville, 

Husum, 

Kennewick, 

Water. 

APPLICATION   FOR   LISTING 


167 


NAME 

Kiona,  Wash. 

Mabton, 

Marengo, 

North  Yakima, 

Outlook, 

Parker, 

Pasco, 

Pomeroy, 

Prosser, 

Richland, 

Sunnyside, 

Toppenish, 

Waitsberg. 

Walla  Walla, 


CHARACTER  OF  SERVICE 
Electric  Light  and  Power 


Gas.     Water. 

Water. 
Water. 


Gas.  City  Cars,  Interur- 
banCare.  (Walla  Walla 
Valley  Ry.  Co.) 


Wapato,  " 

White  Bluffs,  " 
White  Salmon,  " 
Zillah,  " 

Lewiston,  Idaho      Gas. 

*  Wholesale  only. 

It  is  expected  that  extension  of  transmission  lines  will  soon  provide 
light  and  power  service  at  Prescott,  Whitcomb,  Lowden,  Paterson, 
Plymouth,  Mottinger,  Wahluke,  Dixie  and  Moxee  City,  Washington. 

The  total  number  of  customers  served  by  the  Pacific  Power  &  Light 
Company  as  of  December  31,  1911,  and  the  miles  of  gas  mains  and 
electric  lines  in  use  were  as  follows: 

Gas  customers 4,022 

Miles  of  gas  mains  in  service 81 

Water  customers 3,917 

Electric  customers 12,327 

Miles  of  electric  distributing  lines  in  service 495 

Miles  of  high  voltage  transmission  lines  in  operation 444 

Miles  of  high  voltage  transmission  lines  under  construction 27 

Miles  of  street  railway  and  interurban  railway  lines  (including  Walla  Walla 

Valley  Railway  Company)  in  operation 30 

The  Company  has  a  total  developed  electric  power  capacity  of 
approximately  20,735  horse-power,  including  1,650  hydro-electric 
horse-power  now  under  construction.  Of  the  total  amount  of  horse- 
power, 13,300  is  generated  by  hydro-electric  power  plants. 

With  unimportant  exceptions,  the  franchises  of  the  Pacific  Power 
&  Light  Company  are  either  unlimited  as  to  time  or  run  for  a  long 
period. 

The  electric  light  and  power  franchises  in  Astoria,  Pendleton,  The 
Dalles  and  Dufur  are  unlimited  as  to  time,  as  is  also  the  gas  fran- 
chise in  Astoria.  The  street  railway  franchise  in  Astoria  expires  in 
1981.  The  electric  light  and  power  franchises  at  Granger  and  Free- 
water  extend  to  1960,  and  those  at  Attalia,  Benton  City,  Centerville, 
Clarkston,  Dixie,  Dayton,  Grandview,  Lowden,  Moxee  City,  Outlook, 
Parker,  Prescott,  Eichland,  Toppenish,  Touchet,  Underwood,  Waits- 


168 


MATERIALS    OF   COEPORATION   FINANCE 


burg,  Wallula  Junction,  White  Bluffs  and  Zillah  extend  to  1961. 
The  electric  light  and  power  franchise  in  Hood  River  extends  to 
1952.  All  other  grants  extend  to  from  1930  to  1935,  except  the 
Sunnyside  electric  light,  Lewiston  gas  and  Prosser  water  franchises, 
which  expire  in  1929,  and  the  Mabton  and  Wapato  electric  light 
franchises,  which  expire  in  1924.  The  net  receipts  from  these  five 
towns  last  named  for  the  past  twelve  months  have  been  less  than 
Five  per  Cent,  of  the  total. 


Gross  Earnings $1,658,641 . 71 

Operating  expenses  and 


Totals  IS  Months    Totals  6  Months    Totals  12  Months 
Ending  12-31-11     Ending  12-31-10    Ending  12-31-11 


taxes. 
Net  earnings. 


Interest  on  bonds. 
Other  interest. . . 


Net    income 

charges 

Dividends  paid . 


after 


Surplus  July  1, 1910 

Surplus  Dec.  31,  1911 


898,721.10 
$759,920.61 

$361,560.32 
79,013.61 


$319,346.68 
232,680.56 

$86,666.12 
4,629.94 

$91,296.06 


$505,362.63 
266,743.32 
$238,619.31 

$103,362.93 
1,611.59 

$133,644.79 


$1,153,279.08 
631,977.78 
$521,301.30 

$258,197.39 
77,402.02 

$185,701.89 


BALANCE  SHEET   (INCLUDING   WALLA  WALLA  VALLEY  RAILWAY  COMPANY), 

DECEMBER  31,  1911 


Plants $14,225,510.09 


fCapital  Stock  of  Walla  Walla  Valley  Railway  Company. 

Securities  of  other  corporations 

Current  Assets: 
Cash $192,335 . 50 


Notes  receivable 

Accounts  receivable: 

Consumers $140,560.52 

American  Power  &  Light  Co .       29,098 . 74 
Hanford  Irrigation  &  Power 
Co 75,406.50 


Inventory. 


Total  current  assets — 
Contingent  Assets: 

Prepaid  accounts 

*Bond  premium  and  discount. 
Trustee's  bond  sinking  fund. . 


Total  contingent  assets. 


9,292.33 


245,065.76 
267,437.70 


$13,295.95 

231,596.47 

26,025.76 


499,500.00 
5,000.00 


714,131.29 


270,918.18 


Total  assets $15,715,059.56 


APPLICATION   FOR   LISTING 


169 


Liabilities 
Capital  Stock  Outstanding: 

Preferred $2,000,000.00 

Second  Preferred 1.500,000.00 

Common 6,000,000.00 

Walla  Walla  Valley  Railway  Company 500,000 . 00 

Total  Capital  Stock  outstanding $10,000,000 . 00 

Bonds  Outstanding: 

Pacific  Power  &  Light  Co.  First  and  Refund- 
ing Mortgage  Five  per  Cent 4,791,000 . 00 

§Northwestern  Gas  &  Electric  Co.  First 

and  Consolidated  Mortgage  Six  per  Cent .  473,000 . 00 

§  Wai  la  Walla  Valley  Traction  Co.   First 
Mortgage  Five  per  Cent 31,000.00 

Total  Bonds  outstanding 5,295,000.00 

Current  Liabilities: 

Accounts  payable $54,330 . 85 

Consumers'  deposits 17,409 . 58 

Accrued  accounts 151,030.90 

Total  current  liabilities 222,771 .33 

Reserves 105,992. 17 

Surplus 91,296.06 

Totals $15,715,059.56 

fThe  physical  assets  of  Walla  Walla  Valley  Railway  Company  are  included 
in  the  item  "Plants"  and  in  this  balance  sheet  accounts  between  Pacific  Power 
A  Light  Co.  and  Walla  Walla  Valley  Railway  Company  have  been  eliminated. 

*  This  account  is  being  written  off  monthly  during  the  life  of  the  bonds. 

§  Since  December  31,  1911,  the  Mortgage  securing  $473,000  Northwestern 
Gas  &  Electric  Co.  bonds  has  been  released  and  bonds  of  the  Pacific  Power  & 
Light  Co.  have  been  issued  in  lieu  thereof,  and  underlying  bonds  of  the  Walla 
Walla  Valley  Traction  Co.  (secured  by  a  mortgage  upon  the  properties  of  the 
Walla  Walla  Valley  Railway  Company)  to  the  amount  of  $25,000  and  $6,000  in 
cash  have  been  exchanged  tor  bonds  of  the  Pacific  Power  &  Light  Co. 

The  principal  office  of  the  Pacific  Power  &  Light  Company  is 
located  at  Augusta,  Maine.  Its  principal  office  on  the  Pacific  Coast 
is  at  Portland,  Oregon,  and  its  agency  in  the  Borough  of  Manhattan 
is  United  States  Mortgage  &  Trust  Company,  which  company  also 
acts  as  Transfer  Agent  for  the  bonds. 

The  Company's  fiscal  year  ends  on  December  31.  The  annual  meet- 
ing is  held  on  the  third  Tuesday  in  February  in  each  year  at  the 
Company's  office,  242  Water  Street,  Augusta,  Maine. 

The  Directors  of  the  Pacific  Power  &  Light  Company  are  as  fol- 
lows: J.  C.  Ainsworth,  Geo.  F.  Nevins,  Edward  Cookingham,  F.  L. 
Dame,  Fred  S.  Fogg,  S.  S.  Gordon,  William  Jones,  John  A.  Laing, 
C.  Hunt  Lewis,  H.  C.  Lucas,  S.  Z.  Mitchell,  Miles  C.  Moore,  Josiah 
Richards,  F.  G.  Sykes,  Guy  W.  Talbot. 

The  Officers  are  as  follows :  S.  Z.  Mitchell,  Chairman  of  the  Board ; 
Guy  W.  Talbot,  President;  F.  G.  Sykes,  F.  L.  Dame,  E.  W.  Hill, 
Edward  Cookingham,  A.  S.  Grenier,  J.  E.  Davidson,  Vice- Presidents; 


170         MATEKIALS    OF   CORPORATION    FINANCE 

E.  P.  Summerson,  Treasurer  and  Assistant  Secretary;  George  F. 
Nevins,  Secretary  and  Assistant  Treasurer;  M.  H.  Arning,  Assistant 
Treasurer  and  Assistant  Secretary. 

The  Pacific  Power  &  Light  Company  agrees  to  publish  in  pamphlet 
form  at  least  once  in  each  year  and  submit  to  the  Stockholders  at 
the  annual  meeting  of  the  Company,  a  detailed  statement  of  its  phys- 
ical and  financial  condition  and  income  account  covering  previous 
fiscal  year  and  a  balance  sheet  showing  assets  and  liabilities  at  the 
end  of  the  year,  and  income  account  and  balance  sheet  of  all  sub- 
sidiary companies;  to  maintain  an  agency  in  the  Borough  of  Man- 
hattan, City  of  New  York,  for  the  transfer  and  negotiation  of  its 
bonds;  to  notify  the  Stock  Exchange  in  the  event  of  the  issuance  of 
any  rights  or  subscriptions  to,  or  allotments  of  its  listed  securities, 
and  to  afford  the  holders  thereof  a  reasonable  period  within  which 
to  exercise  the  privileges  to  which  they  may  be  entitled  with  respect 
to  any  such  rights,  subscriptions  or  allotments;  and  that  all  rights, 
subscriptions  or  allotments  with  respect  to  its  listed  securities  shall 
be  transferable,  payable  and  deliverable  in  the  Borough  of  Manhattan, 
City  of  New  York. 

PACIFIC   POWER  &  LIGHT  COMPANY, 
By  E.  W.  HILL,  "Vice-President. 

This  Committee  recommends  that  the  above-described  $5,295,000 
First  and  Refunding  Mortgage  Twenty-year  Five  per  Cent.  Bonds, 
International  Series,  due  1930,  Nos.  1  to  5,295  inclusive,  for  $1,000 
each,  be  admitted  to  the  list. 

WM.  W.  HEATON,  Chairman. 
Adopted  by  the  Governing  Committee,  May  8,  1912. 

GEORGE  W.  ELY,  Secretary. 


STOCK   TRANSFER    RULES,    KAN.    CITY    RY.       171 


In  order  to  comply  with  the  law  and  to  safeguard  the  interests  of 
the  Company  and  its  security  holders,  the  following  regulations  in 
respect  of  the  transfer  of  stocks  and  bonds  are  prescribed : 

I. — REGISTRATION 

1.  In  transferring  stock  or  bonds  to  the  name  of  an  Individual  or 
Firm,  the  full  name  should  be  given  as  it  is  usually  signed,  without 
prefix,  suffix  or  title. 

2.  When  a  transfer  is  made  to  the  name  of  a  Woman,  the  prefix 
Miss  or  Mrs.  should  be  omitted,  and  the  security  registered  in  her  in- 
dividual name.    Thus,  Jane  Doe  is  preferable  to  Mrs.  John  Doe. 

3.  The  titles  of  Corporations  or  Associations  should  be  stated  in 
full,  including  a  prefix  The  when  applicable. 

4.  The  name  of  a  Trustee  or  Trustees  should  be  followed  by  a  brief 
description  of  the  trust. 

5.  The  name  of  an  Executor  or  Administrator  should  be  followed 
by  a  brief  description  of  the  will  or  estate. 

6.  Transfers  to  the  Estate  of  John  Doe  are  objectionable.     Rich- 
ard Roe,  Executor  (or  Administrator)  of  the  Estate  of  John  Doe,  is 
preferable. 

7.  Usually,  Executors,  Administrators  or  Trustees  should  not  trans- 
fer to  themselves  as  individuals.    If  necessarily  done,  the  reason  and 
justification  therefor  should  be  shown. 

8.  In  all  cases  the  addresses  of  transferees  should  be  stated  with 
particularity. 

9.  Persons  or  associations  having  securities  transferred  to  them- 
selves from  time  to  time  are  requested  to  state  the  name  uniformly, 
in  order  to  avoid  the  opening  of  unnecessary  accounts  and  the  con- 
fusion and  inconvenience  consequent  thereon. 

If  John  Doe  be  a  registered  holder,  the  name  should  not  be  given 
as  Jno.  Doe  or  J.  Doe  at  the  time  of  subsequent  transfers;  and  the 
name  Richard  Roe  &  Co.  should  not  afterwards  be  stated  as  Richard 
Roe  &  Company  or  R.  Roe  &  Co. 

10.  A  considerable  number  of  stockholders  have  more  than  one  ac- 
count, some  with  different  addresses.    It  is  desirable  that  the  entire 
holdings  of  a  stockholder  be  combined  into  one  account.    To  this  end, 

i  Circular  issued  by  the  Kansas  City  Southern  Railway  Company,  Office 
Of  the  Secretary  and  Transfer  Agent,  No.  25  Broad  Street,  New  York,  July 
1,  1913. 


172         MATERIALS    OF   CORPORATION   FINANCE 

such  certificates  as  necessary  should  be  submitted  for  re-transfer,  for 
which  no  charge  will  be  made. 

11.  It  is  recommended  that  as  far  as  readily  practicable,  transfers 
offered  by  persons  unknown  to  the  Transfer  Agent  should  be  trans- 
mitted through  a  broker  having  representation  on  the  New  York 
Stock  Exchange,  who  will  guarantee  the  signatures  to  assignments. 
In  this  way,  the  difficulties  of  identification,  the  resulting  delay,  or 
the  expense  of  a  Notarial  certificate,  will  be  avoided. 

II. — ASSIGNMENT 

1.  The  assignment  on  the  reverse  side  of  a  certificate  or  bond  must 
be  signed,  witnessed  and  dated.    The  name  of  the  person  constituted 
as  attorney  to  make  the  transfer  upon  the  books  of  the  Company, 
should  be  omitted. 

2.  Signatures  to  such  assignments  must  be  technically  correct ;  that 
is,  they  must  correspond  in  every  particular  with  the  name  in  which 
the  security  is  issued,  without  abbreviation,  enlargement  or  change. 

(a)  The  assignment  of  a  certificate  or  bond  registered  in 

the  name  of  John  Henry  Smith,  must  not  be  executed 
in  the  name  of  John  H.  Smith,  J.  Henry  Smith,  or 
J.  H.  Smith. 

(b)  Titles,  if  any,  must  be  prefixed  or  suffixed  to  signatures 

exactly  as  they  appear  on  the  face  of  the  security.  If 
the  prefix  Miss,  Mrs.,  Rev.,  Dr.,  Capt.,  Baron,  etc., 
constitutes  a  part  of  the  name  of  the  holder  as  regis- 
tered, the  signature  must  include  such  prefix. 

(c)  Brothers  or  Bros,  must  be  written  as  it  appears  in  the 

security. 

3.  When  a  security  has  been  issued  in  a  name  incorrectly  stated  or 
wrongly  spelled,  the.  assignment  must  be  executed  both  in  the  name 
as  registered  and  in  the  correct  name. 

4.  The  assignment  of  a  security  registered  in  the  name  of  John  Doe 
and  Richard  Roe  must  be  executed  by  both. 

5.  The  assignment  of  a  security  registered  in  the  name  of  a  woman 
subsequently  changed  by  marriage  must  be  executed  Jane  Doe,  now 
Jane  Roe.   Evidence  of  the  marriage  and  of  the  holder's  identity  may 
be  required. 

6.  A  detached  assignment  must  contain  provision  for  the  appoint- 
ment irrevocable  of  a  person  (the  name  being  left  blank)  as  attorney 
to  make  the  necessary  transfer  upon  the  books  of  the  Company,  and 
a  full  description  of  the  security ;  that  is,  name  of  the  Company,  Issue, 
Certificate  or  Bond  Number,  and  the  face  amount. 


STOCK    TRANSFER   RULES,    KAN.    CITY   RY.      173 

(a)  A  separate  assignment  should  accompany  each  certifi- 
cate or  bond. 

7.  Any  alteration  in  the  wording  of  an  assignment  or  appointment 
of  an  attorney  should,  whenever  practicable,  be  attested  by  the  signa- 
ture of  every  person  joining  in  the  execution  of  the  assignment  as  the 
assignor  or  as  one  of  the  assignors ;  and  must  in  any  event  be  attested 
by  that  of  a  person  or  persons  thereunto  authorized. 

III. — ASSIGNMENTS  BY  CORPOKATIONS  OB  ASSOCIATIONS 

1.  When  a  transfer  is  to  be  made  from  the  name  of  a  Corporation 
or  Association,  the  certificate  or  bond  must  (subject  to  paragraph  2 
below)  be  accompanied  by  a  copy  of  a  resolution  of  the  board  of  direc- 
tors or  trustees,  authorizing  its  transfer  and  naming  the  officer  dele- 
gated to  execute  the  assignment. 

(a)  This  copy  must  be  certified  by  the  secretary  of  the  cor- 

poration as  a  true  copy  from  the  minutes. 

(b)  If  such  resolution  is  of  continuing  effect,  the  secretary 

of  the  corporation  must  certify  that  the  resolution  ia 
in  effect  at  the  time  of  the  intended  transfer. 

2.  If  a  transfer  is  to  be  made  on  the  authority  of  a  by-law,  the 
security  must  be  accompanied  by  a  copy  of  the  by-law,  certified  by  the 
secretary  of  the  corporation  as  being  in  effect  at  the  time  of  such  in- 
tended transfer. 

3.  The  corporate  seal  (if  the  corporation  or  association  have  one) 
must  be  impressed  upon  the  assignment,  whether  on  the  security  itself 
or  detached,  and  likewise  upon  all  attestations. 

(a)  If  a  corporation  or  association  have  no  seal,  attestations 
must  be  acknowledged  before  a  Notary  Public.  See 
Section  VI.,  paragraph  1,  sub-paragraph  (c). 

IV. — ASSIGNMENTS  BY  TRUSTEES 

1.  When  a  certificate  or  bond  is  to  be  transferred  from  the  name  of 
a  Trustee  or  Trustees,  a  certified  copy  of  the  instrument  creating  the 
trust  must  be  submitted. 

2.  Evidence  is  required  of  the  appointment  of  the  trustee  or  trustees 
(if  other  than  as  stated  in  the  creating  instrument) ;  of  his  or  their 
acceptance  of  the  trust,  and  retention  of  it  at  the  time  of  the  intended 
transfer. 

3.  Assignments  by  trustees  require  the  signature  of  all  living  trus- 
tees.   The  signature  of  one  alone  is  not  sufficient  to  justify  a  transfer 
of  stock  or  bonds.    See  Section  V.,  paragraph  4. 


174         MATERIALS    OF   CORPORATION    FINANCE 

(a)  The  decease  of  a  former  co-trustee  should  be  proved  by 
a  certificate  of  death  when  obtainable,  or  otherwise 
by  credible  affidavit,  as  a  condition  precedent  to 
transfer. 

V. — ASSIGNMENTS  BY  EXECUTORS  AND  ADMINISTRATORS 

1.  A  certificate  or  bond  offered  for  transfer  from  the  estate  of  de- 
cedent intestate,  must  be  accompanied  by  a  certificate  of  the  granting 
of  Letters  of  Administration,  and  evidence  of  the  retention  of  the 
trust  by  the  Administrator  or  Administrators  at  the  time  of  the  in- 
tended transfer. 

2.  A  security  offered  for  transfer  from  the  estate  of  a  decedent 
testate,  must  be  accompanied  by  the  following: 

(a)  A  certified  copy  of  the  Last  Will  and  Testament  of  the 

deceased. 

(b)  A  certificate  of  the  appointment  of  an  Executor  or  Ex- 

ecutors, and  evidence  of  his  or  their  retention  of  the 
trust  at  the  time  of  the  intended  transfer. 

3.  Presumptively,  it  is  within  the  power  of  executors,  or  either  of 
several  executors  alone,  to  sell  and  transfer  the  assets  of  a  decedent. 
A  will  may,  however,  require  joint  action  of  all  the  executors. 

4.  If  an  assignment  is  proposed  by  executors  more  than  eighteen 
months  after  the  decedent's  decease,  a  presumption  arises  that  the 
executors  have  become  trustees  and  must  be  so  treated. 

5.  Evidence  must  be  furnished  of  the  payment  of  any  inheritance 
or  succession  tax  imposed  by  the  laws  of  the  State  of  New  York,  the 
State  of  Missouri,  and  the  State  wherein  the  corpus  of  the  estate  is 
located;  or  in  lieu  thereof,  a  waiver  of  notice  issued  by  the  Comp- 
troller, Auditor,  or  other  proper  officer  of  such  States. 

(a)  If  the  decedent  was  not  a  resident  of  the  State  of  New 
York,  and  died  subsequently  to  July  21,  1911,  the 
Company  is  informed  that  a  waiver  by  the  Comptrol- 
ler of  that  State  will  issue  of  right,  upon  applica- 
tion therefor  with  a  proper  presentment  of  the  facts. 

VI. — AUTHENTICITY  OF  ASSIGNMENTS 
1.  The  signature  to  an  assignment  must  either  be — 

(a)  Known  to  the  Transfer  Agent;  or 

(b)  Guaranteed  by  an  establishment  having  representation 

on  the  New  York  Stock  Exchange;  by  the  signature 
(with  official  title  affixed)  of  an  officer  of  a  state  or 
national  bank,  or  of  a  trust  company;  or 

(c)  If  executed  in  this  country,  acknowledged  before  a  No- 


STOCK   TRANSFER    RULES,   KAN.    CITY    RY.       175 

tary  Public;  if  executed  in  a  foreign  country,  ac- 
knowledged before  a  resident  Consular  Officer  of  the 
United  States.  A  Notarial  certificate  executed  with- 
out the  State  of  New  York  must  be  duly  attested  by 
the  Clerk  of  the  local  County  or  of  a  Court  of  Record. 

Delay  and  mutual  embarrassment  are  liable  to  occur  if  these  re- 
quirements are  not  met. 

VII. — CHARGES  FOR  REGISTRATION  AND  TRANSFER 

1.  When  a  certificate  of  stock  is  surrendered  and  a  greater  num- 
ber of  certificates  is  issued  in  the  same  name,  or  in  any  one  name, 
for  a  like  aggregate  number  of  shares,  a  charge  of  25  cents  each  is 
made  for  the  additional  certificates.    There  is  no  other  charge  for  the 
transfer  of  stock. 

2.  No  charge  is  made  for  the  registration  of  bonds,  nor  for  the 
transfer  of  registered  bonds.    A  charge  of  $1.00  per  bond  is  made  to 
cover  the  actual  cost  of  restoring  registered  bonds  to  coupon  form, 
when  such  restoration  is  provided  for  by  the  mortgage  securing  such 
bonds. 

VIII. — TAXES  ON  REGISTRATION  AND  TRANSFER 

1.  The  State  transfer  tax  on  stock  of  the  Company  amounts  to  2 
cents  per  share.    The  duty  to  require  payment  in  advance  of  making 
a  transfer,  is  imposed  upon  the  Company  by  law. 

2.  There  is  now  no  tax  on  the  registration  or  transfer  of  bonds. 
See  Section  V.,  paragraph  5,  as  to  inheritance  taxes  on  decedents' 
estates. 

IX. — MEETINGS,  DIVIDENDS,  CLOSURE  OF  BOOKS 

1.  By  provision  of  the  By-Laws,  the  Annual  Meeting  of  the  Stock- 
holders is  held  at  Kansas  City,  Mo.,  the  second  Tuesday  in  May.    The 
transfer  books  are  closed  for  at  least  ten  days  next  preceding  that 
date,  and  are  usually  re-opened  on  Monday  following  the  meeting. 

2.  Dividends  on  the  Preferred  Stock  have  usually  been  declared 
payable  quarterly  (July  15),  to  stockholders  of  record  on  the  last 
business  day  of  the  month  preceding.    It  is  not  now  customary  to  close 
the  transfer  books  for  the  payment  of  dividends. 

G.  C.  HAND, 
Secretary  and  Transfer  Agent. 


176 


REAL   ESTATE   MORTGAGE 


THIS  INDENTURE,  made  the  tenth  day  of  November  in  the  year 
one  thousand  nine  hundred  and  thirteen  between  A.  C.  Brown,  Inc., 
party  of  the  first  part,  hereinafter  described  and  designated  as  the 
mortgagor,  and  John  Doe,  party  of  the  second  part,  hereinafter 
described  and  designated  as  the  mortgagee. 

Whereas,  the  said  A.  C.  Brown,  Inc.,  by  virtue  of  a  certain  bond  or 
obligation  bearing  even  date  herewith,  is  justly  indebted  to  the  said 
mortgagee  in  the  sum  of  Ten  Thousand  ($10,000)  Dollars  lawful 
money  of  the  United  States,  secured  to  be  paid  on  the  tenth  day 
of  November,  in  the  year  nineteen  hundred  and  fifteen,  together  with 
the  interest  thereon,  to  be  computed  from  the  tenth  day  of  Novem- 
ber, 1913,  at  the  rate  of  six  per  centum  per  annum,  and  to  be  paid 
on  the  eleventh  day  of  May  next  ensuing  the  date  hereof  and  semi- 
annually  thereafter. 

It  being  thereby  expressly  agreed,  that  the  whole  of  the  said  prin- 
cipal sum  shall  become  due  after  default  in  the  payment  of  interest, 
taxes,  assessments  or  water  rates,  as  hereinafter  provided  or  after  any 
other  default,  anything  herein  contained  to  the  contrary  notwith- 
standing. 

Now  this  Indenture  Witnesseth,  that  the  mortgagor,  for  the  better 
securing  the  payment  of  the  said  sum  of  money  mentioned  in  the  said 
bond  or  obligation,  with  interest  thereon,  and  also  for  and  in  con- 
sideration of  the  sum  of  ONE  DOLLAE,  to  the  mortgagor  in  hand 
paid  by  the  mortgagee,  the  receipt  whereof  is  hereby  acknowledged, 
does  hereby  grant  and  release  unto  the  mortgagee,  and  to  his  heirs 
and  assigns  forever,  ALL  that  certain  lot,  piece,  or  parcel  of  land, 
with  all  buildings  and  improvements  thereon  made  or  erected,  situate, 
lying  and  being  in  the  Borough  of  Manhattan,  City,  County  and 
State  of  New  York,  bounded  and  described  as  follows,  to  wit: — 

Beginning  at  a  certain  point  on  the  north  side  of  Palmer  Road, 
distant  one  hundred  feet  east  of  that  point  known  as  the  northeast 
corner  formed  by  the  intersection  of  Bailey  Avenue  and  Palmer  Eoad, 
running  thence  (1)  forty  feet  due  east  on  a  line  with  the  said  Palmer 
Road;  thence  (2)  one  hundred  feet  due  north  on  a  line  parallel  with 
said  Bailey  Avenue;  thence  (3)  forty  feet  due  west  on  a  line  parallel 
with  said  Palmer  'Road;  then  (4)  one  hundred  feet  due  south  on  a 
line  parallel  with  said  Bailey  Avenue  to  the  place  of  beginning. 
Together  with  all  fixtures  and  articles  attached  to  or  used  in  con- 
nection with  said  premises,  all  of  which  are  declared  to  be  covered 
by  this  mortgage ;  together  with  the  appurtenances,  and  all  the  estate 
and  rights  of  the  party  of  the  first  part  in  and  to  said  premises : 


REAL  ESTATE  MORTGAGE          177 

To  have  and  to  hold    the  above-granted  premises  unto  the  said  mort- 
gagee, his  heirs  and  assigns  forever. 

Provided  always  that  if  the  said  mortgagor,  or  the  heirs,  executors, 
administrators  or  successors  of  the  said  mortgagor,  shall  pay  unto  the 
said  mortgagee,  or  the  personal  representatives,  successors  or  assigns 
of  the  said  mortgagee,  the  said  sum  of  money  mentioned  in  the  said 
bond  or  obligation,  and  the  interest  thereon,  at  the  time  in  the  man- 
ner mentioned  in  the  said  bond  or  obligation,  then  these  presents 
and  the  estate  hereby  granted,  shall  cease,  determine  and  be  void. 
And  the  said  A.  C.  Brown,  Inc.,  mortgagor  covenants  with  the  mort- 
gagee as  follows: 

First — That  the  mortgagor  will  pay  the  indebtedness  as  hereinbe- 
fore provided,  and,  if  default  be  made  in  the  payment  of  any  part 
thereof,  the  mortgagee  shall  have  power  to  sell  the  premises  herein 
described  according  to  law.  Said  premises  may  be  sold  in  one  parcel, 
any  provision  of  the  law  to  the  contrary  notwithstanding. 

Second — That  the  mortgagor  will  keep  the  buildings  on  the  said 
premises  insured  against  loss  by  fire  for  the  benefit  of  the  mortgagee. 
And  should  the  mortgagee,  by  reason  of  any  such  insurance  against 
loss  by  fire,  as  aforesaid,  receive  any  sum  or  sums  of  money  for  any 
damage  by  fire  to  the  said  building  or  buildings,  such  amount  may 
be  retained  and  applied  by  said  mortgagee  toward  payment  of  the 
amount  hereby  secured,  or  the  same  may  be  paid  over  either  wholly 
or  in  part  to  the  said  mortgagor,  or  the  heirs,  successors  or  assigns 
of  the  mortgagor,  to  enable  said  mortgagor  to  repair  said  buildings 
or  to  erect  new  buildings  in  their  place,  or  for  any  other  purpose  or 
object  satisfactory  to  the  said  mortgagee,  without  affecting  the  lien 
of  this  mortgage  for  the  full  amount  secured  thereby  before  such 
damage  by  fire,  or  such  payment  ever  took  place. 

Third — And  it  is  hereby  expressly  agreed  that  the  whole  of  said 
principal  sum,  or  so  much  thereof  as  may  remain  unpaid,  shall  be- 
come due  at  the  option  of  the  mortgagee  after  default  in  the  pay- 
ment of  any  instalment  of  principal  or  in  the  payment  of  interest 
for  thirty  days,  after  default  in  the  payment  of  any  tax,  assessment 
or  water  rate  for  sixty  days  after  notice  and  demand,  or  in  case  of 
the  actual  or  threatened  demolition  or  removal  of  any  building 
erected  upon  the  said  premises,  anything  herein  contained  to  the  con- 
trary notwithstanding. 

Fourth— That  the  mortgagor  will  execute  any  further  necessary 
assurance  of  the  title  to  said  premises  and  will  forever  warrant  said 
title. 

Fifth— That  if  default  shall  be  made  in  the  payment  of  the  prin- 
cipal sum  mentioned  in  the  said  bond,  or  of  any  instalment  thereof, 


178         MATEEIALS    OF   COKPOBATION   FINANCE 

or  of  the  interest  which  shall  accrue  thereon,  or  of  any  part  of  either, 
at  the  respective  times  therein  specified  for  the  payment  thereof,  the 
mortgagee  shall  have  the  right  forthwith,  after  any  such  default,  to 
enter  upon  and  take  possession  of  the  said  mortgaged  premises,  and 
to  let  the  said  premises,  and  receive  the  rents,  issues  and  profits 
thereof,  and  to  apply  the  same  after  payment  of  all  necessary  charges 
and  expenses,  on  account  of  the  amount  hereby  secured,  and  said  rents 
and  profits  are  in  the  event  of  any  such  default  hereby  assigned  to 
the  mortgagee. 

Sixth — And  the  mortgagee  shall  also  be  at  liberty,  immediately 
after  any  such  default,  upon  proceedings  being  commenced  for  the 
foreclosure  of  this  mortgage,  to  apply  for  the  appointment  of  a  re- 
ceiver of  the  rents  and  profits  of  the  said  premises  without  notice, 
and  the  mortgagee  shall  be  entitled  to  the  appointment  of  such  a 
receiver  as  a  matter  of  right,  without  consideration  of  the  value  of 
the  mortgaged  premises  as  security  for  the  amount  due  the  mort- 
gagee, or  the  solvency  of  any  person  or  persons  liable  for  the  pay- 
ment of  such  amounts. 

Seventh — And  the  mortgagor  does  further  covenant  and  agree  that, 
in  default  of  the  payment  of  any  taxes,  charges  and  assessments 
which  may  be  imposed  by  law  upon  the  said  mortgaged  premises,  or 
any  part  thereof,  it  shall  and  may  be  lawful  for  the  said  mortgagee, 
without  notice  to  or  demand  from  the  mortgagor,  to  pay  the  amount 
of  any  such  tax,  charge  or  assessment,  and  any  amount  so  paid  the 
mortgagor  covenants  and  agrees  to  repay  to  the  mortgagee,  with  in- 
terest thereon,  without  notice  or  demand,  and  the  same  shall  be  a 
lien  on  the  said  premises,  and  be  secured  by  the  said  bond  and  by 
these  presents  and  the  whole  amount  hereby  secured,  if  not  then  due, 
shall  thereupon,  if  the  mortgagee  so  elect,  become  due  and  payable 
forthwith,  anything  herein  contained  to  the  contrary  notwithstand- 
ing- 

Eighth — It  is  hereby  further  agreed  by  the  parties  hereto  that,  if 
at  any  time  before  said  bond  is  paid,  any  law  be  enacted  changing 
the  law  in  relation  to  taxation  so  as  to  affect  this  mortgage  or  the 
debt  thereby  secured,  or  the  owner  or  holder  thereof,  in  respect 
thereto,  then  said  bond  and  this  mortgage  shall  become  due  and  pay- 
able at  the  expiration  of  thirty  days  after  written  notice  requiring 
the  payment  of  the  mortgage  debt  shall  have  been  given  to  the  owner 
of  the  mortgaged  premises,  anything  herein  contained  to  the  contrary 
notwithstanding. 

Ninth — The  mortgagor,  or  any  subsequent  owner  of  the  premises 
described  herein,  shall,  upon  request,  made  either  personally  or  by 
registered  mail,  certify,  in  writing,  to  the  mortgagee  or  any  proposed 


REAL  ESTATE,  MORTGAGE  179 

assignee  of  this  mortgage,  the  amount  of  principal  and  interest  that 
may  be  due  on  this  mortgage,  and  whether  or  not  there  are  any  offsets 
or  defenses  to  the  same,  and  upon  the  failure  to  furnish  such  certifi- 
cate after  the  expiration  of  six  days  in  case  the  request  is  made  per- 
sonally, or  after  the  expiration  of  thirty  days  after  the  mailing  of 
such  request  in  case  the  request  is  made  by  mail,  this  mortgage  shall 
become  due  at  the  option  of  the  holder  thereof,  anything  herein  con- 
tained to  the  contrary  notwithstanding. 

Tenth — It  is  expressly  understood  and  agreed  that  the  whole  of 
said  principal  sum  and  the  interest  shall  become  due  at  the  option 
of  the  mortgagee,  upon  failure  of  any  owner  of  the  above-described 
premises  to  comply  with  any  requirement  of  any  department  of  the 
City  of  New  York,  within  six  months  after  notice  in  writing  of  such 
requirements  shall  have  been  given  to  the  then  owner  of  said  premises 
by  the  mortgagee,  anything  herein  contained  to  the  contrary  not- 
withstanding. 

Eleventh — Every  provision  for  notice  and  demand  or  request  con- 
tained herein  shall  be  deemed  fulfilled  by  written  notice  and  demand 
or  request  personally  served  on  one  or  more  of  the  persons  who  shall 
at  the  time  hold  the  record  title  to  the  premises,  or  on  their  heirs 
or  successors,  or  by  registered  mail  directed  to  such  person  or  persons 
or  their  heirs  or  successors,  at  his,  their  or  its  address  to  the  mort- 
gagee last  known. 

In  Witness  Whereof,  the  said  mortgagor  hath  signed  and  sealed  this 
instrument  the  day  and  year  first  above  written. 

A.  C.  Brown,  Inc.  (Seal) 
Signed,  sealed  and  delivered  Richard  Roe,  President 

in  the  presence  of: 

William  Jones,  (L.  S.) 
James  Smith,  (L.  S.) 

State  of  New  York  ) 
County  of          J 

On  this  tenth  day  of  'November,  in  the  year  one  thousand  nine 
hundred  and  thirteen,  before  me  personally  came  Richard  Roe  to 
me  known,  who,  being  uy  me  duly  sworn,  did  depose  and  say,  that  he 
resides  in  the  City  of  New  York;  that  he  is  the  president  of  the 
corporation  described  in,  and  which  executed  the  foregoing  instru- 
ment ;  that  he  knows  the  corporate  seal  of  said  corporation ;  that  the 
seal  affixed  to  said  instrument  is  such  corporate  seal;  that  it  was  so 
affixed  by  order  of  the  Board  of  Directors  of  said  corporation,  and 
that  he  signed  his  name  thereto  by  like  order. 

(Notary's  official  signature.) 


180         MATERIALS    OF   CORPORATION   FINANCE 


KNOW  ALL  MEN  BY  THESE  PRESENTS,  That 

A.  C.  BROWN,  Inc. 

hereinafter  designated  as  the  obligor,  is  held  and  firmly  bound  unto 

John  Doe 

hereinafter  designated  as  the  obligee,  in  the  sum  of  Ten  Thousand 
($10,000)  Dollars, 

lawful  money  of  the  United  States  of  America,  to  be  paid  to  said 
obligee,  his  administrators,  executors  or  assigns ;  For  which  Payment, 
well  and  truly  to  be  made,  it  does  bind  itself  firmly  by  these  presents. 
SEALED  with  its  seal  ,  dated  the  tenth  day  of  November,  one 
thousand  nine  hundred  and  thirteen. 

Whereas,  A.  C.  BROWN,  Inc. 

has  executed  and  delivered  to  John  Doe  certain  bond  or  obligation, 
dated  the  tenth  day  of  November,  1913,  conditioned  for  the  payment 
of  the  sum  Ten  thousand  ($10,000)  Dollars,  on  Wednesday  the  tenth 
day  of  November,  one  thousand  nine  hundred  and  fifteen,  with  in- 
terest thereon,  to  be  computed  from  the  tenth  day  of  November,  1913, 
at  and  after  the  rate  of  six  per  centum  per  annum  and  to  be  paid 
semi-annually  on  the  eleventh  day  of  May  and  tenth  day  of  No- 
vember ; 

which  said  bond  is  secured  by  a  certain  mortgage,  made  by  A.  C. 
BROWN,  Inc.,  to  said  obligee  named  in  said  bond,  bearing  even  date 
with  said  bond,  and  covering  certain  premises  fully  described  in  said 
mortgage,  situate  in  the  Borough  of  Manhattan,  in  the  City  of  New 
York, 
(description) 

Whereas,  to  induce  the  said  obligee  to  loan  Ten  thousand  ($10,000) 
Dollars,  the  said  obligor  hath  agreed  to  make,  execute  and  deliver  this 
bond  as  further  and  additional  security  for  the  payment  of  the  said 
above-mentioned  bond  and  mortgage. 

Now  therefore  the  condition  of  this  obligation  is  such,  that  if  the 
parties  bound  to  pay  the  moneys  secured  by  said  bond  and  mortgage, 
or  the  above-bounden  obligor,  A.  C.  BROWN,  Inc.,  shall  well  and 
truly  pay,  or  cause  to  be  paid,  to  the  said  obligee,  his  administrators, 
executors,  or  assigns,  the  just  and  full  sum  of  Ten  thousand  ($10,000) 


BOND   TO   ACCOMPANY   REAL   ESTATE   MORTGAGE    181 

Dollars,  together  with  all  interest  thereon,  as  the  same  shall  become 
due  and  payable  according  to  the  terms  and  conditions  of  the  aforesaid 
bond  and  mortgage;  and  if  the  said  obligor,  A.  C.  BROWN,  Inc., 
shall  at  all  times  hereafter,  hold,  indemnify  and  save  harmless  the  said 
obligee,  John  Doe,  his  administrators,  executors  and  assigns,  from 
and  against  all  loss,  damages,  costs,  expenses,  suits,  actions,  claims 
and  demands  whatsoever,  which  he  or  they  may  or  might  otherwise, 
at  any  time  hereafter,  sustain,  suffer,  be  liable  to  or  oblige  to  pay 
under  or  by  reason  of  and  default  in  any  of  the  terms,  provisions, 
covenants  or  conditions  of  the  aforesaid  bond  and  mortgage,  then 
this  obligation  to  be  void,  otherwise  to  remain  in  full  force  and  virtue. 

A.  C.  BROWN,  Inc. 
Richard  Roe,  President. 
Frank   Herbert,   Secretary. 


Signed,  sealed  and  delivered   f  William  Jones  (L.  S.) 
in  the  presence  of  1   James  Smith  (L.  S.) 


(Corporate  Acknowledgment  of 

President  and  Secretary.) 


182         MATEEIALS   OF   CORPORATION    FINANCE 


CERTIFICATE  BY  PRESIDENT  AND  SECRETARY  AS  TO 
CONSENT  OF  STOCKHOLDERS  TO  MORTGAGE 

A.  C.  BKOWN,  Inc.,  a  corporation  organized  under  the  Laws  of  the 
State  of  New  York,  Eichard  Roe,  President,  and  Frank  Herbert, 
Secretary,  of  said  corporation,  Do  Hereby  Certify  under  the  seal  of 
said  corporation,  that  the  holders  of  not  less  than  two-thirds  in 
amount  of  the  capital  stock  of  said  corporation  have  duly  consented  in 
writing  to  the  execution  and  delivery  by  said  corporation  to  John 
Doe  or  to  any  other  person  or  corporation,  of  a  mortgage  for  Ten 
thousand  ($10,000)  Dollars,  upon  that  portion  of  the  real  estate 
owned  by  said  corporation  which  is  situated  in  the  Borough  of  Man- 
hattan, of  the  City  of  New  York. 

All  that  (description  of  property). 

to  secure  payment  of  a  bond  of  said  corporation  to  be  made  to  the 
lender  of  said  sum,  conditioned  for  the  payment  of  the  said  prin- 
cipal sum  of  Ten  thousand  ($10,000)  Dollars  on  the  tenth  day  of 
November,  Nineteen  hundred  and  fifteen  with  interest  to  be  com- 
puted from  the  tenth  day  of  November,  1913,  at  the  rate  of  six 
per  centum  per  annum  and  to  be  paid  on  the  eleventh  day  of  May, 
next  ensuing  and  semi-annually  thereafter  until  the  whole  of  said 
principal  sum  shall  be  fully  paid  and  that  said  bond  and  mortgage 
be  in  such  forms  and  contain  such  other  terms,  provisions,  condi- 
tions, stipulations  and  agreements  as  shall  be  agreed  upon  by  the 
proper  officer  of  said  corporation  executing  the  same  and  such 
lender. 

In  Witness  Whereof,  said  corporation  has  hereunto  caused  its  cor- 
porate seal  to  be  affixed  and  said  Richard  Roe,  President,  and  Frank 
Herbert,  Secretary,  have  hereunto  subscribed  their  names,  this  eighth 
day  of  November,  Nineteen  hundred  and  thirteen. 

A.  C.  BROWN,  Inc. 
RICHARD  ROE, 

President. 
FRANK  HERBERT, 

Secretary. 
(Corporate  Acknowledgment  of  President  and  Secretary.) 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE        183 


CORPORATE   MORTGAGE 

JONES  &  LAUGHLIN  STEEL  COMPANY 

TO 
FIRST  TRUST  AND  SAVINGS  BANK  AND  EMILE  K.  BOISOT,  TRUSTEES 

TABLE    OF    CONTENTS.11 
RECITALS  :  PAQK 

Incorporation   of   Company    189 

Authorization  of  bonds 189 

Authorization  of  mortgage    189 

Form  of  bonds    190 

Form  of  coupons    191 

Form  of  authentication  of  bonds 192 

GRANTING  CLAUSE   . 192 

Description  of  plants  and  properties  in  Pittsburgh  District 193 

District  of  Aliquippa  plants  and  properties 193 

Description   of   Chicago   properties    193 

After  acquired  property   194 

Appurtenant    property    194 

Pledged   stocks 195 

HABENDUM   t. 196 

Grant  in  Tr'uat 196 

ARTICLE    ONE 

EXECUTION,   AUTHENTICATION,  ISSUE  AND  REOISTBATION  OF  BONDS 

Sec.  1: 

Execution  of  bonds 196 

Total  issue  $30,000,000  consecutively   numbered 196 

Sec.  2: 

$2,069,000  for  exchanging  old  bonds 196 

$12,931,000  to  be  delivered  on  resolutions  of  directors 197 

Sec.  3: 

$15,000,000  to  be  delivered  on  or  after  January  1,  1911,  on  certificates  197 

Contents  of  certificates   197 

Sec.  4: 

Officers  who  may  execute  bonds  and  coupons 200 

Authentication  essential  to  validity  of  bonds 200 

Matured  coupons  to  be  clipped  before  delivery 200 

Authentication   before   recording    200 

Sec.  5: 

Registration  of  bonds   200 

Sec.  6: 

Ownership  of  bonds   201 

•  The  table  of  contents  is  not  in  the  mortgage  as  executed  and  recorded. 


184         MATERIALS    OF   CORPORATION    FINANCE 

Sec.  7:  PAGE 

Replacing  bonds  mutilated,  lost  or  destroyed 201 

Sec.  8: 

Temporary  bonds 202 

ARTICLE   TWO 
PABTICTJLAB  COVENANTS  OF  THE  COMPANY 

Sec.  1: 

Company  to  pay  principal  and  interest  without  deduction  for  taxes. .    202 

Interest  payable  only  on  surrender  of  coupons 203 

Company  will  not  assent  to  extension  of  coupons 203 

Company  will  maintain  financial  agency  in  New  York 203 

Place  of  such  agency  until  further  notice 203 

Sec.  2: 

After  acquired  property  subject  to  the  mortgage 203 

Company  will  maintain  and  extend  the  record  of  the  mortgage 204 

Covenant  for  further  assurances 204 

Pledge  of  Ross  and  Woodlawn  Land  Company  stocks 204 

Sec.  3: 

Old  mortgage  to  be  immediately  cancelled 204 

Sec.  4: 

Mortgage  to  be  kept  a  first  lien  subject  only  to  purchase  money  obli- 
gations         205 

Company  must  pay  taxes  on  mortgaged  property 206 

— and  on  subsidiary  companies 206 

Company  to  maintain  value  of  trust  estate 206 

Sec.  5: 

Covenant  to  insure  mortgaged  premises 207 

— and  property  of  subsidiary  companies 207 

Sec.  6: 

Trustee  may  perform  above  covenants  and  have  lien  for  advances ....   207 

Sec.  7: 

No  subsidiary  company  to  issue  stock  or  obligations  unless  pledged — 

except  in  certain  specified  cases 207 

No  sale  or  lease  to  be  made  by  subsidiary  company  except  as  per- 
mitted by  this  section 208 

Sec.  8: 

Quick  assets  must  exceed  liabilities  as  herein  provided 210 

Net  assets  must  always  be  $25,000,000  in  excess  of  present  capital 

stock    210 

Annual  statement  to  be  furnished  Trustees 210 

Trustees  may  make  examination 210 

Sec.  9: 

On  default,  Company  will  disclose  processes 210 

ARTICLE    THREE 

CONTROL  OF  PLEDGED  SECUBITTES 
Sec.  1: 

Delivery  of  pledged  securities  to  Trustees 211 

Trustees  authorized  to  register  and  transfer  securities 211 


JONES-LAUGHLIN    STEEL   CO.   MORTGAGE        185 

See.  2:  PAGE 

Trustees  authorized  to  maintain  corporate  existence  of  companies 211 

Company  entitled  to  transfer  of  pledged  stock  to  qualify  directors . . .    212 

Sec.  3: 

Until  default  Company  entitled  to  collect  interest  and  dividends  out 

of  earnings 212 

— but  not  interest  and  dividends  paid  otherwise  than  out  of  earnings.  213 
Trustees  to  renew  or  extend  maturing  pledged  obligations 213 

Sec.  4: 

Disposition  of  payments  of  principal  and  payments  not  made  out  of 
earnings    214 

Sec.  5: 

Until  default,  Company  to  vote  pledged  stocks 214 

Trustees  to  have  rights  of  owners  of  pledged  securities 214 

Sec.  6: 

Trustees  entitled  to  enforce  pledged  securities 215 

Trustees  entitled  to  purchase  property  to  protect  pledged  securities. .  215 

Trustees  may  join  in  plan  of  reorganization 216 

Company  to  pay  and  Trustees  to  have  lien  for  expenses  under  this 
section  217 

Sec.  7: 

Merger  or  consolidation  of  subsidiary  companies 217 

Reduction  of  capital  stock  and  dissolution  of  subsidiary  companies . . .   219 

ARTICLE   FOUR 
SINKING  FUND  AND  REDEMPTION  OF  BONDS 

Sec.  1: 

Company  to  deposit  interest  moneys  two  days  before  May   1   and 

Nov.  1  219 

— and  to  make  sinking  fund  payment  on  March  1 219 

Sinking  fund  payment  may  be  in  bonds  instead  of  cash 220 

Disposition  of  interest  moneys 220 

Disposition  of  sinking  fund  moneys  prior  to  1915 220 

Disposition  of  sinking  fund  moneys  after  1914 220 

See.  2: 

Redemption  of  entire  issue  of  bonds  at  105 221 

Satisfaction  hereof  on  deposit  of  funds  for  redemption 222 

Sec.  3: 

Delivery  and  payment  of  bonds  on  redemption 222 

Sec.  4: 

Cancellation  of  bonds  redeemed  or  acquired  for  sinking  fund 223 

ARTICLE    FIVE 

REMEDIES  or  TRUSTEES  AND  BONDHOLDERS 
B»c.  1: 

Events  of  default 223 

Individual  Trustee  may  enter 224 

Application  of  income  224 


186         MATEEIALS    OF    CORPORATION    FINANCE 


— if  principal  not  due  225 

— if  principal  due 225 

Sec.  2:  > 

Detached  coupons  deferred  in  payment ; . .  225 

Sec.  3: 

Upon  default  Trustees  to  control  pledged  securities 225 

Disposition  of  income  and  proceeds 226 

Sec.  4: 

Declaration  of  maturity  of  bonds  on  default 227 

Waiver  of  declaration 227 

Sec.  5: 

On  default  trust  estate  may  be  sold 227 

—or  legal  proceedings  instituted 227 

Sec.  6: 

Trustees'  duty  to  act  on  request  of  bondholders 228 

Majority  of  bondholders  to  control  certain  proceedings 228 

Sec.  7: 

Sale  of  mortgage  premises  to  be  as  an  entirety 228 

Right  to  marshal  waived 228 

Sec.  8: 

Notice  of  sale   229 

Sec.  9: 

Adjournments    229 

Sec.  10: 

Vesting  title  in  purchaser 229 

Corporate  Trustee  attorney  to  execute  conveyances ' 229 

Sale  to  divest  all  interest  of  Company 229 

Personal  property  mortgaged  to  be  deemed  fixtures 229 

Sec.  11: 

Trustees'  receipt  sufficient  discharge  to  purchaser 230 

Sec.  12: 

Principal  to  become  due  on  sale 230 

Sec.  13: 

Application  of  proceeds  of  sale 230 

— first,  to  payment  of  expenses,  etc 230 

— second,  payment  of  principal  and  interest 230 

— third,  surplus  to  Company 231 

Sec.  14: 

Purchaser  permitted  to  apply  bonds  and  matured  coupons 231 

Trustees  and  bondholders  may  bid 231 

Sec.  15: 

Company  will  pay  to  the  Trustees  whole  amount  due  on  bonds  in  case 

of  default  231 

Trustees  may  recover  judgment  although  other  proceedings  pending. .  232 

After  sale  Trustees  entitled  to  collect  deficiency 232 

Recovery  of  judgment  not  to  affect  lien 232 

Application  of  moneys  recovered 232 

Sec.  16: 

Waiver  of  stay,  extension  and  appraisement  laws 233 

— of  right  to  redemption 233 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE        187 

Sec.  17:  PAO* 

On  instituting  proceedings  Trustees  entitled  to  appointment  of  Re- 
ceiver     233 

—but  may  retain  pledged  securities 233 

Sec.  18: 

Bondholders  not  to  sue  until  application  made  to  Trustees 233 

Sec.  19: 

Remedies  cumulative  234 

Sec.  20: 

Delay  not  a  waiver  of  default 234 

Remedies  exercisable  repeatedly   234 

Sec.  21: 

Company  and  Trustees  restored  to  former   position  on  termination 
of  proceedings  234 

ARTICLE   SIX 
Immunity  of  Stockholders,  Directors  and  Officers 235 

ARTICLE   SEVEN 
BONDHOLDERS'  ACTS,  HOLDINGS  AND  APPARENT  AUTHORITY 

Form  and  proof  of  execution  of  instruments  by  bondholders 235 

Proof  of  ownership  of  bonds  and  coupons 236 

ARTICLE   EIGHT 

Sec.  I-  RELEASES  OF  MORTGAGED  PROPERTY 

Unnecessary  property  may  be  released  on  certain  conditions 236 

Disposition  of  proceeds  of  released  property 237 

Evidence  on  which  Trustees  may  act 238 

Sec.  2: 

Company  may  dispose  of  and  replace  tools  and  equipment 238 

Sec.  3: 

Foregoing  powers  exercisable  by  receiver  or  Trustee  in  possession . . .    239 

Sec.  4: 

Releases  may  be  executed  by  corporate  Trustee  alone 239 

Purchaser  not  responsible  for  application  of  purchase  money 239 

ARTICLE   NINE 

POSSESSION  UNTIL  DEFAULT — DEFEASANCE  CLAUSE 
Sec.  1: 

Until  default  Company  entitled  to  possession  and  income 239 

Sec.  2: 

Defeasance  clause  240 

Sec.  3: 

Moneys  not  claimed  in  six  years  to  be  repaid  to  Company 240 

ARTICLE  TEN 
gee   I.  CONCERNING  THE  TRUSTEES 

^  Trustees  may  assume  default  not  to  exist  until  notified 240 
— not  required  to  incur  expense  without  indemnity 241 
— not  required  to  take  notice  of  default  except  on  certain  conditions. .  241 


188 

PAGE 

— not  responsible  for  validity  of  indenture  or  security 241 

— not  responsible  for  recording,  etc 241 

— not  responsible  for  application  of  proceeds  of  bonds 242 

— not  responsible  for  taxes  or  insurance 242 

— entitled  to  compensation — the  same  to  constitute  a  lien 242 

— not  responsible  for  recitals 242 

— protected  by  advice  of   counsel 242 

— may  employ  agents 243 

— responsible  only  for  wilful  misconduct  or  gross  negligence 243 

— may  purchase  the  bonds 243 

— may  act  on  any  instrument  considered  genuine 243 

— may  make  independent  investigation  of  certificates,  etc 243 

Evidence  on  which  Trustees  may  act  in  cases  otherwise  unprovided 

for    243 

Effect  of  merger  or  consolidation  of  corporate  Trustee 244 

Successor  corporate  Trustee  may  authenticate  the  bonds 244 

Delivery  to  corporate  Trustee  delivery  to  both  Trustees 244 

Individual  Trustee  may  constitute  corporate  Trustee  attorney 244 

Moneys  and  securities  to  be  deposited  with  corporate  Trustee 244 

No  successor  to  be  appointed  to  individual  Trustee 244 

Sec.  2: 

Trustees  may  resign 245 

Eemoval  of  Trustees   245 

Appointment  of  new  Trustees 245 

Vesting  mortgaged  premises  in  successor 246 

Appointment  of  additional  or  separate  Trustees 247 

Sec.  3: 

Powers  of  individual  Trustee. .  247 


ARTICLE   ELEVEN 

SUNDRY  PBOVISIONS 
Sec.  1: 

Covenants  to  bind  successors  and  assigns  of  Company 248 

Sec.  2: 

Lease  of  mortgaged  premises  by  Company 248 

Sec.  3: 

Consolidation  or  merger  of  Company  or  sale  of  mortgaged  premises.    248 
Sec.  4: 

Successor  corporation  substituted  for  the  Company 249 

Sec.  5: 

Definition  of  terms 250 

Meaning  of  "order  of  Company" 250 

Sec.  6: 

Service  of  notices  and  demands 250 

Certification  of  directors'  resolutions 250 

Sec.  7: 

Execution  in  counterparts 250 


JONES-LAUGHLIN   STEEL   CO.   MORTGAGE        189 

ARTICLE   TWELVE 

PASTIES  IN  INTEREST  PAGE 

Rights  hereunder  confined  to  parties  and  bondholders : 251 

Attorneys  to  acknowledge  this  indenture 251 

Testimonium    ngl 

Signatures 251 

Acknowledgments  of  the  Company 252 

Acknowledgments  of  the  corporate  Trustee 253 

Acknowledgments  of  the  individual  Trustee 254 

THIS  INDENTURE,  dated  the  first  day  of  May,  one  thousand 
nine  hundred  and  nine,  between  the  JONES  &  LAUGHLIN  STEEL  COM- 
PANY, a  corporation  organized  and  existing  under  the  laws  of  the 
State  of  Pennsylvania  (hereinafter  called  the  "Company"),  party  of 
the  first  part,  FIRST  TRUST  AND  SAVINGS  BANK,  a  corporation  organ- 
ized and  existing  under  the  laws  of  the  State  of  Illinois,  herein  called 
the  "corporate  Trustee,"  and  EMILE  K.  BOISOT,  herein  called  the  "in- 
dividual Trustee,"  parties  of  the  second  part,  Witnesseth: 

WHEREAS,  the  Company  was  duly  incorporated  by  letters  patent 
under  the  Great  Seal  of  the  Commonwealth  of  Pennsylvania  on  the 
second  day  of  June,  1902,  under  the  provisions  of  an  Act  of  the  Gen- 
eral Assembly  of  said  Commonwealth,  approved  the  29th  day  of  April, 
1874,  and  the  supplements  thereto,  and  has  been  duly  organized  and 
has  a  capital  stock  of  $30,000,000  divided  into  300,000  shares  of  the 
par  value  of  $100  each,  all  of  which  said  stock  is  fully  paid  and  non- 
assessable; and 

WHEREAS,  the  Company,  in  order  to  accomplish  and  carry  on  and 
enlarge  the  business  and  purposes  of  the  Company,  has  deemed  it  nec- 
essary to  increase  its  indebtedness  and  for  such  purposes  has  by  proper 
resolutions  of  its  board  of  directors  at  meetings  duly  called  and  held 
for  the  purpose,  with  the  consent  of  the  holders  of  its  entire  capital 
stock  given  at  a  meeting  duly  called  and  held,  determined  to  create  the 
indebtedness  hereinafter  mentiond  and  to  such  extent  to  increase 
its  indebtedness,  and  to  create  and  issue  the  bonds  of  the  Company 
to  the  par  value  of  $30,000,000 ;  and 

WHEREAS,  the  Company  has  duly  approved  the  form  of  this  mort- 
gage and  deed  of  trust  of  the  property  and  franchises  and  of  the 
pledge  of  the  securities,  hereinafter  described,  and  has  duly  authorized 
the  execution  and  delivery  of  the  same  and  the  pledging  and  deliver- 
ing of  said  securities;  and 

WHEREAS,  the  form  of  the  bonds  so  determined  to  be  issued  as  afore- 
said, and  of  the  Trustee's  authentication  to  be  endorsed  thereon,  and 
of  the  coupons  to  be  attached  thereto  severally  and  respectively,  are 
substantially  as  follows,  viz.: 


190         MATEEIALS    OF   COKPOKATION   FINANCE 

[FORM  OF  BOND.] 
No.  $1,000 

UNITED  STATES  OF  AMERICA 

COMMONWEALTH  OF  PENNSYLVANIA 

(AMERICAN  IRON  AND  STEEL  WORKS) 

JONES   &  LAUGHLIN    STEEL   COMPANY 

Pittsburgh,  Pa. 

FIRST  MORTGAGE  THIRTY  YEAR  FIVE  PER  CENT.  GOLD  BOND 

Jones  &  Laughlin  Steel  Company  (hereinafter  called  the  Com- 
pany), for  value  received  hereby  promises  to  pay  to  the  bearer,  or  if 
registered,  to  the  registered  holder  of  this  bond,  the  sum  of  one  thou- 
sand dollars  ($1,000)  in  gold  coin  of  the  United  States  of  America, 
of  or  equal  to  the  present  standard  of  weight  and  fineness,  on  the  first 
day  of  May,  1939,  at  the  agency  of  the  Company  in  the  Borough  of 
Manhattan  in  the  City  of  New  York,  and  to  pay  interest  thereon  at 
the  rate  of  five  per  cent,  a  year  from  May  1,  1909,  payable  semi- 
ammally  at  said  agency,  or  at  the  office  of  First  Trust  and  Savings 
Bank  in  the  City  of  Chicago,  as  the  coupon  holder  may  elect,  in  like 
gold  coin,  on  the  first  day  of  May  and  the  first  day  of  November  in 
each  year,  but  only  upon  presentation  and  surrender  as  they  severally 
mature  of  the  coupons  therefor  hereto  annexed.  Both  the  principal 
and  interest  of  this  bond  are  payable  without  deduction  for  any  tax 
or  taxes,  assessments  or  other  governmental  charges  which  the  Com- 
pany may  be  required  to  pay  thereon  or  to  deduct  or  retain  therefrom 
under  any  present  or  future  law  of  the  United  States,  or  of  any  state, 
county,  municipality  or  other  taxing  authority  therein. 

This  bond  is  one  of  an  issue  of  bonds  of  the  Company,  known  as  its 
First  Mortgage  Thirty  Year  Five  Per  Cent.  Gold  Bonds,  limited  to 
the  principal  amount  of  $30,000,000  at  any  one  time  outstanding,  all 
of  like  tenor,  date,  and  amount,  numbered  from  1  consecutively  up- 
wards, and  all  issued  and  to  be  issued  under  and  equally  secured  by  a 
mortgage  and  deed  of  trust  date  May  1,  1909,  executed  by  the  Com- 
pany to  First  Trust  and  Savings  Bank  and  Emile  K.  Boisot  as  Trus- 
tees. For  a  description  of  the  properties  and  franchises  mortgaged 
and  the  securities  pledged,  the  nature  and  extent  of  the  security,  the 
rights  of  the  holders  of  the  bonds  and  the  terms  and  conditions 
upon  which  the  bonds  are,  and  are  to  be,  issued  and  secured,  refer- 
ence is  made  to  said  mortgage  and  deed  of  trust,  to  all  of  the  pro- 
visions of  which  the  holder  hereof,  by  the  acceptance  of  this  bond, 
assents. 

After  May  1,  1914,  on  interest  payment  dates  as  provided  in  said 
mortgage  and  deed  of  trust,  after  notice  published  at  least  thirty  days 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE        191 

in  advance,  all  of  said  bonds  may  be  called  for  redemption  at  105  per 
cent,  of  their  face  value  and  accrued  interest,  and  any  of  said  bonds 
may  upon  like  notice  be  called  for  the  sinking  fund  at  the  same  price. 
The  principal  of  this  bond  may  be  declared  due  and  payable  in  the 
manner  and  with  the  effect  provided  in  said  mortgage  and  deed  of 
trust,  in  case  default  shall  be  made  and  shall  continue  as  therein  pro- 
vided. 

This  bond  shall  pass  by  delivery,  unless  registered  in  the  name  of 
the  owner  on  the  books  of  the  Company,  such  registry  being  noted 
on  the  bond  by  the  Company,  and  after  such  registration,  duly  noted 
hereon,  no  transfer  shall  be  valid  unless  made  on  said  books  by  the 
registered  owner  in  person  or  by  his  attorney,  duly  authorized,  and 
similarly  noted  by  the  Company  hereon,  but  the  same  may  be  dis- 
charged from  registration  by  being  in  like  manner  transferred  to 
bearer,  and  thereupon  transferability  by  delivery  shall  be  restored. 
The  registration  of  this  bond  shall  not  affect  the  negotiability  of  the 
coupons,  which  shall  continue  to  be  transferable  by  delivery. 

No  recourse  shall  be  had  for  the  payment  of  the  principal  or  the 
interest  of  this  bond  or  for  any  part  thereof  or  for  any  claim  based 
thereon  or  otherwise  in  respect  thereof,  or  of  said  mortgage  and  deed 
of  trust,  against  any  incorporator,  stockholder,  officer  or  director, 
past,  present  or  future,  of  the  Company,  whether  by  virtue  of  any 
statute  or  by  the  enforcement  of  any  assessment  or  penalty  or  other- 
wise, all  such  liability  being,  by  the  acceptance  hereof,  and  as  part  of 
the  consideration  of  the  issue  hereof,  expressly  released. 

This  bond  shall  not  be  valid  or  become  obligatory  for  any  purpose 
unless  authenticated  by  the  certficate  hereon  endorsed  of  the  First 
Trust  and  Savings  Bank,  or  its  successor  in  the  trust. 

IN  WITNESS  WHEREOF,  the  Jones  &  Laughlin  Steel  Company  has 
caused  this  bond  to  be  signed  in  its  corporate  name  by  its  President  or 
one  of  its  Vice-Presidents  and  its  seal  to  be  hereunto  affixed,  duly 
attested  by  its  Secretary  or  Assistant  Secretary  and  the  Coupons  for 
said  interest,  with  the  engraved  signature  of  its  Treasurer  to  be  at- 
tached hereto,  this  first  day  of  May,  1909. 


Attest: 


JONES  &  LAUGHLIN  STEEL  COMPANY, 
By 


[FORM  OF  INTEREST  COUPONS.]  $25.00 

No. 

On  the  first  day  of  ,  19     ,  the  Jones  &  Laughlin 

Steel  Company  will  pay  to  the  bearer  at  the  agency  of  the  Company 


192         MATERIALS   OF   CORPOKATION   FINANCE 

in  the  Borough  of  Manhattan  in  the  City  of  New  York,  or  at  the 
office  of  First  Trust  and  Savings  Bank  in  the  City  of  Chicago,  as  the 
bearer  may  elect,  Twenty-five  Dollars  in  United  States  Gold  Coin, 
being  six  months'  interest  then  to  become  due  on  its  First  Mortgage 
Thirty  Year  Five  Per  Cent.  Gold  Bond  No.  ,  unless 

said  bond  shall  have  been  called  for  previous  redemption. 


Treasurer. 

[FORM  OF  CERTIFICATE  OF  BONDS.] 

This  bond  is  one  of  the  bonds  described  in  the  within  mentioned 
mortgage  and  deed  of  trust. 

FIRST  TRUST  AND  SAVINGS  BANK, 


By 

Trust  Officer. 

AND  WHEREAS  all  acts  and  things  prescribed  by  law  and  by  the 
by-laws  and  charter  of  the  Company  have  been  duly  complied  with, 
and  the  Company  has  executed  this  indenture  and  purposes  to  issue 
the  bonds  so  determined  to  be  executed  and  issued  in  the  exercise  of 
each  and  every  legal  right  and  power  in  it  vested,  and  all  things 
necessary  to  make  said  bonds,  when  authenticated  by  the  corporate 
Trustee,  the  valid,  binding  and  negotiable  obligations  of  the  Com- 
pany, and  to  make  this  indenture  a  valid,  binding  and  legal  first 
mortgage  and  agreement  for  the  security  of  said  bonds,  have  been 
done  and  performed  and  the  issue  of  said  bonds  as  herein  provided 
for  has  been  in  all  respects  duly  authorized; 

Now,  THEREFORE,  THIS  INDENTURE  WITNESSETH: 
That  in  order  to  secure  the  payment  of  the  principal  and  interest 
of  all  of  said  bonds  (which  are  hereinafter  called  the  bonds)  at  any 
time  issued  and  outstanding  under  this  indenture,  according  to 
their  tenor,  purport  and  effect,  as  well  the  interest  as  the  principal 
thereof,  and  to  secure  the  performance  and  observance  of  all  the 
covenants  and  conditions  therein  and  herein  contained  and  to  declare 
the  terms  and  conditions  upon  which  the  bonds  are,  and  are  to  be, 
issued,  received  and  held,  the  Company,  party  of  the  first  part  hereto, 
in  consideration  of  the  premises  and  of  the  purchase  or  acceptance 
of  such  bonds  by  the  holders  thereof,  and  of  the  sum  of  ten  dollars 
($10)  lawful  money  of  the  United  States  of  America  duly  paid  to 
it  by  the  parties  of  the  second  part  (herein  called  the  Trustees) 
upon  the  ensealing  and  delivery  of  this  indenture,  the  receipt  whereof 
is  hereby  acknowledged,  and  for  other  valuable  considerations,  has 


JONES-LAUQHLIN    STEEL   CO.    MORTGAGE        193 

bargained,  granted,  sold,  aliened,  remised,  released,  enfeoffed,  con- 
veyed, pledged,  assigned,  transferred  and  set  over,  and  by  these  pres- 
ents does  bargain,  grant,  sell,  alien,  remise,  release,  enfeoff,  convey, 
pledge,  assign,  transfer  and  set  over,  unto  the  Trustees,  parties  of 
the  second  part,  and  their  successor  or  successors  in  the  trust,  the 
following  described  property,  which  is  hereinafter  referred  to  as  the 
trust  estate,  viz. : 

I. — All  the  following  described  real  estate  owned  by  the  Company 
in  the  County  of  Allegheny,  State  of  Pennsylvania,  to  wit: 

[Here  follows  a  description  of  plants  and  properties  in  Pittsburgh 
District  and  a  description  of  Aliquippa  plants  and  properties.] 

All  the  real  estate  owned  by  the  Company  in  the  City  of  Chicago, 
County  of  Cook,  State  of  Illinois,  including  the  following  more  par- 
ticularly described  property,  to  wit: 

Being  the  North  Twenty-two  (22)  feet  in  width  of  the  South 
Seventy-eight  (78)  feet  of  lots  ten  (10)  to  fourteen  (14),  both  in- 
clusive, and  the  West  eight  (8)  feet  of  lot  nine  (9)  of  Block  eight 
(8)  of  Union  Park  Second  Addition  to  Chicago,  being  house  and  lot 
number  Fifty-nine  (59)  Union  Park  Place;  and 

The  South  Eight  and  one-half  (8£)  inches  of  the  North  Thirty- 
seven  (37)  feet  of  the  West  Eight  (8)  feet  of  lot  nine  (9)  and  the 
North  Thirty-seven  (37)  feet  of  lots  ten  (10),  eleven  (11),  twelve 
(12),  thirteen  (13)  and  fourteen  (14),  in  Block  eight  (8)  in  Union 
Park  Second  Addition  to  Chicago,  in  Cook  County,  Illinois,  hereby 
intending  to  convey  a  strip  of  land  eight  and  one-half  (8£)  inches 
in  width  along  the  South  side  of  the  lot  owned  by  the  Company  and 
adjacent  to  the  piece  of  property  first  above  described. 

Lots  three  (3),  four  (4),  five  (5),  twenty-four  (24),  twenty-five 
(25),  twenty-six  (26),  twenty-seven  (27)  and  twenty-eight  (28)  in 
Daniel  Gardner  and  Louisa  Hall's  Subdivision  of  Block  one  (1),  in 
Carpenter's  Addition  to  Chicago,  in  Chicago,  Cook  County,  Illinois, 
according  to  the  map  of  said  Subdivision  recorded  in  the  Recorder's 
Office  of  Cook  County,  Illinois,  on  May  17th,  1852,  in  Book  49  of 
Maps  at  Page  12,  said  Addition  being  a  subdivision  of  the  Southeast 
quarter  of  Section  eight  (8)  Township  thirty-nine  (39)  North,  Range 
fourteen  (14)  East  of  the  Third  Principal  Meridian. 

Said  property  above  described  is  known  as  the  Beam  Yards  and 
is  situated  between  Green  and  Halsted  Streets  and  near  Kinzie  Street, 
Chicago,  Illinois. 

Also  all  those  certain  lots  numbered  two  (2)  and  three  (3)  in 
Block  number  twenty-two  (22),  in  the  original  Town  of  Chicago, 
bounded  and  described  as  follows: 


194         MATERIALS    OF    CORPORATION    FINANCE 

Beginning  at  a  point  on  the  East  line  of  Canal  Street  80  1/10  feet 
North  of  the  Southwest  corner  of  lot  No.  6,  in  Block  No.  22,  afore- 
mentioned; running  thence  North  along  the  East  line  of  Canal 
Street  aforementioned,  107  9/10  feet  to  a  point  where  the  East  line  of 
Canal  Street  is  intersected  by  the  West  line  of  West  Water  Street; 
thence  Southeasterly  along  the  West  line  of  West  Water  Street  138  8/100 
feet  to  a  point  where  the  West  line  of  West  Water  Street  is  inter- 
sected by  the  North  line  of  lot  No.  6  in  Block  No.  22  aforementioned ; 
thence  West  along  the  North  line  of  lot  No.  6  aforesaid,  83  3/100 
feet  to  the  place  of  beginning.  Meaning  and  intending  hereby  to 
convey  what  are  known  and  described  as  Lots  Nos.  2  and  3,  in  Block 
No.  22  in  the  Original  Town  of  Chicago,  lying  between  Canal  and 
West  Water  Streets. 

Also  all  that  certain  lot  No.  6  in  Block  No.  22,  in  the  Original 
Town  of  Chicago,  bounded  and  described  as  follows: 

Beginning  at  a  point  on  the  Southwest  corner  of  said  lot  No.  6; 
running  thence  North  along  the  East  line  of  Canal  Street  80  1/10 
feet  to  the  Northwest  corner  of  said  Lot  No.  6;  thence  East  along 
the  North  line  of  said  Lot  No.  6,  83  3/100  feet  of  the  West  line  of  West 
Water  Street ;  thence  Southeasterly  along  the  West  line  of  West  Water 
Street  101  76/100  feet  to  the  North  line  of  Sub-lot  No.  1  of  lot  No. 
7  in  Block  No.  22  aforesaid;  thence  West  along  the  South  line  of 
said  lot  No.  6,  144  67/100  feet  to  the  place  of  beginning.  Meaning 
and  intending  hereby  to  convey  all  that  part  of  lot  No.  6  in  Block 
No.  22,  Original  Town  of  Chicago,  lying  between  Canal  and  West 
Water  Streets. 

Sub-lots  one  (1)  to  seven  (7),  both  inclusive,  of  lot  seven  (7)  in 
Block  Twenty-two  (22)  in  the  Original  Town  of  Chicago. 

Upon  the  foregoing  properties  specifically  described  in  Chicago 
are  erected  the  warehouses  of  Jones  &  Laughlin  Steel  Company. 

All  rights  under  and  by  virtue  of  the  Homestead  Exemption  Laws 
of  the  State  of  Illinois  are  hereby  released  and  waived. 

All  the  interest  of  the  Company  in  all  property  which  may  in  any 
manner  be  hereafter  acquired,  either  as  additions  to  or  improvements 
of  any  of  the  properties  hereinbefore  described  in  the  foregoing 
clauses  I,  II  and  III,  or  hereinafter  described  in  the  following  clause 
V,  and  all  property  that  shall  be  acquired,  and  all  additions,  im- 
provements, alterations  and  repairs  that  shall  be  made,  with  the 
bonds  or  their  proceeds. 

Together  with  all  and  singular  the  buildings,  improvements,  rail- 
roads, rolling  stock,  streets,  ways,  alleys,  passages,  waters,  water 
courses,  easements,  rights,  liberties,  privileges,  hereditaments  and 
appurtenances  whatsoever  unto  any  of  the  hereby  granted  and  de- 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE        195 

scribed  premises  and  estates  belonging  and  appertaining  or  to  be- 
long and  appertain,  and  the  reversions  and  remainders,  rents,  issues, 
profits  and  income  thereof,  and  all  the  estate,  right,  title  and  interest, 
possession,  claim  and  demand  of  every  nature  and  kind  whatsoever 
of  the  Company,  as  well  at  law  as  in  equity  of,  in  and  to  the  same 
and  every  part  and  parcel  thereof,  including  also  all  the  engines, 
engine  houses,  furnaces,  mills,  steel  works,  foundries,  machine  shops, 
boilers,  mills,  factories,  works,  shops  and  structures  now  or  hereafter 
to  be  erected  thereon  and  all  machines  and  machinery,  tools  and  other 
implements  used  or  hereafter  to  be  used  in  and  about  the  plants  and 
property  aforesaid. 

The  following  shares  of  fully  paid  and  non-assessable  stock,  which 
are  hereby  pledged  with  and  delivered  to  the  Trustees: 

225  shares  of  the  capital  stock  of  the  Blair  Limestone  Company,  a 
corporation  organized  and  existing  under  the  laws  of  Pennsylvania; 

4,800  shares  of  the  capital  stock  of  the  Eastern  Railroad  Company, 
a  corporation  organized  and  existing  under  the  laws  of  Pennsylvania ; 

10,962  shares  of  the  capital  stock  of  the  Interstate  Iron  Company, 
a  corporation  organized  and  existing  under  the  laws  of  the  State  of 
Minnesota ; 

2,000  shares  of  the  capital  stock  of  the  Jones  and  Laughlin  Ore 
Company,  a  corporation  organized  and  existing  under  the  laws  of  the 
State  of  Michigan; 

40,000  shares  of  the  capital  stock  of  the  Leetonia  Mining  Company, 
a  corporation  organized  and  existing  under  the  laws  of  the  State  of 
Minnesota ; 

7,443  shares  of  the  capital  stock  of  the  Monongahela  Connecting 
Railroad  Company,  a  corporation  organized  and  existing  under  the 
laws  of  Pennsylvania; 

5,000  shares  of  the  Capital  Stock  of  the  Vesta  Coal  Company,  a 
corporation  organized  and  existing  under  the  laws  of  Pennsylvania; 

1,500  shares  of  the  capital  stock  of  the  Aliquippa  and  Southern 
Railroad  Company,  a  corporation  organized  and  existing  under  the 
laws  of  Pennsylvania; 

2,769  shares  of  the  capital  stock  of  the  Interstate  Steamship  Com- 
pany, a  corporation  organized  and  existing  under  the  laws  of  the  State 
of  West  Virginia; 

1,000  shares  of  the  par  value  of  $100  each  in  the  capital  stock  of 
the  Harbor  Land  Company,  a  corporation  organized  and  existing 
under  the  laws  of  the  State  of  Ohio,  being  the  entire  issued  and  out- 
standing capital  stock  of  said  Company. 

All  stocks,  bonds  and  other  property  of  any  kind  from  time 
to  time  hereafter,  by  delivery  or  by  writing  of  any  kind  for  the  pur- 


196 

poses  hereof,  conveyed,  mortgaged,  pledged,  assigned  or  transferred 
by  the  Company  or  by  any  one  in  its  behalf  to  the  Trustees  or  the 
corporate  Trustee,  who  are  hereby  authorized  to  receive  any  property 
at  any  and  all  times  as  and  for  additional  security,  and  also  when 
and  as  hereinafter  provided  as  substituted  security,  hereunder  and  to 
hold  and  apply  any  and  all  such  property  subject  to  the  terms  hereof. 

To  HAVE  AND  TO  HOLD  all  and  every  the  said  premises,  stock, 
rights,  franchises  and  other  property,  real,  personal  or  mixed,  unto 
the  Trustees  and  their  successor  or  successors  in  the  trust,  forever. 

BUT  IN  TEUST,  NEVERTHELESS,  for  the  common  and  equal  use, 
benefit  and  security  of  all  and  singular  the  person  01  persons,  firm 
or  firms,  bodies  politic  or  corporate,  that  shall  from  time  to  time 
be  holders  of  any  of  the  bonds  or  coupons,  and  without  preference 
of  any  of  the  bonds  over  any  of  the  others  by  reason  of  priority  in 
the  time  of  issue  or  negotiation  thereof,  or  otherwise  howsoever; 
subject  to  the  terms,  provisions  and  stipulations  in  the  bonds  and 
coupons  contained,  and  for  the  uses  and  purposes,  and  upon  and 
subject  to  the  terms,  conditions,  provisions  and  agreements,  in  this 
indenture  expressed  and  declared;  and  it  is  hereby  covenanted  that 
all  such  bonds,  with  the  coupons  for  interest  thereon,  shall  and  will 
be  issued,  authenticated  and  delivered,  and  that  the  trust  estate  is  to 
be  held  by  the  Trustees,  subject  to  the  further  covenants,  conditions, 
uses  and  trusts  hereinafter  set  forth ;  and  it  is  hereby  covenanted  and 
agreed  between  the  parties  hereto  as  follows,  to  wit : 

ARTICLE  ONE 
EXECUTION,  AUTHENTICATION,  ISSUE  .AND  REGISTRATION  OP  BONDS 

SECTION  1. — The  bonds  to  be  issued  under  and  secured  by  this 
indenture,  together  with  the  interest  coupons  appertaining  thereto, 
shall  be  substantially  of  the  tenor  and  purport  above  recited. 

From  time  to  time  the  bonds  shall  be  executed  by  the  Company 
and  delivered  to  the  corporate  Trustee  for  authentication  by  it,  and 
thereupon,  as  provided  in  Sections  2  and  3  of  this  Article,  and  not 
otherwise,  the  corporate  Trustee  shall  authenticate  and  deliver  the 
same.  The  aggregate  amount  of  all  the  bonds  which  may  be  issued 
and  outstanding  under  and  be  secured  by  this  indenture  at  any 
one  time  shall  not  in  any  event  exceed  the  sum  of  thirty  million  dol- 
lars ($30,000,000)  fare  amount  of  principal  thereof.  The  bonds 
shall  be  consecutively  numbered  from  one  upwards. 

SECTION  2. — $2,069,000  face  amount  of  bonds,  being  bonds  num- 
bered consecutively  from  1  to  2,069,  inclusive,  shall,  immediately 
upon  the  execution  of  this  indenture  and  without  any  further  action 


JONES-LAUGHLIN   STEEL   CO.   MORTGAGE        197 

on  the  part  of  the  Company  be  authenticated  by  the  corporate  Trus- 
tee and  be  delivered  to  the  President  or  Treasurer  of  the  Company 
to  be  used  for  the  purpose  of  retiring  and  exchanging  the  present  out- 
standing bonds  of  the  Company  to  the  amount  of  $3,069,000,  dated 
November  1,  1902,  in  accordance  with  the  terms  of  an  agreement  with 
all  the  holders  and  owners  of  the  same.  The  Trustees  shall  be  under 
no  obligation  to  see  to  the  application  of  said  bonds. 

$12,931,000  face  amount  of  the  bonds  shall  from  time  to  time  on 
and  after  the  execution  of  this  indenture  be  authenticated  by  the 
corporate  Trustee  and  be  delivered  as  the  corporate  Trustee  shall  be 
directed  by  resolution  of  the  Board  of  Directors  of  the  Company  for 
the  following  uses  and  purposes  and  for  no  other,  to  wit:  (a)  for  the 
purpose  of  acquiring  property,  either  real  or  personal,  for  the  uses 
and  purposes  of  the  corporation;  (b)  for  the  purpose  of  making 
additions,  improvements,  alterations  and  repairs  to  any  part  or  por- 
tion of  the  property  of  the  corporation;  (c)  for  any  legitimate  and 
general  purpose  of  the  corporation  which  in  the  judgment  of  the 
Board  of  Directors  of  the  Company  shall  be  deemed  for  its  best  inter- 
est. A  copy  of  any  resolution  of  the  Board  of  Directors  of  the  Com- 
pany setting  forth  the  number  of  bonds,  required  and  the  purpose  or 
purposes  for  which  said  bonds  are  to  be  issued,  duly  certified  under 
the  corporate  seal  by  the  Secretary  or  any  Assistant  Secretary  of  the 
Company,  shall  be  full  and  sufficient  warrant  to  the  corporate  Trus- 
tee to  authenticate  and  deliver  the  said  bonds  as  it  may  be  directed 
by  said  resolutions,  and  it  shall  not  be  necessary  for  any  such  reso- 
lutions to  set  forth  specifically  or  in  detail  either  the  property  to  be 
purchased  or  the  additions,  improvements,  alterations  or  repairs  for 
which  the  bonds  to  be  so  authenticated  and  delivered  are  to  be  used, 
but  it  shall  be  sufficient  for  any  such  resolutions  to  state  the  uses 
and  purposes  in  the  general  language  of  clauses  (a),  (b)  or  (c) 
above.  The  Trustees  shall  be  under  no  duty  to  see  to  the  application 
of  said  bonds  or  their  proceeds. 

SECTION  3. — The  remaining  $15,000,000  face  amount  of  the  bonds 
shall  from  time  to  time  be  authenticated  and  delivered  by  the  cor- 
porate Trustee  in  like  manner  as  the  $12,931,000  face  amount  of  the 
bonds  above  mentioned  except  that  none  of  said  $15,000,000  face 
amount  of  the  bonds  shall  be  authenticated  and  delivered  prior  to 
January  1,  1911,  and  except  that  in  each  instance  the  corporate  Trus- 
tee shall  receive,  before  authenticating  and.  delivering  said  bonds  or 
any  of  them,  a  certificate  or  certificates  of  the  President  or  any 
Vice-President  and  of  the  Secretary  or  Treasurer  or  Auditor  of  the 
Company,  stating  as  follows : 

(a)    That  since  May  1,  1909,  property   (other  than  stocks  and 


198 

bonds)  has  been  acquired  by  the  Company  or  by  some  company  ninety- 
five  per  cent,  of  the  capital  stock  whereof  shall  at  the  time  be  pledged 
under  this  indenture  (such  a  company  being  hereinafter  referred  to 
as  a  subsidiary  company),  or  that  betterments  and  improvements 
have  been  made  upon  the  property  of  the  Company  or  of  some  sub- 
sidiary company,  or  that  such  property  has  been  so  acquired  and 
such  betterments  and  improvements  have  been  so  made,  costing  not 
less,  and  of  a  present  value  not  less,  than  the  total  par  value  of  the 
amount  of  bonds  previously  authenticated  and  delivered  by  the  cor- 
porate Trustee  under  the  provisions  of  this  section,  if  any,  and  of  the 
amount  of  bonds  called  for  by  the  resolution  of  the  Board  of  Direc- 
tors accompanying  said  certificate — designating  in  detail  (except  in 
the  case  of  betterments  and  improvements  or  acquisitions  specifically 
designated  in  previous  certificates,  with  respect  to  which  a  refer- 
ence to  such  previous  certificates  shall  be  sufficient)  the  particular 
property  acquired  or  betterments  and  improvements  made  and  the 
cost  thereof  and  whether  acquired  for  the  Company  or  for  a  sub- 
sidiary company  or  companies,  and  if  for  the  latter  what  company 
or  companies  and  the  location  of  all  such  property  so  acquired;  the 
purpose  being  that  out  of  the  second  $15,000,000  of  bonds  the  Com- 
pany shall  have  the  right  from  time  to  time,  and  at  any  time,  after 
January  1,  1911,  to  receive  from  the  corporate  Trustee  and  the 
corporate  Trustee  shall  deliver  to  the  Company  bonds  for  any  legiti- 
mate purpose  of  the  corporation  to  an  amount  face  value  that  shall 
equal  but  not  exceed  the  cost  and  value  of  property  acquired  by  the 
Company  or  a  subsidiary  company  or  companies  since  May  1,  1909, 
and  the  cost  and  value  of  betterments  and  improvements  made  upon 
the  property  of  the  Company  or  a  subsidiary  company  since  May  1, 
1909,  whether  the  cost  of  such  property  acquired  or  betterments  and 
improvements  made  has  been  paid  out  of  the  proceeds  of  the  bonds 
or  out  of  the  surplus  earnings  of  the  Company  or  of  any  subsidiary 
company  or  companies. 

(b)  That  all  of  said  property  stated  to  have  been  acquired  by  the 
Company  and  all  betterments  and  improvements  stated  to  have  been 
made  upon  the  property  of  the  Company  have  become  subject  to  this 
indenture  as  a  first  lien  thereon  and  that  the  opinion  of  counsel  of 
the  Company  is  simultaneously  delivered  to  the  corporate  Trustee 
stating  either  that  said  property  and  said  betterments  and  improve- 
ments have  been  directly  subjected  to  the  lien  of  this  indenture  by 
an  instrument  or  instruments  therein  referred  to  (which  instrument 
or  instruments  shall  be  delivered  to  the  corporate  Trustee  there- 
with) or  that  no  instrument  or  instruments  is  necessary  for  such 
purpose. 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE        199 

(c)  That  for  all  amounts  stated  to  have  been  expended  for  better- 
ments or  improvements  upon  the  property  of  any  subsidiary  company 
or  companies,  notes  therefor  of  the  company  for  whose  benefit  such 
betterments  or  improvements  shall  have  been  made  have  been  assigned 
and  delivered  to  the  Trustees  or  are  tendered  and  assigned  and  de- 
livered to  the  Trustees  simultaneously  with  the  certificate,  to  be  held 
by  the  corporate  Trustee  under  this  indenture  as  part  of  the  trust 
estate,  and  that  for  all  amounts  stated  to  have  been  expended  for  the 
acquisition  of  property  for  any  subsidiary  company  or  companies,  a 
purchase  money  bond  and  mortgage  or  purchase  money  bonds  and 
mortgages,  or  bonds  secured  by  a  first  mortgage  or  deed  of  trust,  upon 
the  property  so  acquired  (or  in  case  the  property  so  acquired  shall  be 
acquired  subject  to  any  mortgage,  lien  or  other  charge,  or  in  case  the 
subsidiary  company  shall  pay  only  a  part  of  the  purchase  money  for 
the  property  so  acquired  and  shall  give  a  mortgage  for  the  unpaid 
part  of  the  purchase  price,  then  in  any  such  event,  a  bond  and  mort- 
gage or  bonds  secured  by  a  mortgage  or  deed  of  trust,  subject  onlj 
to  such  prior  mortgages,  liens  or  other  charges),  of  a  face  amount 
equal  at  least  to  the  amount  stated  to  have  been  so  expended,  have 
been  taken  and  have  been  assigned  and  delivered  to  the  Trustees  or 
are  tendered,  assigned  and  delivered  to  the  Trustees  simultaneously 
with  such  certificate,  to  be  held  by  the  corporate  Trustee  under  this 
indenture  as  part  of  the  trust  estate. 

(d)  That  the  prices  paid  for  such  betterments  and  improvements 
and  for  such  property  acquired  were  not  in  excess  of  the  fair  value 
of  the  work  done  or  property  acquired. 

(e)  That  for  all  bonds  reserved  under  the  provisions  of  this  Sec- 
tion 3  or  the  proceeds  thereof  in  any  way  applied  to  or  for  the  uses 
or  purposes  or  benefit  of  any  subsidiary  company,  notes  or  other 
obligations  of  such  subsidiary  company  to  at  least  the  face  value 
thereof  have  been  taken  by  the  Company  and  have  been  assigned  and 
delivered  to  the  Trustees,  or  are  tendered,  assigned,  or  delivered  to 
the  Trustees  simultaneously  with  said  certificate,  to  be  held  by  the  cor- 
porate Trustee  under  this  indenture  as  part  of  the  trust  estate. 

Upon  receiving  said  certificate  or  certificates  and  the  certified  reso- 
lution of  the  Board  of  Directors  of  the  Company  and  the  opinion  of 
counsel  above  provided  for  and  the  instrument  or  instruments,  if  any, 
referred  to  in  such  opinion,  and  all  the  notes  or  other  obligations 
stated  in  said  certificate  to  have  been  taken  to  represent  the  amounts 
expended  for  betterments  or  improvements  upon,  or  the  acquisition  of 
property  for,  the  subsidiary  company  or  companies  therein  referred 
to,  and  all  the  notes  or  other  obligations  referred  to  in  clause  (e)  of 
the  certificate,  the  corporate  Trustee  shall  authenticate  and  deliver 


200         MATERIALS   OF   COEPOEATION   FINANCE 

the  said  bonds  as  above  provided,  but  only  to  such  extent  that  the 
amount  of  said  bonds  so  authenticated  and  delivered  when  added  to 
the  amount  of  the  bonds  previously  authenticated  and  delivered  by 
the  corporate  Trustee  under  the  provisions  of  this  section  will  not 
exceed  the  cost  and  present  value  of  the  betterments  and  improve- 
ments made  and  property  acquired  since  May  1,  1909,  as  stated  in 
the  certificate  or  certificates  delivered  to  the  corporate  Trustee  under 
this  section.  The  corporate  Trustee  shall  be  absolutely  protected  in 
delivering  the  bonds  in  accordance  with  the  foregoing  provisions  and 
the  Trustees  shall  be  under  no  duty  to  see  to  the  application  of  said 
bonds  or  the  proceeds  thereof. 

SECTION  4. — In  case  the  officers  who  shall  have  signed  and  sealed 
any  of  the  bonds  shall  cease  to  be  such  officers  of  the  Company  before 
the  bonds  so  signed  and  sealed  shall  have  been  actually  authenticated 
and  delivered  by  the  corporate  Trustee,  such  bonds  may  nevertheless 
be  adopted  by  the  Company  and  be  issued,  authenticated  and  deliv- 
ered as  though  the  persons  who  signed  or  sealed  such  bonds  had  not 
ceased  to  be  officers  of  the  Company.  The  coupons  to  be  attached  to 
the  bonds  shall  be  authenticated  by  the  engraved  signature  of  the 
present  Treasurer  or  any  future  Treasurer  of  the  Company,  and  the 
Company  may  adopt  and  use  for  that  purpose  the  engraved  signature 
of  any  person  who  shall  have  been  such  Treasurer,  notwithstanding 
the  fact  that  he  may  have  ceased  to  be  such  Treasurer  at  the  time 
when  such  bonds  shall  be  actually  authenticated  and  delivered.  Only 
such  of  the  bonds  as  shall  bear  thereon  endorsed  an  authentication 
substantially  in  the  form  hereinbefore  recited,  executed  by  the  cor- 
porate Trustee,  shall  be  secured  by  this  indenture  or  entitled  to  any 
lien,  right  or  benefit  hereunder;  and  such  authentication  by  the  cor- 
porate Trustee  upon  any  such  bond  shall  be  conclusive  evidence,  and 
the  only  evidence,  that  the  bond  so  authenticated  has  been  duly  issued 
hereunder,  and  that  the  holder  is  entitled  to  the  benefit  of  the  trust 
hereby  created.  Before  authenticating  or  delivering  any  bond  all 
coupons  then  matured  shall  be  cut  off  and  cancelled,  and  on  its  written 
demand  delivered  to  the  Company.  On  request  of  the  Company,  but 
within  the  limitations  herein  prescribed,  the  bonds  may  be  authenti- 
cated and  delivered  hereunder  in  advance  of  the  registration,  filing 
or  recording  of  this  indenture. 

SECTION  5. — The  Company  will  keep  at  an  office  or  agency  to  be 
maintained  by  it  in  the  Borough  of  Manhattan  in  the  City  of  New 
York,  or  at  some  bank  or  trust  company  in  said  borough,  a  sufficient 
register  or  registers  of  the  bonds,  which  shall  at  all  reasonable  times 
be  open  for  inspection  by  the  Trustees,  and  upon  presentation  for 
such  purpose  the  Company  will,  under  such  reasonable  regulations 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE        201 

as  it  may  prescribe,  register  therein  any  of  the  bonds.  The  holder  of 
any  bond  may  Eave  the  ownership  thereof  registered  on  said  books, 
such  registry  being  noted  on  the  bond  by  the  bond  registrar  of  the 
Company,  after  which  registration  and  notation  thereof  on  the  bond 
no  transfer  shall  be  valid  unless  made  on  said  books  by  the  registered 
holder  in  person  or  by  his  attorney  duly  authorized,  such  registration 
being  duly  noted  on  the  bond  by  the  bond  registrar  of  the  Company; 
but  the  same  may  be  discharged  from  registry  by  being  in  like  man- 
ner transferred  to  bearer,  after  which  it  shall  be  transferable  by  de- 
livery. Such  registration  shall  not  affect  the  negotiability  of  the 
coupons  belonging  to  any  bond,  but  every  such  coupon  shall  continue 
to  pass  by  delivery  and  shall  remain  payable  to  bearer  as  therein  pro- 
vided. For  any  transfer  of  bonds  upon  its  register,  the  Company 
may  require  the  payment  of  a  sum  sufficient  to  reimburse  it  for  any 
stamp  tax  or  other  governmental  charge  connected  therewith. 

SECTION  6. — As  to  all  bonds  registered  as  to  principal,  the  person 
in  whose  name  the  same  shall  be  registered  shall  for  all  purposes  of 
this  indenture  be  deemed  and  regarded  as  the  owner  thereof,  and  pay- 
ment of  or  on  account  of  the  principal  of  such  bond,  shall  be  made 
only  to  or  upon  the  order  of  such  registered  holder  thereof,  but  such 
registration  may  be  changed  as  above  provided.  All  such  payments 
shall  be  valid  and  effectual  to  satisfy  and  discharge  the  liability  upon 
such  bonds  to  the  extent  of  the  sum  or  sums  so  paid.  The  Company 
and  the  Trustees  may  deem  and  treat  the  bearer  of  any  bond  which 
shall  not  at  the  time  be  registered  as  to  principal,  and  the  bearer  of 
any  coupon  for  interest  on  any  bond,  whether  such  bond  shall  be  reg- 
istered or  not,  as  the  absolute  owner  of  such  bond  or  coupon,  for  the 
purpose  of  receiving  payment  thereof,  and  for  all  other  purposes 
whatsoever,  whether  such  bond  or  coupon  be  overdue  or  not,  and  the 
Company  and  the  Trustees  shall  not  be  affected  by  any  notice  to  the 
contrary. 

SECTION  7. — In  case  any  bond,  with  the  coupons  thereto  apper- 
taining, shall  be  mutilated  or  destroyed  or  lost,  the  Company,  in  its 
discretion,  may  execute,  and  thereupon  the  corporate  Trustee  shall 
authenticate  and  deliver,  a  new  bond  of  like  tenor  and  date,  bearing 
the  same  serial  number,  in  exchange  and  substitution  for,  and  upon 
cancellation  of,  the  mutilated  bond  and  its  coupons,  or  in  lieu  of,  and 
in  substitution  for,  the  bond  and  its  coupons  so  destroyed  or  lost. 
The  applicant  for  such  substituted  bond  must  furnish  the  Company 
and  the  corporate  Trustee  evidence  satisfactory  to  the  Company  and 
to  the  corporate  Trustee,  respectively,  in  their  discretion,  of  the  de- 
struction or  loss  of  such  bond  and  its  coupons,  so  destroyed  or  lost, 


SANTA  BARBARA  STATZ  COLLEGE  LIBRAR 


202         MATERIALS    OF   CORPORATION    FINANCE 

and  said  applicant  must  also  furnish  indemnity  satisfactory  to  both 
of  them  in  their  discretion. 

SECTION  8. — Until  the  bonds  can  be  engraved  and  are  ready  for 
delivery,  the  Company  may  execute  and  the  corporate  Trustee  shall 
authenticate  and  deliver,  as  provided  in  Sections  1,  2  and  3  of  this 
Article,  in  lieu  of  a  like  principal  amount  of  definitive  bonds,  tempo- 
rary printed  bonds,  either  registered  or  negotiable  by  delivery,  and 
substantially  of  the  tenor  of  the  bonds  hereinbefore  recited,  except 
that  no  coupons  shall  be  attached  to  any  of  said  temporary  bonds, 
and  that  such  temporary  bonds  may  be  for  the  payment  of  $1,000,  or 
any  multiple  thereof,  as  the  President  or  Board  of  Directors  of  the 
Company  shall  determine.  Each  of  said  temporary  bonds  shall  bear 
upon  its  face  the  words:  "Temporary  First  Mortgage  Thirty  Year 
Five  Per  Cent.  Gold  Bond,  Exchangeable  for  Engraved  Bond(s)," 
and  said  temporary  bonds  shall  be  exchangeable  for  a  like  principal 
amount  or  amounts  of  the  engraved  bonds,  when  the  said  engraved 
bonds  are  ready  for  delivery.  Upon  every  exchange  of  temporary 
bonds  for  engraved  bonds,  the  temporary  bonds  surrendered  for  ex- 
change shall  be  forthwith  cancelled  by  the  corporate  Trustee,  and 
immediately  delivered  to  the  Company.  The  authentication  by  the 
corporate  Trustee  on  the  said  temporary  bonds  shall  be  conclusive 
evidence  and  the  only  evidence  that  the  temporary  bond  so  authenti- 
cated has  been  duly  issued  hereunder  and  that  the  holder  is  entitled 
to  the  benefit  of  the  trust  hereby  created.  Until  exchanged  for  en- 
graved bonds,  as  provided  herein,  said  temporary  bonds  so  authenti- 
cated shall  in  all  respects  be  entitled  to  the  security  of  this  indenture 
as  bonds  issued  and  authenticated  hereunder,  and  interest  when  and 
as  payable  shall  be  paid,  but  only  upon  the  endorsement  of  such 
payment  upon  the  temporary  bond.  The  Company  agrees  to  have  the 
engraved  bonds  prepared  and  executed  with  all  convenient  speed. 

ARTICLE  Two 

PARTICULAR   COVENANTS   OF   THE   COMPANY 

SECTION  1. — The  Company  covenants  and  agrees  that  it  will  duly 
and  punctually  pay  or  cause  to  be  paid  the  principal  and  interest  of 
every  bond  issued  under  this  indenture  at  the  times  and  places  and 
in  the  manner  mentioned  in  such  bonds  or  in  the  coupons  thereto 
belonging,  according  to  the  true  intent  and  meaning  thereof,  without 
deduction  from  either  principal  or  interest  for  any  tax  or  taxes,  assess- 
ments or  other  governmental  charges  which  the  Company  may  be 
required  to  pay  thereon  or  to  deduct  or  retain  therefrom  under  any 
present  or  future  law  of  the  United  States,  or  of  any  state,  county, 
municipality  or  other  taxing  authority  therein,  the  Company  hereby 


JONES-LAUGHLIN  STEEL  CO.  MORTGAGE   203 

agreeing  to  pay  the  same.  The  interest  on  the  bonds  shall  be  payable 
only  upon  presentation  and  surrender  of  the  several  coupons  for  such 
interest  as  they  respectively  mature,  and  when  paid  such  coupons  shall 
forthwith  be  cancelled  and  delivered  to  the  Company. 

In  order  to  prevent  any  accumulation  of  coupons  and  claims  for 
interest  after  maturity,  the  Company  covenants  that  it  will  not, 
directly  or  indirectly,  extend,  or  assent  to  the  extension  of,  the  time 
for  the  payment  of  any  coupon  or  claim  for  interest  on  any  of  the 
bonds,  and  the  Company  will  not,  directly  or  indirectly,  be  a  party 
to,  or  approve  of,  any  such  arrangement  by  purchasing  said  coupons 
or  claims  for  interest,  or  in  any  other  manner. 

At  all  times  until  the  satisfaction  and  discharge  of  this  indenture 
the  Company  will  designate  a  bank  or  bankers  or  trust  company  in 
the  Borough  ol  Manhattan  in  the  City  of  New  York  as  its  financial 
agency  for  the  payment  of  the  bonds  and  the  interest  coupons  and  as 
a  place  where  said  bonds  and  coupons  may  be  presented  for  payment 
and  where  notices  or  demands  in  respect  thereof  may  be  served  and 
from  time  to  time  the  Company  will  give  due  notice  in  writing  to  the 
corporate  Trustee  of  the  place  of  such  agency.  The  Company  hereby 
designates  Messrs.  Blair  and  Co.,  2-1  Broad  Street,  New  York,  as  the 
financial  agency  of  the  Company  for  said  purpose  in  the  City  of  New 
York  and  such  agency  shall  continue  the  same  until  the  Company 
shall  designate  a  new  agency  and  give  notice  thereof  to  the  corporate 
Trustee  as  above  provided.  In  case,  however,  at  any  time  there  shall 
be  no  such  agency  of  the  Company  in  the  City  of  New  York  the  cor- 
porate Trustee  is  hereby  authorized  to  constitute  any  bank  or  bankers 
or  trust  company  in  the  Borough  of  Manhattan  in  the  City  of  New 
York  that  it  may  choose  the  agency  of  the  Company  for  such  purpose 
until  such  time  as  an  appointment  shall  be  made  by  the  Company 
and  written  notice  thereof  duly  furnished  to  the  corporate  Trustee 
as  above  provided. 

SECTION  2. — All  plants,  lands,  machinery,  mines,  franchises,  notes, 
or  other  obligations,  stocks  and  other  property  of  every  kind,  real, 
personal,  or  mixed,  hereby  conveyed  or  pledged,  or  covenanted  to  be 
conveyed  or  pledged,  to  the  Trustees  under  this  indenture,  whether 
now  owned  or  hereafter  acquired  by  the  Company,  shall,  immediately, 
or  immediately  upon  the  acquisition  thereof  by  the  Company,  and 
without  any  further  conveyance  or  assignment,  become  and  be  subject 
to  the  lien  of  this  indenture  as  fully  and  completely  as  though  now 
owned  by  the  Company  and  specifically  described  in  the  granting 
clauses  hereof,  but  at  any  and  all  times  the  Company  will  execute  and 
deliver  any  and  all  such  further  assurances  or  conveyances  or  assign- 
ments thereof  as  the  Trustees  or  either  of  them  may  reasonably  direct 
R 


204         MATERIALS    OF   CORPORATION   FINANCE 

or  require,  for  the  purpose  of  expressly  and  specifically  subjecting  the 
same  to  the  lien  of  this  indenture.  The  Company  agrees  that  it  will 
forthwith  cause  this  indenture  to  be  duly  recorded,  and,  as  new  prop- 
erty shall  from  time  to  time  be  acquired  in  places  other  than  those 
places  in  which  record  shall  originally  be  made,  will  cause  this  inden- 
ture to  be  there  recorded,  and  will  at  all  times  cause  this  indenture 
to  be  kept  recorded  and  filed  as  a  mortgage  both  of  real  and  of  per- 
sonal property  in  such  manner  and  in  such  places,  and  do  or  cause  to 
be  done  all  such  things,  as  may  be  required  by  law  in  order  to  fully 
preserve  and  protect  the  security  of  the  bondholders  and  all  rights  of 
the  Trustees.  And  also  the  Company  will  do,  execute,  acknowledge 
and  deliver,  or  cause  to  be  done,  executed,  acknowledged  and  deliv- 
ered, all  and  every  such  further  assurances  in  the  law  for  the  better 
assuring,  conveying,  assigning  and  confirming  unto  the  Trustees  or 
either  of  them  all  and  singular  the  hereditaments  and  premises,  estates 
and  property  hereby  conveyed  or  assigned,  or  intended  so  to  be,  or 
which  the  Company  may  be,  or  hereafter  become,  bound  to  convey 
or  assign  to  the  Trustees  or  either  of  them,  as  the  Trustees  or  either  of 
them  shall  reasonably  require. 

The  Company  covenants  and  agrees  that  provided  it  obtains  the 
consent  of  the  holders  of  the  entire  capital  stock  of  the  Company  it 
will  assign  to  the  Trustees  as  additional  security  to  be  held  under 
the  trusts  of  this  indenture  the  following:  The  entire  capital  stock 
of  the  Ross  Land  Company,  a  corporation  of  the  State  of  Pennsyl- 
vania, being  6,000  shares,  of  the  par  value  of  $50  each,  and  the  entire 
capital  stock  of  the  Woodlawn  Land  Company,  a  corporation  of  the 
State  of  Pennsylvania,  the  issued  and  outstanding  capital  stock  of 
said  company  being  15,000  shares  of  the  par  value  of  $50  each. 
Nothing  contained  in  this  indenture  shall  be  construed  to  prevent  the 
Ross  Land  Company,  in  case  any  shares  of  its  capital  stock  shall  be 
pledged  under  this  indenture,  from  leasing  offices  in  the  office  build- 
ing owned  by  it,  or  from  renewing  or  extending  the  bonds  of  said 
company  now  outstanding  or  the  issuing  of  new  bonds  to  a  like  amount 
for  the  purpose  of  refunding  or  paying  the  same  or  from  carrying  on 
its  general  business.  Nothing  in  this  indenture  contained  shall  pre- 
vent the  Woodlawn  Land  Company,  in  case  any  shares  of  capital 
stock  thereof  shall  be  pledged  hereunder,  from  selling,  exchanging 
or  leasing,  from  time  to  time,  free  from  the  lien  of  this  indenture, 
without  the  consent  of  either  the  corporate  or  the  individual  Trustee, 
its  real  estate  or  any  part  or  parts  thereof,  and  using  the  proceeds 
thereof  for  proper  corporate  purposes. 

SECTION  3. — The  Company  covenants  and  agrees  that  coupon  bonds 
Nos.  1  to  2,069,  inclusive,  shall  be  promptly  used  for  the  purpose  of 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE        205 

retiring  and  exchanging  the  present  outstanding  bonds  of  the  Com- 
pany to  the  amount  of  $2,069,000,  dated  November  1,  1902,  in  accord- 
ance with  the  terms  of  an  agreement  with  all  the  holders  and 
owners  of  the  same.  The  Company  covenants  and  agrees  that  it 
will  take  all  necessary  steps  and  perform  or  cause  to  be  performed  all 
necessary  acts  in  order  to  cause  said  outstanding  bonds  of  the  Com- 
pany dated  November  1,  1902,  to  be  forthwith  paid  off  and  cancelled 
and  the  mortgage  securing  the  same  to  be  released  and  discharged  of 
record  and  the  Company  hereby  covenants  and  agrees  that  said  bonds 
and  mortgage  will  forthwith  be  cancelled,  released  and  discharged  of 
record.  The  Company  covenants  that  the  remainder  of  the  bonds  and 
their  proceeds  will  be  used  only  (a)  for  the  purpose  of  acquiring 
property,  either  real  or  personal,  for  the  uses  and  purposes  of  the 
corporation;  (b)  for  the  purpose  of  making  additions,  improvements, 
alterations  and  repairs  to  any  part  or  portion  of  the  property  of  the 
corporation;  (c)  for  any  legitimate  and  general  purpose  of  the  cor- 
poration which  in  the  judgment  of  the  Board  of  Directors  of  the 
Company  shall  be  deemed  for  its  best  interest. 

The  Company  covenants  and  agrees  that  for  any  of  the  $15,000,000 
face  amount  of  bonds  reserved  under  the  provisions  of  Section  3  of 
Article  One  of  this  indenture  or  the  proceeds  thereof  in  any  way 
applied  for  the  uses,  purposes  or  benefit  of  any  subsidiary  company, 
notes  or  bonds  of  such  subsidiary  company  to  at  least  the  face  value 
thereof  will  be  taken  by  the  Company  and  pledged  with  the  Trustees 
hereunder,  to  be  held  by  the  corporate  Trustee  as  part  of  the  trust 
estate. 

SECTION  4. — The  Company  covenants  that  this  indenture  is  and 
will  always  be  kept  a  first  lien  upon  the  premises  and  property  de- 
scribed or  mentioned  in  the  granting  clauses  hereof,  and  upon  renew- 
als and  replacements  thereof,  and  will  be  kept  a  first  lien  on  all 
after-acquired  property,  covered  by  the  granting  clauses  hereof,  sub- 
ject only  to  liens  or  deferred  installments  of  the  purchase  price  to 
which  the  said  after-acquired  property  may  be  subject  as  and  when 
acquired  or  purchase  money  mortgages  thereon  which  the  Company 
may  give  therefor.  The  Company  will  not  voluntarily  create  or  suffer 
to  be  created  any  lien  or  charge  which  will  be  prior  to  the  lien  of  this 
indenture  upon  the  trust  estate  or  any  part  thereof  or  upon  the  income 
thereof;  and  within  three  months  after  the  same  shall  accrue  it  will 
pay  or  cause  to  be  discharged,  or  will  make  adequate  provision  to 
satisfy  and  discharge,  all  lawful  claims  and  demands  of  mechanics, 
laborers  and  others,  which  if  unpaid  may  by  law  be  given  precedence 
over  this  indenture  as  a  lien  or  charge  upon  the  trust  estate  or  any 
part  thereof,  or  the  income  thereof,  provided  that  nothing  in  this 


206         MATERIALS   OF   CORPORATION    FINANCE 

section  shall  require  the  Company  to  pay  such  debt,  claim,  lien  or 
charge,  so  long  as  it  shall  in  good  faith  contest  the  validity  thereof. 

The  Company  covenants  and  agrees  that  it  will  pay,  when  the  same 
shall  become  due,  all  taxes  and  assessments  levied  or  assessed  upon  it 
or  upon  the  property  now  or  hereafter  covered  hereby,  or  upon  any 
part  thereof,  or  upon  any  income  therefrom  or  upon  the  lien  or  in- 
terest of  the  Trustee  or  of  either  of  them  in  respect  of  such  trust 
estate  or  income,  and  will  duly  preserve  and  conform  to  all  valid 
requirements  of  any  governmental  authority  relative  to  any  of  the 
property  or  rights  at  any  time  covered  hereby,  and  all  covenants, 
terms  and  conditions  upon  or  under  which  any  such  property  or  rights 
are  held,  so  that  the  interest  and  right  of  the  Trustees  or  either  of 
them  hereunder  and  of  the  bondholders  may  be  kept  in  all  respects 
unimpaired  and  the  security  hereof  maintained. 

If  any  corporation,  seventy-five  per  cent,  of  the  outstanding  shares 
of  stock  whereof  shall  at  the  time  be  subject  to  this  indenture,  shall 
fail  to  pay  any  taxes,  assessments  and  charges  lawfully  imposed  upon 
such  corporation  or  its  property  or  upon  the  income  and  profits 
thereof,  when  the  same  shall  become  due  and  payable,  then  the  Com- 
pany will  itself  pay  and  discharge  the  same  unless  the  corporate 
Trustee  shall  state  in  writing  that  in  its  opinion  it  is  not  for  the  in- 
terest of  the  bondholders  that  such  payment  shall  be  made. 

Nothing  in  this  section  shall  require  the  Company  to  pay  any  tax, 
assessment  or  charge  so  long  as  it  or  the  Company  affected  thereby 
shall  in  good  faith  contest  the  validity  thereof. 

The  Company  further  covenants  and  agrees  that  it  will  keep  or 
cause  to  be  kept  the  mortgaged  premises  and  the  property  of  every 
corporation  a  majority  in  amount  of  the  outstanding  shares  of  stock 
whereof  is  or  shall  be  subject  to  this  indenture  in  good  repair,  work- 
ing order  and  condition,  and  equipped  with  suitable  machinery  and 
appliances  and  will  renew  and  replace  the  same  or  cause  the  same  to 
be  renewed  and  replaced  as  may  be  necessary  to  such  an  extent  that 
the  general  efficiency  of  said  properties  as  a  whole  shall  not  be  im- 
paired and  shall  at  all  times  be  at  least  equal  to  their  present  stand- 
ard; but  this  provision  shall  not  prevent  the  Company  or  any  corpo- 
ration the  stock  whereof  is  or  shall  be  subject  hereto  from  cutting 
timber,  opening,  mining  and  digging  mines,  and  beds  or  veins  of 
minerals,  nor  shall  it  prevent  the  removal,  sale  or  use  of  minerals, 
ore,  coal  or  other  deposits  taken  therefrom,  or  the  sale  or  use  of  such 
timber,  in  the  ordinary  conduct  of  business,  nor  require  the  operation 
or  working  of  any  mine,  plant  or  works,  to  any  greater  extent  than 
shall  be  deemed  necessary  by  the  Company  in  the  ordinary  conduct 
of  business. 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE        207 

SECTION  5. — The  Company  agrees  that  it  will  keep  all  buildings, 
structures,  machinery  and  equipment  at  any  time  covered  by  this  in- 
denture of  a  character  usually  insured  by  companies  similarly  situated, 
insured  against  loss  or  damage  by  fire,  to  a  reasonable  amount,  loss 
to  be  made  payable  to  the  Company  and  to  the  Trustees  as  interest 
may  appear,  and  all  other  insurance  which  the  Company  shall  elect 
to  procure  on  any  property  covered  hereby  shall  be  made  similarly 
payable.  So  long  as  the  Company  shall  not  be  in  default  under  this 
indenture,  the  proceeds  of  any  insurance  on  any  part  of  the  trust 
estate  shall  be  paid  to  the  Company,  and  shall  be  kept  by  the  Com- 
pany in  a  separate  fund,  which  said  fund  shall  be  in  all  respects 
subject  to  the  lien  of  this  indenture  and  be  specially  held  for  the 
benefit  of  the  bondholders  subject  to  the  provisions  hereof  and  shall 
be  applied  by  the  Company  to  restoring,  repairing,  replacing  or  acquir- 
ing or  completing  substitutes  for  the  property  injured  or  destroyed, 
or,  if  the  Company  so  elect,  and  in  all  cases  when  such  fund  shall 
exceed  $100,000  in  amount,  such  proceeds  shall  be  deposited  with  the 
corporate  Trustee  and  shall  be  thereafter  held,  used  and  applied  as 
is  hereinafter  provided  in  Article  Eight  with  reference  to  the  proceeds 
of  released  property. 

The  Company  further  agrees  that  it  will  keep  or  cause  to  be  kept 
all  buildings,  structures,  machinery  and  equipment  at  any  time  be- 
longing to  any  corporation  a  majority  in  amount  of  the  outstanding 
capital  stock  whereof  is  or  shall  be  subject  to  the  lien  hereof,  which 
are  of  a  character  usually  insured  by  companies  similarly  situated, 
insured  against  loss  or  damage  by  fire  to  a  reasonable  amount. 

SECTION  6. — The  Company  covenants  and  agrees  that  if  it  shall 
fail  to  perform  any  of  the  covenants  contained  in  Sections  4  and  5  of 
this  Article,  the  Trustees  may,  but  shall  not  be  obliged  to,  perform 
the  same  on  behalf  of  the  Company,  making  advances  therefor;  and 
the  Company  agrees  that  it  will  forthwith  repay  all  sums  so  advanced, 
together  with  interest  at  five  per  cent,  per  annum  until  paid,  and  all 
sums  so  advanced  by  the  Trustees  or  either  of  them  or  by  any  one 
on  their  behalf  are  hereby  declared  to  be  a  lien  upon  tho  trust  estate, 
in  priority  to  the  bonds  and  coupons.  No  such  advances  shall  be 
deemed  to  relieve  the  Company  from  any  default  hereunder. 

SECTION  7. — The  Company  will  not  sanction  or  permit  any  issue 
of  additional  shares  of  capital  stock  of  any  company  of  whose  out- 
standing capital  stock  a  majority  in  amount  is  or  shall  be  pledged  or 
assigned  hereunder,  or  the  issue  of  any  bonds  or  debentures  by  any 
such  company  or  the  creation  of  any  mortgage  or  other  lion  upon  the 
property  of  any  such  company  (except  purchase  money  bonds  or  notos 
in  connection  with  the  acquisition  of  additional  property  needed  in 


208         MATERIALS    OF    CORPORATION    FINANCE 

its  business  which  may  be  secured  by  a  purchase  money  lien  upon  the 
property  acquired)  or  any  notes  payable  or  indebtedness  (except  notes 
payable  or  other  obligations  issued  or  indebtedness  incurred  in  the 
course  of  the  ordinary  conduct  of  its  business)  unless  simultaneously 
there  shall  be  made  effective  provision  that  such  indebtedness  and  the 
evidences  thereof  and  such  bonds,  debentures  or  notes  issued  and  such 
mortgage  or  other  lien  and  all  such  additional  stock  (or  such  part  of 
such  additional  stock  as  shall  be  proportionate  to  the  entire  outstand- 
ing capital  stock  previously  owned  by  the  Company  or  pledged  here- 
under)  forthwith  upon  the  issue  or  creation  thereof  shall  be  delivered 
to  and  be  pledged  with  the  Trustees  hereunder  and  be  made  subject  to 
all  the  trusts  of  this  indenture,  and  the  Company  agrees  that  all  such 
additional  stock  shall  be  fully  paid  and  non-assessable;  provided, 
however,  that  nothing  contained  in  this  section  or  elsewhere  in  this 
indenture  shall  prevent  the  Eastern  Railroad  Company  or  the  Monon- 
gahela  Connecting  Railroad  Company  or  the  Aliquippa  and  Southern 
Railroad  Company  or  the  Interstate  Steamship  Company  or  any  com- 
pany with  which  or  into  which  they  or  any  of  them  may  be  merged 
or  consolidated  or  any  company  resulting  from  any  such  merger  or 
consolidation  or  any  railroad  or  steamship  company  any  of  the  stock 
whereof  shall  at  any  time  be  pledged  hereunder,  from  issuing  shares 
of  capital  stock,  incurring  indebtedness  and  issuing  bonds  and  secur- 
ing the  same  by  mortgage  or  other  lien  and  disposing  of  the  same  for 
proper  corporate  purposes  free  from  the  lien  of  this  indenture;  and 
it  is  hereby  expressly  agreed  that  the  Company  may  permit  said  com- 
panies to  create,  and  said  companies  may  create,  such  indebtedness 
and  bonds  or  other  obligations  and  mortgages  or  other  liens,  and  may 
issue  capital  stock,  and  dispose  of  the  same  for  proper  corporate  pur- 
poses, notwithstanding  the  foregoing  provisions  of  this  section. 

Except  as  in  Section  7  of  Article  Three  or  elsewhere  in  this  inden- 
ture expressly  permitted,  the  Company  will  not,  unless  with  the  con- 
sent of  the  corporate  Trustee,  sanction  or  permit  the  sale,  conveyance, 
assignment,  lease  or  other  disposition  by  any  company  of  whose  out- 
standing capital  stock  sixty  per  cent,  in  amount  or  more  shall  at  the 
time  be  subject  hereto  of  any  real  property  or  plants  or  lease  of 
mineral  rights;  except  (a)  a  sale,  exchange  or  conveyance  to  straighten 
lines  or  to  facilitate,  and  lessen  the  cost  of  the  mining  of  ores,  coal 
or  other  minerals,  and  (b)  a  sale,  lease  or  exchange  of  any  such  real 
property  or  plant  or  lease  of  mineral  right,  taken  by  any  such  com- 
pany in  satisfaction  of  a  debt  or  upon  enforcement  of  any  security 
given  for  the  payment  of  a  debt,  made  within  three  years  after  such 
property  is  so  taken. 

Any  company  sixty  per  cent,  in  amount  or  more  of  the  outstanding 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE        209 

capital  stock  whereof  shall  at  the  time  be  subject  hereto  may  make, 
in  addition  to  any  lease  elsewhere  herein  expressly  permitted,  any  lease 
of  any  such  real  property  or  plant  for  any  term  of  not  to  exceed  three 
years,  provided  the  corporate  Trustee  consents  thereto;  and  the  cor- 
porate Trustee  may  in  its  absolute  discretion  so  consent. 

Any  such  company  may  make  any  lease  of  any  such  real  property 
or  plant  or  lease  of  mineral  rights  for  more  than  three  years,  or  may 
make  any  sale  thereof,  or  exchange  thereof  for  other  real  estate  or 
property,  or,  in  case  of  leases  of  mineral  rights,  for  other  such  leases, 
provided  the  corporate  Trustee  consents  thereto.  Such  sale  may  be 
made  entirely  for  cash  or  partly  for  cash  and  partly  for  other  real 
estate  or  property  or  notes  or  other  evidences  of  indebtedness  repre- 
senting deferred  payments  secured  by  a  purchase  money  mortgage, 
or  a  vendor's  lien,  or  in  some  other  way  by  a  first  lien  upon  the  prop- 
erty sold.  The  corporate  Trustee  shall  give  such  consent  only  upon, 
receiving  a  written  request  of  the  President  or  a  Vice- President  of 
the  Company  approved  or  authorized  by  resolution  of  its  Board  01 
Directors,  and  upon  receiving  a  certificate  signed  by  a  majority  of 
the  Board  of  Directors  then  in  office  including  the  President  or  a 
Vice-President,  that  such  lease  or  assignment  or  sale  or  exchange  is 
advisable  and  stating  what  the  value  of  the  property  so  leased,  as- 
signed, sold  or  exchanged  is,  that  the  consideration  received  or  to  be 
received  is  at  least  equal  to  the  value  of  the  property  leased,  assigned, 
sold  or  exchanged,  and  that  any  real  estate  forming  part  of  the  con- 
sideration has  been,  or  simultaneously  with  such  sale  or  exchange 
will  be,  conveyed  to  the  company  making  such  sale,  assignment  or 
exchange,  or  in  case  of  leases  of  mineral  rights,  that  the  leases  re- 
ceived in  exchange  therefor  have  been,  or  simultaneously  with  such 
assignment  or  exchange  will  be,  assigned  to  or  leased  to  the  company 
making  such  sale,  assignment  or  exchange,  and  that  any  cash  forming 
part  of  the  consideration  has  been,  or  simultaneously  with  such  sale 
or  exchange  will  be,  delivered  to  such  company,  and  that  notes  or 
other  evidences  of  indebtedness  representing  deferred  payments  form- 
ing part  of  the  consideration  secured  by  a  purchase  money  mortgage 
or  vendor's  lien,  or  in  some  other  way  as  a  first  lien  upon  the  property 
sold  or  exchanged,  have  been,  or  simultaneously  with  such  sale  or 
exchange  will  be,  delivered  to  the  company  making  such  sale,  assign- 
ment or  exchange.  The  corporate  Trustee  shall  not,  however,  bo 
required  to  give  such  consent  except  in  its  discretion. 

Nothing  contained  in  this  indenture  shall,  however,  prevent  any 
railroad  or  steamship  company  stock  whereof  is  or  shall  be  pledged 
hereunder  from  leasing  its  railway  or  property  to  any  other  company. 
Nothing  contained  in  this  indenture  shall  prevent  any  railroad  or 


210 

steamship  company  any  of  the  stock  whereof  is  or  shall  be  pledged 
hereunder  from  selling  or  otherwise  disposing  of  its  railroad  or  prop- 
erty for  an  adequate  consideration. 

SECTION  8. — The  Company  covenants  and  agrees  that  the  surplus 
of  quick  assets  over  the  liabilities  of  the  Company  other  than  the  out- 
standing bonds  issued  under  this  indenture  shall  always  equal  at  least 
$8,000,000  so  long  as  the  said  outstanding  bonds  shall  equal  or  ex- 
ceed $8,000,000,  and  covenants  and  agrees  that  said  surplus  of  quick 
assets  over  liabilities  shall  always  equal  the  amount  of  bonds  out- 
standing so  long  as  the  face  amount  of  bonds  outstanding  shall  be 
less  than  $8,000,000.  By  the  phrase  "quick  assets"  is  meant  cash  in 
banks,  on  hand  and  in  transit,  good  accounts  and  short  time  bills  and 
notes  or  similar  securities  received  on  the  sale  of  products ;  raw  mate- 
rial, material  in  the  process  of  being  manufactured,  manufactured 
products  and  supplies  (it  being  understood  that  all  material,  manu- 
factures and  supplies  shall  be  figured  at  the  market  value  thereof  at 
the  time  of  the  valuation  thereof  hereunder).  It  is  expressly  under- 
stood and  agreed  that  in  the  term  "raw  material"  no  ore,  coal  or  lime- 
stone shall  be  included  except  such  as  has  actually  been  mined  or 
quarried  and  is  then  on  the  surface  at  the  mines  or  at  the  quarries, 
available  for  shipment,  or  in  transit,  or  at  docks  or  at  works,  and  in 
no  case  is  raw  material  to  be  held  to  include  unmined  minerals.  The 
Company  further  covenants  and  agrees  that  the  net  assets  of  the 
Company  are  and  shall  always  be  at  least  $25,000,000  in  excess  of 
the  par  value  of  the  present  capital  stock  of  the  Company,  such  par 
value  of  the  present  capital  stock  of  the  Company  being  $30,000,000. 

The  Company  agrees  to  furnish  to  the  Trustees  on  or  before 
March  1,  in  each  year,  a  detailed  statement  as  of  the  thirty-first  day 
of  December  then  next  preceding,  of  such  assets  and  liabilities,  signed 
by  an  executive  officer  of  the  Company,  and  certified  by  some  public 
accountant  or  audit  company  approved  by  the  corporate  Trustee. 

The  Company  covenants  and  agrees  to  permit  the  Trustees  at  all 
reasonable  times  to  have  access  to  the  books  and  accounts  of  the  Com- 
pany and  to  permit  the  Trustees,  if  it  shall  be  deemed  by  them  or 
either  of  them  advisable,  to  make  by  their  duly  appointed  agents, 
satisfactory  to  the  Company,  examinations  frem  time  to  time,  but  not 
oftener  than  once  in  twelve  months,  of  the  physical  condition  of  the 
property  of  the  Company,  and  upon  request  to  pay  the  Trustees  the 
reasonable  expense  of  each  such  examination. 

SECTION  9. — The  Company  covenants  that,  whenever  there  shall 
have  occurred  one  or  more  of  the  events  of  default  defined  in  Sec- 
tion 1  of  Article  Five  of  this  indenture,  it  will,  on  request  in  writing 
from  the  Trustees,  disclose  or  cause  to  be  disclosed  to  the  Trustees  or 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE        211 

to  any  person  named  by  them  for  the  benefit  of  the  bondholders,  all 
secret  processes  and  formulae  and  all  other  processes  or  methods  of 
manufacture  and  formulae  owned  or  used  by  the  Company  in  the 
conduct  of  its  business  and  that  it  will  furnish  all  information  rea- 
sonably requested  for  using  the  same  or  for  carrying  on  said  business. 


ARTICLE  THREE 
CONTROL  OF  PLEDGED  SECURITIES 

SECTION  1. — When  and  as  the  certificates  for  any  of  the  shares  of 
stock  which  the  Company  has  by  this  indenture  assigned  or  trans- 
ferred or  agreed  to  assign  and  transfer  to  the  Trustees  or  either  of 
them,  shall  come  into  the  possession  of  the  Company  or  under  its 
control,  the  Company  shall  forthwith  deliver  the  same  or  cause  the 
same  to  be  delivered  to  the  corporate  Trustee,  together  with  proper 
instruments  of  assignment  and  transfer  thereof  to  the  Trustees,  or  in 
blank,  as  the  corporate  Trustee  may  require. 

The  Trustees  shall  have  the  right  and  are  hereby  authorized  to  have 
any  shares  of  stock  registered  in  their  names,  or  in  the  name  of  the 
corporate  Trustee  or  any  nominee  of  the  corporate  Trustee  approved 
by  the  Company  endorsed  in  blank  or  with  a  blank  power  of  assign- 
ment or  of  attorney,  or  to  receive  and  hold  such  stock  or  the  certifi- 
cates therefor  in  the  name  of  the  Company  or  in  the  names  in  which 
they  may  stand  at  the  time  they  are  delivered  to  the  corporate  Trustee 
endorsed  in  blank,  or  with  a  blank  power  of  assignment  or  of  attorney, 
provided  that  the  company  which  issued  the  stock  shall  be  notified  of 
the  pledge  of  such  shares  with  the  Trustees  hereunder  and  directed  to 
cause  a  note  of  such  pledge  to  be  placed  upon  its  stock  book.  The 
Trustees  or  either  of  them  may  deliver  any  of  said  certificates  of  stock 
pledged  hereunder  to  the  Company,  or  to  any  agent  or  representative 
of,  or  person  designated  by  the  Company,  for  the  purpose  of  having 
the  same  exchanged  for  certificates  of  different  denominations,  or  cer- 
tificates in  the  name  of  the  corporate  Trustee,  or  for  such  other  pur- 
pose in  furtherance  of  this  trust  as  the  Trustees  or  the  corporate 
Trustee  may  deem  advisable.  The  Company  shall  at  all  times  have 
the  right  to  inspect  any  certificates  of  stock  or  other  securities  pledged 
hereunder. 

SECTION  2. — The  Trustees  or  the  corporate  Trustee  may  do  what- 
ever may  be  necessary  for  the  purpose  of  maintaining,  preserving,  re- 
newing or  extending  the  corporate  existence  of  any  company  stock  of 
which  shall  be  subject  to  the  lien  hereof,  and  for  such  purpose  from 
ti*-»c  to  time  may  sell,  assign,  transfer  and  deliver  so  many  of  the 


212         MATERIALS    OF    CORPORATION    FINANCE 

shares  of  the  stock  of  the  several  companies  as  may  be  necessary  to 
qualify  persons  (to  be  named  by  the  Company,  in  case  it  shall  not  at 
the  time  be  in  default  hereunder)  to  act  as  directors  of,  or  in  any 
other  official  relation  to,  said  companies.  Whenever  the  Company, 
not  being  in  default  under  this  indenture,  shall  in  writing  so  request, 
stating  in  such  request  that  the  Company  has  no  shares  for  that  pur- 
pose under  its  control  other  than  shares  held  under  this  indenture, 
the  Trustees  or  the  corporate  Trustee  shall  assign  and  transfer  to  per- 
sons designated  by  the  Company  a  sufficient  number  of  any  shares 
then  subject  to  the  lien  hereof  to  qualify  any  persons  to  act  as  di- 
rectors of,  or  in  any  other  official  relation  to  the  several  companies 
which  issued  such  shares,  provided,  however,  that  under  this  provision 
no  transfer  shall  be  made  of  the  stock  of  any  company  the  greater 
part  in  amount  of  the  outstanding  stock  whereof  shall  be  pledged  or 
assigned  hereunder  which  shall  reduce  the  amount  of  stock  in  any 
such  company  held  by  the  Trustees  or  the  corporate  Trustee  so  as  to 
render  it  less  than  a  majority  in  amount  of  such  stock;  and  in  every 
case  the  Trustees  or  the  corporate  Trustee  may  make  such  arrange- 
ments as  they  or  it  shall  deem  necessary  for  the  protection  of  the 
trusts  hereunder  in  respect  of  the  shares  so  assigned. 

SECTION  3. — Unless  and  until  one  or  more  of  the  events  of  default 
defined  in  Section  1  of  Article  Five  hereof  shall  have  happened,  the 
Trustees  shall  not  nor  shall  either  of  them  (except  with  the  assent  of 
the  Company  or  as  otherwise  authorized  by  this  indenture)  collect  the 
interest  on  any  of  the  notes  or  other  obligations  or  indebtedness  now 
or  hereafter  subject  to  this  indenture  and  the  Company  shall  be  en- 
titled to  receive  all  interest  paid  in  respect  of  such  notes,  obligations 
or  indebtedness,  and  the  dividends  paid  out  of  earnings,  whether  such 
earnings  have  been  heretofore  or  shall  be  hereafter  made,  on  all  shares 
of  stock,  which  shall  be  subject  to  this  indenture,  although  the  same 
may  have  been  transferred  to  the  Trustees  or  the  corporate  Trustee, 
and  from  time  to  time  (subject  to  the  covenants  in  respect  thereof  in 
this  section  contained)  upon  the  request  of  the  Company  the  Trustees 
or  the  corporate  Trustee  shall  deliver  to  the  Company  any  coupons  for 
such  interest  then  in  the  possession  of  the  Trustees  or  the  corporate 
Trustee  in  order  that  the  Company  may  receive  payments  thereof  for 
its  own  use  or  may  cause  the  same  to  be  cancelled,  and  the  Trustee  or 
the  corporate  Trustee  shall  deliver  to  the  Company  suitable  orders  in 
favor  of  the  Company  or  its  nominee  for  the  payment  of  such  interest 
and  of  such  dividends,  and  the  Company  may  collect  such  coupons, 
interest  and  dividends  (but  not  by  any  proceeding  which  the  Trustees 
or  the  corporate  Trustee  shall  deem  to  be  prejudicial  to  the  trusts 
hereunder),  and  the  Trustees  or  the  corporate  Trustee  upon  demand 


JONES-LAUGHLIN    STEEL   CO.   MORTGAGE        213 

shall  pay  over  to  the  Company  any  such  interest  and  dividends  which 
may  be  collected  or  be  received  by  the  Trustees  or  either  of  them  or 
the  nominee  or  nominees  of  them  or  either  of  them. 

Provided,  however,  that  except  as  in  this  indenture  otherwise  ex- 
pressly provided  (1)  the  Company  shall  not  be  entitled  to  receive  and 
the  Trustees  shall  not,  nor  shall  either  of  them,  pay  over  to  the  Com- 
pany the  principal  of  any  of  the  notes,  obligations  or  indebtedness  sub- 
ject to  the  lien  hereof;  or  any  interest  on  any  of  such  notes,  obliga- 
tions or  indebtedness  which  shall  have  been  collected  or  paid  otherwise 
than  out  of  such  earnings  or  other  current  income,  or  any  dividends 
upon  any  shares  of  stock  paid  otherwise  than  out  of  such  earnings  or 
current  income ;  it  being  the  intention  that  the  Oompany  shall  be  en- 
titled to  receive  only  payments  made  out  of  earnings  and  rents,  rev- 
enues, income  or  net  proceeds  of  operation;  and  (2)  until  actually 
paid,  released  or  discharged,  every  such  coupon  or  right  to  interest  or 
dividends  shall  remain  subject  to  this  indenture,  and  if  any  such 
coupons  delivered  to  the  Company  shall  not  as  aforesaid  forthwith  be 
paid  and  cancelled,  the  Company  shall  return  the  same  to  the  cor- 
porate Trustee,  and  in  case  of  the  payment  of  any  such  coupon  shall, 
upon  demand  of  the  corporate  Trustee,  furnish  satisfactory  evidence 
of  the  cancellation  and  extinguishment  thereof.  The  Company  hereby 
authorizes  and  directs  all  companies  whose  stocks  and  all  persons  and 
companies  whose  bonds,  notes  or  other  obligations  or  indebtedness  are 
or  shall  be  held  hereunder  to  pay  to  the  corporate  Trustee  hereunder 
any  such  dividends  or  interest  or  amounts  not  receivable  by  the  Com- 
pany as  aforesaid. 

The  Trustees  and  each  of  them  shall  be  entitled  to  assume  that  any 
interest  received  by  them  or  either  of  them  or  by  the  Company  on  any 
note  or  other  obligation  or  indebtedness,  or  any  dividend  received  on 
any  share  of  stock,  is  paid  out  of  such  rents,  revenues,  earnings,  in- 
come or  net  proceeds  of  operation,  unless  the  holders  of  at  least  ten 
per  cent,  in  amount  of  the  outstanding  bonds  shall  in  writing  notify 
the  corporate  Trustee  to  the  contrary,  and  it  shall  be  conclusively  pre- 
sumed as  between  the  Trustees  and  each  of  them  and  the  bondholders 
that  the  Trustees  and  each  of  them  in  making  any  payments  thereof 
to  the  Company  acted  in  good  faith. 

In  case  any  note  or  other  obligation  or  indebtedness  now  or  here- 
after subject  to  this  indenture  shall  mature,  the  Trustees  or  the  cor- 
porate Trustee  shall,  if  there  be  at  the  time  no  continuing  event  of 
default  such  as  is  defined  in  Section  1  of  Article  Five  of  this  in- 
denture, and  if  so  requested  by  the  Company,  continue  to  hold  the 
same  or  extend  the  payment  of  the  same  or  accept  a  new  note  or  other 
obligation  or  other  indebtedness  of  the  same  debtor  or  its  successor 


214         MATEEIALS    OF    CORPOEATIOX    FIXAXCE 

of  equal  amount  in  place  thereof,  secured  in  the  same  manner  and  to 
the  same  extent  as  the  note  or  other  obligation  or  indebtedness  so 
maturing.  In  case  there  shall  be  at  the  time  of  such  maturity  of  any 
such  note,  obligation  or  indebtedness  any  such  continuing  event  of 
default  or  in  case  the  Company  shall  not  so  request  and  such  note,, 
obligation  or  indebtedness  shall  not  forthwith  be  paid,  the  Trustees 
or  the  corporate  Trustee  shall  take  such  steps  as  the  corporate  Trustee 
shall  deem  advisable  in  the  best  interest  of  the  bondholders. 

SECTION  4. — In  case  any  sum  shall  be  paid  on  account  of  the  prin- 
cipal of  any  notes  or  other  obligations  or  indebtedness  subject  to  this 
indenture  or  in  case  any  sum  shall  be  paid  on  account  of  the  inter- 
est upon  any  such  notes  or  other  obligations  or  indebtedness  otherwise 
than  out  of  such  earnings,  rents,  revenues,  income,  or  net  proceeds  of 
operation,  or  in  case  any  dividend  shall  be  paid  on  any  shares  of  stock 
pledged  or  assigned  hereunder  otherwise  than  out  of  such  earnings, 
rents,  revenues,  income,  or  net  proceeds  of  operation,  or  in  case  upon 
the  liquidation  or  dissolution  of  any  company  any  sum  shall  be  paid 
upon  any  such  notes,  or  other  obligations,  or  indebtedness  or  shares  of 
stock  of  such  company  pledged  hereunder,  then  in  every  such  case  any 
such  sum,  unless  applied  on  account  of  the  purchase  price  of  property 
purchased  pursuant  to  Section  6  of  this  Article,  shall  be  paid  to  and 
received  by  the  corporate  Trustee  and  shall  be  applied  as  hereinafter 
provided  in  Article  Eight  with  respect  to  the  proceeds  of  released 
property.  Any  note  or  other  obligation  which  shall  be  fully  paid  shall 
be  cancelled  by  the  corporate  Trustee  and  delivered  to  the  maker  or 
the  Company. 

SECTION  5. — Unless  and  until  some  one  of  the  events  of  default 
denned  in  Section  1  of  Article  Five  of  this  indenture  shall  have  hap- 
pened, the  Company  shall  have  the  right  to  vote  for  all  purposes  not 
contrary  to  its  covenants  or  agreements  herein  contained  or  otherwise 
inconsistent  with  the  provisions  or  purposes  of  this  indenture,  and 
with  the  same  force  and  effect  as  though  such  shares  were  not  subject 
to  this  indenture,  upon  all  shares  of  stock  assigned  or  pledged  here- 
under, and  from  time  to  time  upon  demand  of  the  Company  the 
Trustees  forthwith  shall  execute  and  deliver  or  shall  cause  to  be  exe- 
cuted and  delivered  to  the  Company,  or  to  its  nominee,  powers  of 
attorney  or  proxies  to  vote  upon  any  shares  of  stock,  which  shall  have 
been  transferred  to  the  Trustees  or  either  of  them  or  the  nominee  01 
nominees  of  them  or  either  of  them.  The  Company  agrees  that  it  will 
not  vote  or  permit  any  proxy  or  proxies  to  vote  on  any  of  the  shares 
of  stock  subject  to  the  lien  hereof,. contrary  to  the  covenants  and  pro- 
visions in  this  indenture  contained. 

Subject  only  on  the  specific  restrictions  contained  in  this  indenture, 


JOXES-LAUGHLIX    STEEL   CO.    MORTGAGE        215 

and  to  the  actual  exercise  by  the  Company  of  rights  in  respect  thereof 
conferred  by  this  indenture,  the  Trustees  or  the  corporate  Trustee 
shall  have  and  may  exercise  all  the  rights  of  an  owner  in  respect  of 
any  stock  or  certificates  of  interest  therein  held  by  the  Trustees  or 
either  of  them  under  this  indenture  or  in  any  manner  whatsoever  on 
the  trusts  hereof. 

SECTION  6. — In  case  default  shall  be  made  in  the  payment  of  the 
principal  of  or  interest  upon  any  of  the  notes  or  other  obligations 
which  shall  have  been  delivered  to  and  shall  be  held  by  the  Trustees 
or  either  of  them  hereunder,  or  any  other  notes,  or  obligations  then 
secured  by  the  same  mortgage  or  deed  of  trust  as  notes  or  other  obli- 
gations held  by  the  Trustees  or  either  of  them,  or  in  the  due  observ- 
ance or  performance  of  any  covenant  contained,  or  in  case  any  other 
default  or  event  of  default  mentioned  in  any  of  said  notes  or  obliga- 
tions or  in  the  mortgage  or  other  instrument  securing  the  same  shall 
occur,  then  in  any  such  case,  if  the  Trustees  or  either  of  them  shall 
hold  the  greater  part  in  amount  of  the  entire  issue  of  such  notes  or 
other  obligations  in  default,  upon  the  written  request  of  the  Company 
(the  Company  not  being  then  in  default  under  this  indenture)  and, 
upon  receiving  reasonable  indemnity  if  required,  the  Trustees  or  the 
corporate  Trustee  shall,  and  otherwise  in  the  absence  of  such  indem- 
nity but  upon  such  written  request,  the  Trustees  or  the  corporate 
Trustee  may,  in  their  or  its  discretion,  without  prejudice  to  any  right 
to  claim  a  default  under  this  indenture  or  to  assert  any  right  conse- 
quent upon  such  default,  cause  proper  proceedings  to  be  instituted  and 
prosecuted  in  some  court  of  competent  jurisdiction  to  foreclose  or 
enforce  the  mortgage  or  trust  or  charge  by  which  such  notes  or  obli- 
gations in  default  are  secured  and  to  collect  such  notes  or  obligations. 
In  case  any  of  the  events  of  default  hereinafter  defined  in  Section  1 
of  Article  Five  shall  have  occurred,  or  in  case  the  Trustees  or  either 
of  them  shall  have  entered  or  shall  have  elected  to  enter  into  posses- 
sion of  the  trust  estate,  either  under  the  power  hereinafter  conferred 
or  by  the  voluntary  action  of  the  Company,  then  and  in  any  such 
case,  without  such  written  request,  the  Trustees  or  the  corporate 
Trustee  in  their  or  its  discretion  may,  and  upon  the  written  request 
of  the  holders  of  ten  per  cent,  of  the  bonds  outstanding  hereunder 
shall,  institute  such  proceedings. 

In  case  (1)  at  any  time  any  company,  shares  of  the  capital  stock  of 
which  shall  be  subject  to  this  indenture,  shall  be  dissolved  or  liqui- 
dated, or  in  case  (2)  all  or  any  of  the  property  of  any  such  company 
shall  be  sold  at  any  judicial  or  other  sale,  or  in  case  (3)  any  of  the 
property  covered  by  any  mortgage  securing,  or  subject  to  any  charge 
or  trust  for  the  payment  of,  any  notes  or  other  obligations  subject  to 


216         MATERIALS    OF    COKPOKATION    FINANCE 

this  indenture  shall  be  sold  upon  foreclosure  of  such  mortgage  or  by 
the  enforcement  of  such  charge  or  trust ;  then  in  any  such  event  if  the 
property  of  such  dissolved  or  liquidated  company  or  the  property  sold, 
or  any  of  such  property,  can  be  acquired  by  crediting  on  the  notes 
or  other  obligations  or  indebtedness  or  stock  then  held  by  the  Trustees 
or  either  of  them,  hereunder  any  sum  accruing  or  to  be  received  there- 
on out  of  the  proceeds  of  such  property  and  by  paying  not  more  than 
ten  per  cent,  of  the  price  of  such  property  in  cash  (or  more  than  ten 
per  cent,  if  the  holders  of  a  majority  in  amount  of  the  bonds  out- 
standing hereunder  shall  so  request)  the  Trustees  or  the  corporate 
Trustee  in  their  or  its  discretion  may,  and  ff  requested  in  writing  by 
the  Company  or  the  holders  of  a  majority  in  amount  of  the  bonds 
outstanding  hereunder,  and  provided  with  the  amount  of  cash  neces- 
sary therefor  (whether  such  amount  be  more  or  less  than  ten  per 
cent,  of  the  price  of  such  property),  shall,  purchase  or  cause  to  be 
purchased  such  property  either  in  the  name  or  on  behalf  of  the 
Trustees  or  of  the  corporate  Trustee  or  of  the  Company,  or  of  pur- 
chasing trustees,  as  the  Trustees  or  the  corporate  Trustee  may  deter- 
mine, and  shall  use,  or  permit  the  Company  to  use,  such  notes  or  other 
obligations  or  indebtedness  or  stock  so  far  as  may  be  to  make  payment 
for  such  property,  and  in  case  of  any  such  purchase  the  Trustees  or 
the  corporate  Trustee  shall  take  such  steps  as  they  or  it  may  deem 
proper  to  cause  such  property  to  be  vested  either  in  the  Company  sub- 
ject to  this  indenture  as  a  first  lien  thereon,  or  in  some  other  cor- 
poration organized  or  to  be  organized  with  power  to  acquire  and  man- 
age such  property,  provided  that  all  the  notes  and  other  obligations 
and  indebtedness  (excepting  notes,  obligations  or  indebtedness,  if  any, 
subject  to  which  said  property  shall  have  been  sold  to  said  corpora- 
tion) and  capital  stock  thereof  (excepting  the  number  of  shares  re- 
quired to  qualify  directors)  shall  be  received  by  the  Trustees  or  cor- 
porate Trustee  and  shall  be  held  for  the  benefit  of  the  Company  or  its 
assigns  subject  to  the  primary  lien  of  this  indenture. 

With  the  written  consent  of  the  Company  the  Trustees  or  corporate 
Trustee  at  any  time  may  vote  upon  any  shares  of  stock  that  shall  be 
subject  hereto,  and  may  join  in  any  plan  of  reorganization  in  respect 
of  any  notes  or  other  obligations,  or  indebtedness  or  stock  subject  to 
the  lien  hereof  and  may  accept  or  authorize  the  acceptance  of  new 
securities  issued  in  exchange  therefor  under  any  such  plan,. and  may 
take  such  other  action  not  in  conflict  with  any  express  provision 
hereof,  as  in  the  discretion  of  the  Trustees  or  corporate  Trustee  shall 
be  deemed  advisable  to  protect  the  interest  of  the  Trustees  and  the 
interests  of  the  bondholders  hereunder  in  respect  of  any  such  notes, 
obligations  or  stock.  In  case  of  the  happening  of  any  of  the  events 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE        217 

of  default  hereinafter  defined  in  Section  1  of  Article  Five  hereof,  or 
in  case  the  Trustees  or  either  of  them  shall  have  entered  or  shall  have 
elected  to  enter  upon  any  part  of  the  trust  estate,  either  under  the 
power  herein  conferred  or  by  the  voluntary  action  of  the  Company, 
the  Trustees  or  the  corporate  Trustee  shall  be  entitled  to  take  such 
steps  without  the  consent  of  the  Company. 

The  Company  covenants  that  on  demand  of  the  Trustees  or  either 
of  them  it  forthwith  will  pay  or  will  satisfactorily  provide  for  all  ex- 
penditures incurred  by  the  Trustees  or  either  of  them  under  any  of 
the  provisions  of  this  section,  including  all  sums  required  to  obtain 
and  perfect  the  ownership  and  title  to  any  property  which  the  Trustees 
or  the  corporate  Trustee  shall  purchase  or  shall  cause  or  authorize  to 
be  purchased  pursuant  to  the  provisions  of  this  section;  and  in  any 
case,  without  impairment  of  or  prejudice  to  any  of  its  rights  here- 
under  by  reason  of  any  default  of  the  Company,  the  Trustees  or  the 
corporate  Trustee  in  their  or  its  discretion  may  advance  all  such  ex- 
penses and  such  other  moneys  required,  or  may  procure  such  advances 
to  be  made  by  others,  and  for  such  advances  made  by  the  Trustees  or 
the  corporate  Trustee  or  by  others  at  their  or  its  request  with  interest 
thereon  the  Trustees  or  the  corporate  Trustee  shall  have  a  lien  under 
this  indenture  in  priority  to  the  lien  of  the  bonds  issued  hereunder 
upon  all  the  stocks,  obligations  and  indebtednesss  in  respect  of  which 
such  advances  shall  have  been  made,  and  the  proceeds  thereof,  and  any 
property  acquired  by  means  thereof. 

In  case  neither  the  Trustees  nor  the  corporate  Trustee  nor  the  Com- 
pany shall  purchase  or  cause  to  be  purchased  the  property  sold  at  any 
such  sale,  and  shall  not  join  in  a  plan  of  reorganization  as  aforesaid 
in  respect  of  such  notes  or  other  obligations  or  indebtedness  or  stocks, 
then  the  corporate  Trustee  shall  receive  any  portion  of  the  proceeds 
of  the  sale  accruing  on  the  securities  by  it  held  hereunder,  and  such 
proceeds  shall  be  applied  as  hereinafter  provided  in  Article  Eight  with 
respect  to  the  proceeds  of  released  property. 

SECTION  7. — Anything  in  this  indenture  to  the  contrary  notwith- 
standing, any  company,  any  of  the  shares  of  the  capital  stock  whereof 
shall  be  subject  to  this  indenture,  may  be  merged  or  be  consolidated 
with,  or  all  or  any  of  its  property  may  be  sold,  leased,  t  ansferred  or 
conveyed  to,  the  Company  or  any  company  at  least  ni  -ety-five  per 
cent,  of  the  outstanding  capital  stock  whereof  shall  then  be  owned  by 
tho  Company  and  pledged  hereunder,  and  upon  the  property  whereof 
there  shall  be  no  mortgage  (or  other  lien)  other  than  one  to  secure 
notes  or  other  obligations  all  of  which  shall  be  held  by  the  Trustee* 
or  the  corporate  Trustee  hereunder,  and  all  the  indebtedness  of  which 
to  the  Company  shall  be  assigned  to  the  Trustees  hcreunder,  pro- 


218         MATEEIALS    OF   CORPORATION    FINANCE 

vided,  however,  (1)  that  in  case  of  a  merger  or  consolidation  with,  or 
sale,  lease,  transfer  or  conveyance  to,  the  Company,  the  property  of 
such  company,  or  the  property  sold,  transferred  or  conveyed,  shall,  to 
the  same  extent  it  would  if  property  of  the  Company  described  in  the 
granting  clause  hereof  become  subject  to  the  lien  of  this  indenture, 
free  from  any  prior  lien  or  charge  except  a  lien  or  liens  to  secure 
notes  or  other  obligations,  if  any,  then  outstanding  and  permitted  by 
the  terms  hereof;  and  (2)  that  in  case  of  a  merger  or  consolidation 
with,  or  sale,  lease,  transfer  or  conveyance  to,  any  company  other  than 
the  Company,  at  least  ninety-five  per  cent,  of  the  outstanding  shares 
of  the  capital  stock  of  such  consolidated  company  or  of  the  company 
into  which  such  company  shall  have  been  merged,  or  of  such  company 
to  which  such  sale,  lease,  transfer  or  conveyance  shall  have  been  made, 
shall  continue  to  be  held  by  the  Trustees  or  the  corporate  Trustee,  not- 
withstanding such  merger,  consolidation,  sale,  lease,  transfer  or  con- 
veyance, provided,  however,  that  the  Trustees  or  either  of  them  may 
make  any  exchange,  substitution,  cancellation  or  surrender  of  shares 
of  stock  or  other  securities  required  for  the  purposes  of,  or  in  accom- 
plishment of,  any  such  merger  or  consolidation,  and  in  the  case  of  a 
sale,  transfer  or  conveyance  of  all  the  property  of  any  company  to  any 
other  company  or  companies  as  above  provided  for,  the  Trustees  or  the 
corporate  Trustee  shall,  upon  the  request  of  the  Company,  deliver  all 
the  shares  of  capital  stock  to  the  company  making  such  sale,  transfer 
or  conveyance  to  the  company  to  which  such  sale,  transfer  or  convey- 
ance shall  be  made,  free  from  the  lien  and  provisions  of  this  indenture. 
Anything  in  this  indenture  to  the  contrary  notwithstanding,  any 
railroad  or  steamship  company  any  of  the  shares  of  the  capital  stock 
whereof  are  or  shall  be  subject  to  this  indenture  may  be  merged  or  be 
consolidated  with  any  other  railroad  or  steamship  company  or  com- 
panies any  of  the  stock  whereof  shall  at  the  time  be  pledged  under 
this  indenture  or  any  other  company  or  companies,  none  of  the  shares 
of  stock  whereof  shall  at  the  time  be  pledged  hereunder,  provided, 
however,  that  all  of  the  shares  of  the  capital  stock  or  other  securities 
of  such  consolidated  company  or  the  company  into  which  any  such 
company  shall  have  been  merged  which  shall  be  received  in  respect 
of  the  shaus  of  the  stock  which  shall  at  the  time  be  pledged  here- 
under shall  be  deposited  with  the  Trustees  or  the  corporate  Trustee 
and  subject  to  the  lien  hereof;  and  nothing  in  this  indenture  con- 
tained shall  prevent  the  merger  of  any  company  or  companies  none 
of  the  stock  whereof  is  pledged  hereunder  into  a  railroad  or  steam- 
ship company  any  of  the  stock  whereof  shall  at  the  time  be  pledged 
hereunder,  provided  that  said  pledged  stock  of  such  company  shall 
continue  to  be  held  by  the  Trustees  or  the  corporate  Trustee  not- 


JONES-LAUGHLIN   STEEL   CO.    MORTGAGE        219 

withstanding  such  merger;  and  the  Trustees  or  the  corporate  Trustee 
are  hereby  expressly  authorized  to  make  any  exchange,  substitution, 
cancellation  or  surrender  of  shares  of  stock  or  other  securities  re- 
quired for  the  purposes  of,  or  in  accomplishment  of,  any  such  merger 
or  consolidation.  Upon  the  request  or  with  the  assent  of  the  Company 
in  case  at  the  time  there  shall  be  no  continuing  event  of  default  here- 
undcr  such  as  is  defined  in  Section  1  of  Article  Five  hereof  (and  with- 
out such  request  or  assent  in  case  there  shall  at  the  time  be  any  such 
continuing  default)  the  capital  stock  of  any  company  any  of  the  shares 
whereof  shall  be  subject  hereto  may  be  reduced  and  any  such  com- 
pany may  be  dissolved;  provided  that  in  a  case  where  at  least  half  in 
amount  of  the  outstanding  capital  stock  is  subject  to  the  lien  hereof, 
the  Trustees  or  the  corporate  Trustee  shall  be  of  the  opinion  that  such 
reduction  of  capital  stock  or  such  dissolution  will  not  be  injurious  to 
the  interests  of  the  holders  of  the  bonds ;  and  provided  that  in  every 
case  of  any  such  reduction  there  shall  continue  to  be  held  subject  to 
the  lien  hereof  the  same  proportion  of  the  reduced  capital  stock  that 
was  held  of  the  capital  stock  previous  to  such  reduction;  and  the 
Trustees  or  the  corporate  Trustee  may  make  any  exchange,  substitu- 
tion, cancellation  or  surrender  of  shares  of  stock  for  the  purpose  of 
such  reduction  or  such  dissolution.  The  Trustees  or  the  corporate 
Trustee  may  receive  the  opinion  of  any  counsel,  approved  by  the 
Trustees  or  the  corporate  Trustee,  whether  counsel  for  the  Company 
or  not,  as  to  the  legal  effect  of  any  such  merger,  consolidation,  reduc- 
tion of  capital,  dissolution,  sale,  transfer  or  conveyance  and  as  to  the 
steps  necessary  to  be  taken  to  consummate  the  same,  and  as  to  any 
other  matter  under  this  section,  and  such  opinion  shall  be  full  pro- 
tection to  the  Trustees  or  the  corporate  Trustee  for  any  action  by 
them  or  it  taken  pursuant  thereto. 


ARTICLE  FOUR 
SINKING  FUND  AND  REDEMPTION  OF  BONDS 

SECTION  1.— The  Company  shall  and  will  on  or  before  the  30th  day 
of  October,  1909,  and  on  or  before  the  29th  day  of  April  and  the  30th 
day  of  October  in  each  year  thereafter  deposit  with  the  corporate 
Trustee  a  sum  in  cash  sufficient  to  pay  the  semi-annual  interest  due 
on  the  next  succeeding  interest  date  on  all  the  bonds  then  outstand- 
ing; and  for  the  purpose  of  creating  a  sinking  fund  for  the  extin- 
guishment and  payment  of  the  bonds  and  the  interest  thereon  the 
Company  shall  and  will  also  deposit  on  or  before  the  first  day  of 
March  in  each  year,  beginning  with  March  1,  1910,  in  case  $15,- 


220         MATERIALS   OF   CORPORATION   FINANCE 

000,000  in  face  amount  of  the  bonds  or  less  are  issued  an  amount  in 
cash  (or  in  the  bonds  as  hereinafter  provided)  equal  to  the  difference 
between  $1,000,000  and  the  amounts  required  to  pay  the  interest  that 
fell  due  on  the  previous  first  day  of  November  and  that  will  fall  due 
on  the  succeeding  first  day  of  May  on  all  the  bonds  then  outstanding, 
and,  in  case  more  than  $15,000,000  in  face  amount  of  the  bonds  are 
issued,  to  the  difference  between  an  amount  equal  to  one-fifteenth  of 
the  face  value  of  the  total  amount  of  the  bonds  which  shall  have  been 
issued  and  the  amount  required  to  pay  such  interest,  so  long  as  the 
amount  required  to  be  paid  hereunder  for  sinking  fund  purposes  shall 
not  exceed  an  amount  sufficient  to  retire  the  bonds  then  outstanding, 
in  which  event  only  such  amount  shall  be  paid  as  will  be  sufficient 
to  completely  retire  the  bonds  then  outstanding.  The  Company  may 
at  its  option  deliver  to  the  corporate  Trustee  in  lieu  of  any  part  or  all 
of  the  cash  amount  required  to  be  deposited  on  or  before  the  first  day 
of  March  in  each  year  for  the  purpose  of  a  sinking  fund  as  above  pro- 
vided, an  equivalent  amount  of  the  bonds  issued  hereunder  (taken  at 
their  par  value),  bearing  all  unmatured  coupons,  including  the 
coupons  which  will  mature  on  the  succeeding  first  day  of  May. 

For  the  purpose  of  determining  the  amount  of  the  payments  for  in- 
terest and  for  the  sinking  fund  above  mentioned  it  shall  be  assumed 
that  the  amount  of  the  bonds  that  will  be  outstanding  on  any  first  day 
of  May  will  be  the  same  as  the  amount  that  shall  have  been  outstand' 
ing  on  the  previous  first  day  of  November,  except  that  in  case  addi- 
tional bonds  shall  have  been  issued  in  the  meantime  the  amount  of 
said  additional  bonds  shall  be  added. 

The  corporate  Trustee  shall,  out  of  the  sum  in  cash  which  shall  be 
deposited  by  the  Company  with  it  for  the  payment  of  interest  as  afore- 
said, on  the  next  succeeding  interest  payment  day  pay  such  interest 
at  the  office  of  First  Trust  and  Savings  Bank  in  Chicago  or  at  the 
agency  of  the  Company  in  New  York,  as  the  coupon  holder  may  elect. 
Any  portion  thereof  not  required  for  the  payment  of  interest  shall 
become  part  of  the  sinking  fund.  The  corporate  Trustee  is  hereby 
authorized  to  make  such  arrangements  for  the  payment  of  coupons  at 
said  agency  of  the  Company  in  New  York  as  it  shall  deem  proper. 

Immediately  upon  the  receipt  of  any  deposit  of  money  for  the  said 
sinking  fund  previous  to  the  year  1915,  the  corporate  Trustee  shall, 
as  it  may  be  directed  by  the  Company,  expend  the  said  sum  in  the 
purchase  of  as  many  of  the  bonds  as  can  be  acquired  with  said  amount 
of  money  at  any  price  not  exceeding  105  per  cent,  of  their  face  amount 
and  accrued  interests. 

After  the  year  1914,  all  deposits  of  money  for  the  sinking  fund  shall 
be  applied  by  the  corporate  Trustee  to  the  purchase  of  bonds  in  the 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE       221 

open  market  at  the  then  market  price  thereof,  hut  not  at  any  price 
exceeding  105  per  cent,  of  their  face  amount  and  accrued  interest,  hut 
if  on  the  28th.  day  of  March  in  any  year  after  the  year  1914,  the  cor- 
porate Trustee  shall  not  have  applied  all  deposits  in  its  possession  for 
the  sinking  fund  to  the  purchase  of  bonds,  all  such  amounts  remain- 
ing in  the  hands  of  the  corporate  Trustee  shall  forthwith  be  applied 
by  the  corporate  Trustee  to  the  redemption  of  the  bonds  at  a  premium 
of  five  per  cent,  pursuant  to  call  given  as  hereinafter  provided.  The 
bonds  so  to  be  redeemed  shall  be  determined  by  lot,  in  any  usual  man- 
ner, in  the  presence  of  the  President  or  Vice-President  or  other 
executive  officer,  for  the  time  being,  of  the  corporate  Trustee,  and  of 
a  notary  public,  and  the  corporate  Trustee  shall  at  the  expense  and 
cost  and  in  the  name  of  the  Company  cause  a  notice  to  be  published 
in  one  daily  newspaper  in  the  City  of  New  York,  and  one  daily  news- 
paper in  the  City  of  Chicago,  once  a  week  for  four  successive  weeks, 
the  first  publication  to  be  not  less  than  thirty  days  prior  to  the  first 
day  of  May,  then  next  ensuing,  stating  the  serial  numbers  of  the  bonds 
so  drawn,  and  that  interest  on  such  bonds  shall  cease  on  the  said  first 
day  of  May  and  that  on  such  date  there  will  become  and  be  due  and 
payable  on  each  of  said  bonds,  at  the  financial  agency  of  the  Company, 
in  the  City  of  New  York,  the  principal  thereof,  together  with  the 
premium  as  aforesaid,  and  accrued  interest  to  such  date,  and  requiring 
such  bonds  to  be  delivered  for  redemption  for  the  sinking  fund.  A 
similar  notice  shall  be  sent  by  the  Company  under  the  direction  and 
at  the  request  of  the  corporate  Trustee,  through  the  mails,  postage 
prepaid,  at  least  thirty  days  prior  to  such  redemption  day,  to  the  regis- 
tered holders  of  the  bonds  so  drawn  whose  addresses  shall  appear  from 
the  transfer  register.  Upon  such  advertisement  of  notice  the  said 
bonds  shall  become  due  and  be  payable  at  the  financial  agency  of  the 
Company  in  New  York,  on  the  interest  payment  day  named  in  said 
notice,  together  with  the  said  premium  of  five  per  cent,  of  the  prin- 
cipal thereof  and  all  interest  which  shall  have  then  accrued  and  be  un- 
paid, and  the  corporate  Trustee  shall  deposit  the  said  unexpended 
funds  with  the  financial  agency  of  the  Company  designated  as  set  forth 
in  Section  1  of  Article  Two  hereof,  with  directions  to  apply  the  same 
to  the  payment  of  said  bonds,  together  with  the  said  premium  in  ac- 
cordance with  the  provisions  hereof. 

SECTION  2. — After  May  1,  1914,  upon  previous  advertisement  of 
notice  as  hereinafter  in  this  section  provided,  the  Company  shall  have 
the  right  to  redeem  and  pay  off  on  any  interest  day  the  entire  issue 
of  the  bonds  then  outstanding  (but  not  any  part  less  than  the  entire 
outstanding  amount  thereof)  by  the  payment  of  the  principal  thereof 
together  with  a  premium  of  five  per  cent,  thereon  together  with  the 


222         MATERIALS    OF   COEPORATION    FINANCE 

interest  accruing  to  the  date  of  redemption  specified  in  such  notice. 
In  case  the  Company  shall  desire  to  exercise  such  right  to  redeem 
and  pay  off  such  entire  issue  of  bonds,  it  shall  advertise  in  two  daily 
newspapers  of  general  circulation,  one  published  in  the  Borough  of 
Manhattan  in  the  City  of  New  York  and  one  published  in  the  City  of 
Chicago,  Illinois,  at  least  once  a  week  for  four  successive  weeks  (the 
first  publication  to  be  not  less  than  thirty  days  and  not  more  than 
forty  days  before  the  date  of  redemption  specified  in  such  notice), 
stating  that  the  Company  has  elected  to  redeem  and  pay  off  all  of 
the  bonds  and  that  on  such  interest  payment  date  there  will  become 
and  be  due  and  payable  upon  each  of  said  bonds  at  the  financial 
agency  of  the  Company  in  the  Borough  of  Manhattan  in  the  City  of 
New  York  the  principal  thereof  together  with  the  premium  as  afore- 
said and  accrued  interest  to  such  date.  A  similar  notice  shall  be 
sent  by  the  Company  through  the  mails  postage  prepaid  at  least  thirty 
days  prior  to  such  redemption  date  to  the  registered  holders  of  bonds 
whose  addresses  shall  appear  upon  the  transfer  register.  Upon  such 
advertisement  of  such  notice  the  entire  issue  of  bonds  shall  become 
and  be  due  and  payable  on  the  interest  payment  date  designated  as 
the  day  of  redemption  in  said  notice,  together  with  the  premium  of 
five  per  cent,  on  the  principal  thereof  and  all  interest  which  shall 
have  then  accrued  and  be  unpaid. 

On  the  deposit  with  the  corporate  Trustee  of  the  amount  neces- 
sary so  to  redeem  all  the  outstanding  bonds  together  with  proof  that 
said  notice  of  redemption  has  been  given  by  publication  and  by  mail, 
as  hereinbefore  provided  for,  and  on  payment  to  the  Trustees  and 
each  of  them  of  all  costs,  charges  and  expenses,  the  Trustees  shall 
cancel  and  satisfy  this  indenture  and  assign  or  cause  to  be  assigned 
and  shall  deliver  to  the  Company  forthwith  the  stocks,  notes,  bonds, 
mortgages,  and  any  and  all  other  securities  pledged  hereunder.  The 
said  amount  so  deposited  with  the  corporate  Trustee  shall  be  applied 
by  said  Trustee  to  the  payment  and  redemption  of  the  bonds  and 
coupons  in  accordance  with  the  provisions  hereof. 

SECTION  3. — The  sum  due  for  principal  and  premium  on  each  bond 
called  for  redemption  pursuant  to  the  foregoing  provisions  shall  be 
payable  to  the  bearer  of  such  bond  unless  it  shall  have  been  registered, 
and  if  it  shall  have  been  registered  such  payment  shall  be  made  to 
the  registered  holder  of  such  bond,  but  in  no  case  shall  payment  be 
required,  except  upon  surrender  of  such  bond  and  of  all  coupons  for 
interest  thereon  not  due  at  the  date  of  redemption  designated  in  such 
notice.  The  accrued  interest  represented  by  the  coupons  maturing  on 
the  date  of  redemption  designated  in  any  notice  given  pursuant  to 
the  provisions  of  any  of  the  foregoing  sections,  and  the 'interest  rep- 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE        223 

resented  by  coupons  that  shall  have  matured  prior  to  such  date,  shall 
continue  to  be  payable  but  without  interest  thereon,  to  the  respective 
bearers  of  such  coupons  as  therein  provided.  From  and  after  the  date 
of  redemption  designated  in  any  such  notice  (unless  default  shall  be 
made  in  payment  upon  demand  on  such  date),  no  further  interest 
shall  accrue  upon  any  of  said  bonds  so  called  for  redemption  and,  any- 
thing in  said  bonds  or  in  such  coupons  or  in  this  indenture  to  the 
contrary  notwithstanding,  any  coupon  appertaining  to  any  such  bond 
for  interest  maturing  after  such  date  shall  become  and  be  null  and 
void. 

SECTION  4. — All  bonds  redeemed  and  paid  hereunder,  or  deliv- 
ered to  the  corporate  Trustee  for  the  sinking  fund  in  lieu  of  cash  as 
above  provided,  or  acquired  for  the  sinking  fund  under  the  provi- 
sions of  this  Article,  shall,  together  with  the  coupons  thereunto  be- 
longing, be  forthwith  cancelled  and  immediately  surrendered  to  the 
Company,  and  no  bonds  shall  be  issued  under  the  provisions  of  this 
indenture  in  substitution  therefor. 


ARTICLE  FIVE 
REMEDIES  OF  TRUSTEES  AND  BONDHOLDERS 

SECTION  1. — If  one  or  more  of  the  following  events,  herein  called 
the  events  of  default,  shall  happen,  that  is  to  say : 

(a)  default  shall  be  made  in  the  payment  of  any  instalment 
of  interest  on  any  of  the  bonds  or  any  sinking  fund  payment 

•  when  and  as  the  same  shall  become  payable  as  therein  and  herein 
expressed  and  such  default  shall  continue  for  the  space  of  60 
days,  or  default  shall  be  made  in  the  payment  of  the  principal 
of  any  of  said  bonds  when  the  same  shall  become  due  and  pay- 
able, either  by  the  terms  thereof,  or  otherwise  as  herein  pro- 
vided ; 

(b)  default  shall  be  made  in  the  observance  or  performance 
of  any  other  of  the  covenants,  conditions  and  agreements  on  the 
part  of  the  Company,  its  successors  or  assigns,  in  the  bonds  or 
in  this  indenture  contained,  and  such  default  shall  continue  for 
the  space  of  six  months  after  written  notice  from  the  Trustees 
or  either  of  them  specifying  such  default  and  requiring  the  same 
to  be  remedied; 

(c)  an  order  shall  be  made  for  the  appointment  of  a  per- 
manent receiver  or  receivers  of  the  Company,  or  of  the  trust 
estate ; 


(d)  any  judgment  or  decree  for  a  sum  of  money  shall  be 
entered  against  the  Company  and  shall  remain  unsatisfied  and 
in  force  and  unsecured  by  undertaking  on  appeal  for  thirty  days 
after  the  entry  thereof  and  the  expiration  of  any  stay  of  execu- 
tion thereon; 

then  and  in  each  and  every  such  case  the  individual  Trustee,  if  the 
corporate  Trustee  deem  it  advisable,  personally,  or  by  his  agents  or 
attorneys,  may  enter  into  and  upon  all  or  any  part  of  the  lands, 
property  and  premises,  interests,  rights  and  franchises  hereby  con- 
veyed or  intended  so  to  be,  and  each  and  every  part  thereof,  and  may 
exclude  the  Company,  its  agents  and  servants  wholly  therefrom;  and, 
having  and  holding  the  same,  may  use,  operate,  manage  and  control 
said  property  and  premises,  and  conduct  the  business  thereof,  either 
personally  or  by  his  superintendents,  managers,  agents,  servants  and 
attorneys  or  receivers ;  and  upon  every  such  entry  the  individual  Trus- 
tee, at  the  expense  of  the  trust  estate,  from  time  to  time,  either  by 
purchase,  repairs  or  construction  may  maintain  and  restore  and  may 
insure  or  keep  insured  the  buildings  and  structures,  tools  and  ma- 
chinery and  other  property  and  premises,  whereof  he  shall  become 
possessed,  as  aforesaid,  in  the  same  manner  and  to  the  same  extent 
as  is  usual  with  companies  of  a  character  similar  to  the  Company; 
and  likewise  from  time  to  time,  at  the  expense  of  the  trust  estate, 
may  make  all  necessary  or  proper  repairs,  renewals  and  replacements, 
and  useful  alterations,  additions,  betterments  and  improvements 
thereto  and  thereon,  as  to  him  may  seem  judicious ;  and  in  such  case 
the  individual  Trustee  shall  have  the  right  to  manage  the  mortgaged 
plants,  lands  and  property,  and  to  carry  on  the  business  and  exercise 
all  rights  and  powers  of  the  Company,  either  in  the  name  of  the 
Company  or  otherwise,  as  he  shall  deem  best;  and  he  shall  be  en- 
titled to  collect  and  receive  all  earnings,  income,  rents,  issues  and 
profits  of  the  same  and  every  part  thereof;  and  also  the  income  from 
stocks  and  bonds  and  other  obligations  and  indebtedness  subject 
to  this  indenture;  and  after  deducting  the  expenses  of  conducting 
the  business  thereof  and  of  all  maintenance,  repairs,  renewals,  re- 
placements, alterations,  additions,  betterments  and  improvements,  and 
all  payments  which  may  be  made  for  taxes,  assessments,  insurance, 
and  prior  or  other  proper  charges  upon  the  trust  estate,  or  any  part 
thereof,  as  well  as  just  and  reasonable  compensation  for  the  services 
of  the  Trustees  and  each  of  them  and  for  all  attorneys,  counsel,  agents, 
clerks,  servants  and  other  employees  by  them  or  either  of  them  prop- 
erly engaged  and  employed,  the  individual  Trustee  shall  apply  the 
moneys  arising  as  aforesaid,  as  follows : 


JONES-LAUGHLIN    STEEL    CO.    MORTGAGE        225 

(a)  In  case  the  principal  of  the  bonds  shall  not  have  become 
due,  to  the  payment  of  the  interest  in  default,  in  the  order  of 
the  maturity  of  the  instalments  of  such  interest,  with  interest  on 
the  overdue  instalments  at  the  rate  of  five  per  centum  per  annum, 
such  payments  to  be  made  ratably  to  the  persons  entitled  thereto, 
without  discrimination  or  preference ; 

(b)  In  case  the  principal  of  the  bonds  shall  have  become  due 
by  declaration  or  otherwise,  first  to  the  payment  of  the  accrued 
interest,  with  interest  on  the  overdue  instalments  thereof  at  the 
rate  of  five  per  centum  per  annum,  in  the  order  of  the  maturity 
of  the  instalments,  and  next  to  the  payment  of  the  principal 
of  all  the  bonds,  in  every  instance  such  payments  to  be  made 
ratably  to  the  persons  entitled  to  such  payments,  without  any 
discrimination  or  preference. 

These  provisions,  however,  are  not  intended  in  any  case  to  modify 
the  provisions  of  section  2  of  this  Article,  but  are  subject  thereto. 

Upon  the  default  or  defaults  then  existing,  and  of  which  the  cor- 
porate Trustee  shall  have  had  notice,  being  made  good  to  the  satisfac- 
tion of  the  Trustees,  and  the  payment  in  full  of  whatever  may  have 
been  due  for  principal  or  interest  or  be  payable  for  other  purposes, 
and  after  provision  satisfactory  to  the  corporate  Trustee  is  made  for 
the  payment  of  the  semi-annual  instalment  of  interest  upon  the  bonds 
and  the  sinking  fund  payment  then  next  maturing,  the  premises  shall, 
at  the  request  of  the  Company,  be  returned  to  the  Company,  its  suc- 
eors  or  assigns. 

SECTION  2. — Neither  any  coupon  belonging  to  any  bond,  nor  any 
claim  for  interest  on  any  bond,  which  in  any  way  at  or  after  maturity 
shall  have  been  transferred  or  pledged  separate  and  apart  from  the 
bond  to  which  it  relates,  shall,  unless  accompanied  by  such  bond,  be 
entitled,  in  case  of  the  happening  of  an  event  of  default,  to  any 
benefit  of  or  from  this  indenture  except  after  the  prior  payment 
in  full  of  the  principal  of  all  the  bonds  and  of  all  coupons  and  interest 
obligations  not  so  transferred  or  pledged. 

SECTION  3. — If  one  or  more  of  the  events  of  default  shall  happen, 
the  Trustees  or  the  corporate  Trustee  shall  be  entitled  to  revoke  any 
proxies  or  powers  of  attorney  which  they  or  it  may  have  given,  and 
to  vote,  or  cause  such  person  as  they  or  it  may  deem  best  to  vote,  on 
all  shares  of  stock  then  subject  to  the  lien  of  this  indenture,  and  shall 
revoke  any  assignments  or  orders  for  the  payment  of  interest,  divi- 
dends or  income  which  they  or  it  may  have  given,  and  shall  be  en- 
titled to  collect  and  receive  all  dividends,  interest  and  income  pay- 
able on  shares  of  stock  and  bonds  or  notes  or  other  indebtedness  sub- 


226         MATERIALS    OF    CORPORATION    FINANCE 

ject  to  this  indenture,  as  well  as  the  principal  thereof;  and,  as  holder 
of  any  such  shares  of  stock  and  of  any  such  bonds  or  obligations  or 
other  indebtedness,  shall  be  entitled  to  perform  any  and  all  acts,  and 
to  make  or  execute  any  and  all  transfers,  requests,  requisitions  or 
other  instruments,  for  the  purpose  of  carrying  out  the  provisions  of 
this  section;  and  the  Company  hereby  authorizes  and  directs  all  cor- 
porations whose  stocks,  bonds,  notes  or  other  indebtedness  are  held 
hereunder  in  such  event  to  pay  to  the  corporate  Trustee  hereunder 
all  such  dividends  and  sums  payable  as  aforesaid ;  but  in  the  event  that 
a  receiver  shall  have  been  appointed  and  shall  be  in  possession  of  the 
mortgaged  premises  or  a  part  thereof  in  the  enforcement  of  this  in- 
denture, or  pursuant  to  the  provisions  hereof,  the  Trustees  or  the 
corporate  Trustee  from  time  to  time  in  their  or  its  discretion  may, 
and,  if  requested  by  the  holders  of  three-fourths  in  amount  of  the 
outstanding  bonds  shall,  turn  over  any  part  or  all  of  the  interest 
moneys  and  dividends  so  collected  by  them  or  it  to  such  receiver,  and 
may  co-operate  with  such  receiver  in  managing  the  entire  property 
and  business  of  the  Company  in  such  manner,  as  the  corporate  Trus- 
tee shall  deem  for  the  best  interest  of  the  holders  of  the  bonds;  pro- 
vided, however,  that  if  such  default  shall  have  been  made  good  or 
shall  have  been  waived,  as  herein  provided,  the  right  of  the  Company 
to  vote  upon  any  such  shares  and  the  obligation  of  the  Trustees  or 
corporate  Trustee  to  execute  proxies  and  powers  of  attorney  as  herein 
expressly  provided  for,  shall  revive  and  shall  continue  as  though 
no  such  default  had  taken  place,  and  the  right  of  the  Company  to 
receive  and  collect  such  dividends  on  such  stocks  and  such  interest 
on  such  bonds,  notes  and  other  obligations,  and  the  rights  and  duty 
of  the  Trustees  with  respect  thereto  shall  be  as  though  such  default 
had  not  taken  place,  and  after  the  payment  in  full  of  whatever  may 
have  been  due  hereunder  for  principal  or  interest,  or  be  payable  for 
other  purposes,  and  after  making  provision  satisfactory  to  the  cor- 
porate Trustee  for  the  payment  of  the  instalment  of  interest  and  the 
sinking  fund  payment  then  next  maturing,  the  Trustees  or  corporate 
Trustee  shall  return  to  the  Company  the  amount,  if  any  there  be, 
of  any  such  dividends,  interest  and  income  collected  by  them  or  it 
and  then  remaining  unexpended  in  their  hands  which  would  have 
been  receivable  by  the  Company  if  there  had  been  no  default.  The 
net  receipts  by  the  Trustees  or  the  corporate  Trustee,  pursuant  to 
the  provisions  of  this  section,  for  dividends,  interest  and  income, 
may,  and  at  the  written  request  of  the  holders  of  a  majority  in  amount 
of  the  bonds  then  outstanding  shall  be  applied  as  provided  in  Section  1 
of  this  Article ;  provided  that,  except  in  the  discretion  of  the  corporate 
Trustee,  no  distribution  involving  the  part  payment  of  any  coupons 
shall  be  made. 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE        227 

SECTION  4. — If  any  one  or  more  of  the  events  of  default  shall 
happen,  then  and  in  every  such  case,  the  Trustees  or  the  corporate 
Trustee,  by  notice  in  writing  delivered  to  the  Company  or  mailed  to 
it  postage  prepaid  at  Pittsburgh,  Pennsylvania,  may,  and  upon  the 
written  request  of  the  holders  of  a  majority  in  amount  of  the  bonds 
then  outstanding  shall,  declare  the  principal  of  all  the  bonds  then 
outstanding,  if  not  already  due,  to  be  due  and  payable  immediately, 
and  upon  any  such  declaration  the  same  shall  become  and  be  imme- 
diately due  and  payable,  anything  in  this  indenture  or  in  the  bonds 
contained  to  the  contrary  notwithstanding.  This  provision,  however, 
is  subject  to  the  condition  that  if,  at  any  time  after  the  principal 
of  said  bonds  shall  have  been  so  declared  due  and  payable,  and  be- 
fore any  sale  of  the  trust  estate  shall  have  been  made,  all  arrears  of 
interest  upon  all  the  bonds,  with  interest  on  overdue  instalments  of 
interest  at  the  rate  of  five  per  centum  per  annum,  and  all  amounts 
in  arrear  payable  for  the  sinking  fund,  together  with  all  other  amounts, 
except  the  principal  of  the  bonds,  including  the  reasonable  charges 
and  expenses  of  the  Trustees  and  each  of  them,  their  and  its  agents 
and  attorneys,  and  of  any  receiver  or  receivers  theretofore  appointed, 
shall  either  be  paid  by  the  Company  or  be  collected  out  of  the  trust 
estate,  then  and  in  every  such  case  the  holders  of  a  majority  in 
amount  of  the  bonds  then  outstanding  by  written  notice  to  the  Com- 
pany and  to  the  coroporate  Trustee,  may  waive  such  default  and  its 
consequences  but  no  such  waiver  shall  extend  to  or  affect  any  subse- 
quent default  or  impair  any  right  consequent  thereon. 

SECTION  5. — If  one  or  more  of  the  events  of  default  shall  happen, 
the  Trustees,  with  or  without  entry,  personally  or  by  attorney,  in  the 
discretion  of  the  corporate  Trustee  either  (a)  may  sell  to  the  high- 
est and  best  bidder,  all  and  singular  the  property  and  premises  cov- 
ered by  this  indenture,  including  stocks  and  bonds,  rights,  franchises, 
interests  and  appurtenances,  and  other  real  and  personal  property  of 
every  kind,  and  all  right,  title  and  interest,  claim  and  demand  there- 
in, and  right  of  redemption  thereof;  which  sale  or  sales  shall  be  made 
at  public  auction  at  such  place  in  the  Borough  of  Manhattan,  City 
of  New  York,  or  at  such  other  place,  and  at  such  time  and  upon  such 
forms,  as  the  Trustees  may  fix  and  briefly  specify  in  the  notice  of 
sale  to  be  given  as  herein  provided,  or  as  may  be  required  by  law; 
or  (6)  may  proceed  to  protect  and  enforce  their  rights  and  the  rights 
of  bondholders  under  this  indenture,  by  a  suit  or  suits  in  equity  or 
at  law,  whether  for  the  specfic  performance  of  any  covenant  or  agree- 
ment contained  herein,  or  in  aid  of  the  execution  of  any  power  herein 
granted,  or  for  any  foreclosure  hereunder,  or  for  the  enforcement  of 
any  other  appropriate  legal  or  equitable  remedy,  as  the  Trustees, 


228         MATERIALS    OF    CORPORATION    FINANCE 

being  advised  by  counsel  learned  in  the  law,  shall  deem  most  effectual 
to  protect  and  enforce  any  of  its  rights  or  duties  hereunder. 

SECTION  6. — Upon  the  written  request  of  the  holders  of  ten  per 
cent,  in  amount  of  the  bonds  then  outstanding,  in  case  one  or  more 
of  the  events  of  default  shall  happen,  it  shall  be  the  duty  of  the  Trus- 
tees, upon  being  indemnified  as  hereinafter  provided,  to  take  all  steps 
needful  for  the  protection  and  enforcement  of  their  rights  and  the 
rights  of  the  holders  of  the  bonds,  and  to  exercise  the  power  of  entry 
or  of  sale  herein  conferred,  or  both,  or  to  take  appropriate  judicial 
proceedings  by  action,  suit  or  otherwise  as  the  Trustees,  being  ad- 
vised by  counsel  learned  in  the  law,  shall  deem  most  expedient  in  the 
interest  of  the  holders  of  the  bonds  ;•  but  anything  in  this  indenture 
to  the  contrary  notwithstanding,  the  holders  of  a  majority  in  amount 
of  the  bonds  then  outstanding,  from  time  to  time,  shall  have  the  right 
to  direct  and  to  control  the  method  and  place  of  conducting  any  and 
all  proceedings  for,  and  the  manner  of,  any  sale  of  the  premises  and 
property  subject  to  this  indenture. 

SECTION  7. — In  the  event  of  any  sale,  whether  made  under  the 
power  of  sale  herein  granted  or  conferred,  or  under  some  judgment 
or  decree  of  foreclosure  and  sale,  or  under  or  by  virtue  of  any  judicial 
proceedings,  the  whole  of  the  property  subject  to  this  indenture  shall 
be  sold  in  one  parcel  and  as  an  entirety,  including  all  the  rights, 
title,  estates,  lands,  factories,  equipment,  franchises,  leases,  leasehold 
interests,  contracts,  stocks,  bonds  and  other  real  and  personal  prop- 
erty of  every  name  and  nature,  unless  such  sale  as  an  entirety  be  im- 
practicable by  reason  of  some  statute  or  other  cause,  or  unless  the 
holders  of  a  majority  in  amount  of  the  bonds  then  outstanding  shall 
in  writing  request  the  Trustees  to  cause  said  property  to  be  sold  in 
parcels,  in  which  case  the  sale  shall  be  made  in  such  parcels  and  in 
such  order  as  may  be  required  by  law  or  be  specified  in  such  request 
or,  in  the  absence  of  such  request,  as  the  corporate  Trustee  may  de- 
termine. The  Company,  for  itself  and  all  persons  and  corporations 
hereafter  claiming  through  or  under  it  or  who  may  at  any  time 
hereafter  become  holders  of  liens  junior  to  the  lien  of  this  indenture, 
hereby  expressly  waives  and  releases  all  right  to  have  the  properties 
and  estate  comprised  in  the  security  intended  to  be  created  by  this 
indenture  marshalled  upon  any  foreclosure  or  other  enforcement 
hereof,  and  the  Trustees,  or  any  court  in  which  the  foreclosure  of  this 
mortgage  or  administration  of  the  trusts  hereby  created  is  sought, 
shall  have  the  right  as  aforesaid  to  sell  the  entire  property  of  every 
description  comprised  in  or  subject  to  the  trusts  created  by  this  in- 
denture as  a  whole  in  a  single  lot. 


JONES-LAUGHLIN   STEEL   CO.   MORTGAGE       229 

SECTION  8. — Notice  of  any  sale  pursuant  to  any  provision  of  this 
indenture  shall  state  the  time  and  place  when  and  where  the  same 
is  to  be  made,  and  shall  contain  a  brief  general  description  of  the 
property  to  be  sold,  and  shall  be  sufficiently  given  if  published  once 
in  each  week  for  four  successive  weeks  prior  to  such  sale  in  three 
daily  newspapers  of  general  circulation,  one  published  in  the  City  of 
Chicago,  Illinois,  one  published  in  the  City  of  New  York,  and  one 
published  in  the  City  of  Pittsburgh,  Pennsylvania. 

SECTION  9. — The  Trustees  may  adjotirn  from  time  to  time  any 
sale  by  it  to  be  made  under  the  provisions  of  this  indenture,  by  an- 
nouncement at  the  time  and  place  appointed  for  such  -sale,  or  for 
any  adjourned  sale  or  sales;  and  without  further  notice  or  publica- 
tion, it  may  make  such  sale  at  the  time  and  place  to  which  the  same 
shall  be  so  adjourned. 

SECTION  10. — Upon  the  completion  of  any  sale  or  sales  under  this 
indenture,  the  Trustees  shall  execute  and  deliver  to  the  accepted  pur- 
chaser or  purchasers  a  good  and  sufficient  deed,  or  good  and  suffi- 
cient deeds,  and  other  instruments  conveying,  assigning  and  trans- 
ferring the  properties,  interests  and  franchises  sold.  The  corporate 
Trustee  and  its  successors  are  hereby  appointed  the  true  and  lawful 
attorneys  irrevocable  of  the  Company  and  of  the  Trustees  and  of 
the  individual  Trustee  in  its  or  their  name  and  stead  to  make  all 
necessary  conveyances,  assignments  and  deliveries  of  property  and 
all  necessary  transfers  of  shares  of  stock  or  bonds,  or  other  obligations 
or  indebtedness  thus  sold;  and  for  that  purpose  it  and  its  successors 
may  execute  all  necessary  deeds  and  instruments  of  assignment  and 
transfer,  and  may  substitute  one  or  more  persons  with  like  power; 
the  Company  and  the  Trustees  hereby  ratifying  and  confirming  all 
that  its  and  their  said  attorney  or  attorneys  or  such  substitute  or 
substitutes  shall  lawfully  do  by  virtue  hereof. 

Any  such  sale  or  sales  made  under  or  by  virtue  or  this  indenture, 
whether  under  the  power  of  sale  herein  granted,  or  under  or  by  vir- 
tue of  judicial  proceedings,  shall  operate  to  divest  all  right,  title, 
interest,  claim  and  demand  whatsoever,  whether  at  law,  or  in  equity, 
of  the  Company,  of,  in  and  to  the  premises  and  property  so  sold, 
and  shall  be  a  perpetual  bar  both  at  law  and  in  equity  against  the 
Company,  its  successors  and  assigns,  and  against  any  and  all  persons 
claiming  or  to  claim  the  premises,  and  property  sold,  or  any  part 
thereof  from,  through  or  under  the  Company,  its  successors  or  assigns. 

The  personal  property  and  chattels  conveyed  or  intended  to  be  con- 
veyed by  or  pursuant  to  this  indenture,  other  than  stocks,  bonds,  notes 
and  other  securities  and  claims,  shall  be  real  estate  for  all  the  purposes 
of  this  indenture,  and  shall  be  held  and  taken  to  be  fixtures  and 


230         MATEEIALS    OP   CORPORATION   FINANCE 

appurtenances  of  the  real  property  conveyed  and  part  thereof  and 
are  to  be  used  and  sold  therewith  and  not  separate  therefrom,  except 
as  herein  otherwise  provided. 

SECTION  11. — The  receipt  of  the  Trustees  or  of  the  corporate 
Trustee  for  the  purchase  money  paid  at  any  such  sale  shall  be  a  suf- 
ficient discharge  therefor  to  any  purchaser  of  the  property  or  any  part 
thereof,  sold  as  aforesaid;  and  no  such  purchaser  or  his  representa- 
tives, grantees  or  assigns,  after  paying  such  purchase  money  and 
receiving  such  receipt,  shall  be  bound  to  see  to  the  application  of  such 
purchase  money  upon  or  for  any  trust  or  purpose  of  this  indenture, 
or  in  any  manner  whatsoever  be  answerable  for  any  loss,  misapplica- 
tion or  non-application  of  any  such  purchase  money  or  any  part 
thereof,  nor  shall  any  such  purchaser  be  bound  to  inquire  as  to  the 
authorization,  necessity,  expediency  or  regularity  of  any  such  sale. 

SECTION  12. — In  case  of  a  sale  under  any  of  the  foregoing  provi- 
sions of  this  Article,  whether  made  under  the  power  of  sale  herein 
granted  or  pursuant  to  any  judicial  proceedings,  the  principal  of  the 
bonds,  if  not  previously  due,  shall  immediately  thereupon  become  due 
and  payable,  anything  in  said  bonds  or  in  this  indenture  to  the  con- 
trary notwithstanding. 

SECTION  13. — The  purchase  money,  proceeds  or  avails  of  any  such 
sale,  whether  under  the  power  of  sale  herein  granted  or  pursuant  to 
judicial  proceedings,  together  with  any  other  amounts  which  then 
may  be  held  by  the  Trustees  or  either  of  them  under  any  of  the 
provisions  of  this  indenture  as  part  of  the  trust  estate  or  the  pro- 
ceeds thereof,  whether  under  the  provisions  of  Article  Pour  or  other 
wise,  shall  be  applied  as  follows : 

First. — To  the  payment  of  the  costs  and  expenses  of  such  sale, 
including  a  reasonable  compensation  to  the  Trustees,  their  agents, 
attorneys  and  counsel,  and  of  any  judicial  proceeding  wherein 
the  same  may  be  made,  and  of  all  expenses,  liabilities  and  ad- 
vances made  or  incurred  by  the  Trustees  or  either  of  them  in 
the  premises,  and  to  the  payment  of  all  taxes,  assessments  or 
liens  superior  to  the  lien  of  this  indenture,  except  the  superior 
liens  and  any  taxes,  assessments  or  other  charges,  subject  to  which 
the  property  shall  have  been  sold ; 

Second. — To  the  payment,  of  the  whole  amount  then  owing  or 
unpaid  upon  the  bonds  for  principal  and  interest,  with  interest 
on  the  overdue  principal  and  instalments  of  interest  at  the  rate 
of  five  per  cent,  a  year;  and  in  case  such  proceeds  shall  be  in- 
sufficient to  pay  in  full  the  whole  amount  so  due  and  unpaid 
upon  said  bonds,  then  to  the  payment  of  the  principal  and  in- 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE       231 

terest  of  said  bonds,  without  preference  or  priority  of  principal 
over  interest,  or  of  interest  over  principal,  or  of  any  instalment 
of  interest  over  any  other  instalment  thereof,  ratably  to  the 
aggregate  of  such  principal  and  the  accrued  and  unpaid  interest, 
subject,  however,  to  the  provisions  of  Section  2  of  this  Article 
Five; 

Third. — To  the  payment  of  the  surplus,  if  any,  to  the  Com- 
pany, its  successors  or  assigns,  or  to  whosoever  may  be  lawfully 
entitled  to  receive  the  same,  or  as  any  court  of  competent  juris- 
diction may  direct. 

SECTION  14. — In  case  of  any  sale  hereunder  whether  under  the 
power  of  sale  herein  granted  or  pursuant  to  judicial  proceedings,  any 
purchaser,  for  or  in  settlement  or  payment  of  the  purchase  price  of 
the  property  purchased,  shall  be  entitled  to  use  and  apply  any  of  the 
bonds,  and  any  matured  and  unpaid  coupons  (subject,  however,  to 
the  provisions  of  Section  2  of  this  Article),  by  presenting  such  bonds 
and  coupons  in  order  that  there  may  be  credited  thereon  the  sums 
applicable  to  the  payment  thereof  out  of  the  net  proceeds  of  such 
sale  to  the  owner  of  such  bonds  and  coupons  as  his  ratable  share  of 
such  net  proceeds,  after  the  deduction  of  all  costs,  expenses,  com- 
pensations and  other  charges  to  be  paid  therefrom  as  herein  pro- 
vided ;  and  thereupon  such  purchaser  shall  be  credited,  on  account  of 
such  price  payable  by  him,  with  the  portion  of  such  net  proceeds  that 
shall  be  applicable  to  the  payment  of,  and  that  shall  have  been  cred- 
ited upon,  the  bonds  and  coupons  so  presented ;  and  at  any  such  sale, 
the  Trustees  or  either  of  them  or  any  bondholders  may  bid  for -and 
purchase  such  property,  and  may  make  payment  therefor  as  afore- 
said, and  upon  compliance  with  the  terms  of  sale,  may  hold,  retain 
and  dispose  of  such  property  without  further  accountability. 

SECTION  15. — The  Company  covenants  that  (1)  in  case  default 
shall  be  made  in  the  payment  of  any  interest  on  any  of  the  bonds 
at  any  time  outstanding,  and  such  default  shall  have  continued  for 
a  period  of  60  days,  or  (2)  in  case  default  shall  be  made  in  the  pay- 
ment of  the  principal  of  any  such  bonds  when  the  same  shall  become 
[•ayable,  whether  upon  the  maturity  of  said  bonds  or  upon  declaration 
as  authorized  by  this  indenture,  or  upon  a  sale  as  set  forth  in  Section 
12  of  this  Article,  or  otherwise,  then  upon  demand  of  the  corporate 
Trustee,  the  Company  will  pay  to  the  Trustees  for  the  benefit  of  the 
holders  of  the  bonds  and  coupons  then  outstanding,  the  whole  amount 
which  then  shall  have  become  due  and  payable  on  all  such  bonds  and 
coupons  then  outstanding,  for  interest  or  principal,  or  both,  as  the 


232         MATERIALS    OP    CORPORATION    FINANCE 

case  may  be,  with  interest  upon  the  overdue  principal  and  instalments 
of  interest  at  the  rate  of  five  per  cent,  a  year;  and  in  case  the  Com- 
pany shall  fail  to  pay  the  same  forthwith  upon  such  demand,  the 
Trustees  in  their  own  name  and  as  trustees  of  an  express  trust,  shall 
be  entitled  to  recover  judgment  for  the  whole  amount  so  due  and 
unpaid. 

The  Trustees  shall  be  entitled  to  recover  judgment  as  aforesaid, 
either  before  or  after  or  during  the  pendency  of  any  proceedings  for 
the  enforcement  of  the  lien  of  this  indenture;  and  the  rights  of  the 
Trustees  to  recover  such  judgment  shall  not  be  affected  by  any  entry 
or  sale  hereunder,  or  by  the  exercise  of  any  other  right,  power  or 
remedy  for  the  enforcement  of  the  provisions  of  this  indenture  or  the 
foreclosure  of  the  lien  thereof;  and  in  case  of  a  sale  of  the  property 
subject  to  this  indenture,  and  of  the  application  of  the  proceeds  of 
sale  to  the  payment  of  the  debt  hereby  secured,  the  Trustees,  in  their 
own  name  and  as  trustees  of  an  express  trust,  shall  be  entitled  to  en- 
force payment  of  and  to  receive  all  amounts  then  remaining  due  and 
unpaid  upon  any  and  all  of  the  bonds  then  outstanding  for  the  benefit 
of  the  holders  thereof,  and  shall  be  entitled  to  recover  judgment  for 
any  portion  of  the  debt  remaining  unpaid,  with  interest.  No  recovery 
of  any  such  judgment  by  the  Trustees,  and  no  levy  of  any  execution 
under  any  such  judgment  upon  the  property  subject  to  this  indenture, 
or  upon  any  other  property,  shall  in  any  manner  or  to  any  extent 
affect  the  lien  of  this  indenture  upon  the  property,  or  any  part  of  the 
property,  subject  to  this  indenture,  or  any  rights,  powers  or  remedies 
of  the  Trustees  or  either  of  them  hereunder,  or  any  lien,  rights,  powers 
or  remedies  of  the  holders  of  the  bonds,  but  such  lien,  rights,  powers 
and  remedies  of  the  Trustees  and  of  each  of  them  and  of  the  bond- 
holders shall  continue  unimpaired  as  before. 

Any  moneys  thus  collected  by  the  Trustees  under  this  section  shall 
be  applied  by  the  Trustees  or  the  Trustee  receiving  the  same,  first,  to 
the  payment  of  the  expenses,  disbursements  and  compensation  of  the 
Trustees,  their  agents,  servants  and  attorneys,  and,  second,  towards 
payment  of  the  amounts  then  due  and  unpaid  upon  the  bonds  and 
interest  in  respect  of  which  such  moneys  shall  have  been  collected, 
ratably  and  without  any  preference  or  priority  of  any  kind  (except  as 
provided  in  Section  2  of  this  Article),  according  to  the  amounts  due 
and  payable  upon  such  bonds  and  coupons,  respectively  (with  interest 
upon  the  overdue  principal  and  instalments  of  interest  at  the  rate 
of  five  per  cent,  a  year),  at  the  date  fixed  by  the  Trustees  for  the 
distribution  of  such  moneys,  upon  presentation  of  the  several  bonds 
and  coupons  and  the  stamping  thereon  of  such  payment,  if  partly  paid, 
and  upon  surrender  thereof,  if  fully  paid. 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE        233 

SECTION  16. — The  Company  will  not  at  any  time  insist  upon  or 
plead,  or  in  any  manner  whatever  claim,  or  take  the  benefit  or  advan- 
tage of,  any  stay  or  extension  law,  now  or  at  any  time  hereafter  in 
force;  nor  will  it  claim,  take  or  insist  upon  any  benefit  or  advantage 
from  any  law  now  or  hereafter  in  force  providing  for  the  valuation 
or  appraisement  of  the  property,  or  any  part  of  the  property,  subject 
to  this  indenture,  prior  to  any  sale  or  sales  thereof  to  be  made 
pursuant  to  any  provisions  herein  contained,  or  to  the  decree,  judg- 
ment or  order  of  any  court  of  competent  jurisdiction ;  nor  after  any 
such  sale  or  sales  will  it  claim  or  exercise  any  right  under  any  statute 
enacted  by  the  United  States  or  by  any  state  or  territory  or  otherwise 
to  redeem  the  property  so  sold  or  any  part  thereof;  and  it  hereby 
expressly  waives  all  benefit  and  advantage  of  any  and  all  such  law  or 
laws  and  it  covenants  that  it  will  not  hinder,  delay  or  impede  the 
execution  of  any  power  herein  granted  and  delegated  to  the  Trustees 
or  either  of  thejn,  but  that  it  will  suffer  and  permit  the  execution  of 
every  such  power  as  though  no  such  law  or  laws  had  been  made  or 
enacted. 

SECTION  17. — Upon  filing  a  bill  in  equity,  or  upon  commencement 
of  any  other  judicial  proceedings,  to  enforce  any  right  of  the  Trustees 
or  either  of  them  or  of  the  bondholders  under  this  indenture,  the 
Trustees  shall  be  entitled,  as  matter  of  right,  to  the  appointment  of 
a  receiver  of  the  premises  and  property  subject  to  this  indenture,  and 
of  the  earnings,  income,  revenue,  rents,  issues  and  profits  thereof, 
with  such  powers  as  the  court  making  such  appointment  shall  confer, 
which  may  comprise  any  or  all  of  the  powers  which  the  individual 
Trustee  is  authorized  to  exercise  by  the  provisions  of  Section  1  of  this 
Article  in  case  of  entry  upon  the  mortgaged  premises;  but  notwith- 
standing the  appointment  of  any  receiver,  the  Trustees  or  the  corporate 
Trustee  shall  be  entitled,  as  pledgee,  to  continue  to  retain  possession 
and  control  of  any  stocks,  notes,  cash  and  other  property  pledged  or 
to  be  pledged  hereunder  and  to  receive  all  dividends,  interest  and 
other  sums  payable  thereon,  subject,  however,  to  the  provisions  of 
Section  3  of  this  Article. 

SECTION  18. — No  holder  of  any  bond  or  coupon  shall  have  any 
right  to  institute  any  suit,  action  or  proceeding  in  equity  or  at  law 
for  the  foreclosure  of  this  indenture,  or  for  the  execution  of  any  trust 
hereunder,  or  for  the  appointment  of  a  receiver,  or  for  any  other 
remedy,  hereunder,  unless  such  holder  previously  shall  have  given  to 
the  corporate  Trustee  written  notice  of  the  Company's  default  and 
of  the  continuance  thereof,  nor  unless  also  the  holders  of  ten  per  cent, 
in  amount  of  the  bonds  then  outstanding  shall  have  made  written 
request  upon  the  Trustees  and  shall  have  afforded  to  them  a  reasonable 


234         MATERIALS    OF    CORPORATION   FINANCE 

opportunity,  either  to  proceed  to  exercise  the  powers  hereinbefore 
granted,  or  to  institute  such  action,  suit  or  proceedings  in  their  own 
name;  and  shall  have  afforded  to  the  Trustees  adequate  security  and 
indemnity  against  the  costs,  expenses  and  liabilities  to  be  incurred 
therein  or  thereby ;  and  such  notification,  request  and  offer  of  indem- 
nity are  hereby  declared  in  every  such  case,  at  the  option  of  the  cor- 
porate Trustee,  to  be  conditions  precedent  to  the  execution  of  the 
powers  and  trusts  of  this  indenture  and  to  any  action  or  cause  of 
action  for  foreclosure  or  for  the  appointment  of  a  receiver  or  for 
any  other  remedy  hereunder;  it  being  understood  and  intended  that 
no  one  or  more  holders  of  the  bonds  and  coupons  shall  have  any 
right  in  any  manner  whatever  by  his  or  their  action  to  affect,  disturb 
or  prejudice  the  lien  of  this  indenture,  or  to  enforce  any  right 
hereunder,  except  in  the  manner  herein  provided,  and  that  all  pro- 
ceedings at  law  or  in  equity  shall  be  instituted,  had  and  maintained 
in  the  manner  herein  provided  and  for  the  equal  benefit  of  all  holders 
of  the  outstanding  bonds  and  coupons. 

SECTION  19. — Execept  as  herein  expressly  provided  to  the  contrary, 
no  remedy  herein  conferred  upon  or  reserved  to  the  Trustees  or  either 
of  them  or  to  the  holders  of  the  bonds  is  intended  to  be  exclusive  of 
any  other  remedy  or  remedies,  and  each  and  every  such  remedy  shall 
be  cumulative,  and  shall  be  in  addition  to  every  other  remedy  given 
hereunder  or  now  or  hereafter  existing  at  law  or  in  equity  or  by 
statute. 

SECTION  20. — No  delay  or  omission  of  the  Trustees  or  either  of 
them  or  of  any  holder  of  the  bonds  to  exercise  any  right  or  power 
accruing  upon  any  default  continuing  as  aforesaid,  shall  impair  any 
such  right  or  power  or  shall  be  construed  to  be  a  waiver  of  any  such 
default,  or  an  acquiescence  therein ;  and  every  power  and  remedy  given 
by  this  Article  to  the  Trustees  or  either  of  them  and  to  the  bond- 
holders, respectively,  may  be  exercised  from  time  to  time,  and  as 
often  as  may  be  deemed  expedient  by  the  Trustees  or  the  corporate 
Trustee  or  by  the  bondholders,  respectively. 

SECTION  21. — In  case  the  Trustees  or  either  of  them  shall  have 
proceeded  to  enforce  any  right  under  this  indenture  by  foreclosure, 
entry  or  otherwise,  and  such  proceedings  shall  have  been  discontinued 
or  abandoned  because  of  waiver  or  for  any  other  reason,  or  shall 
have  been  determined  adversely  to  the  Trustees,  then,  and  in  every 
such  case,  the  Company  and  the  Trustees  and  each  of  them  shall 
severally  and  respectively  be  restored  to  their  former  position  and 
rights  hereunder  in  respect  of  the  trust  estate,  and  all  rights,  remedies 
and  powers  of  the  Trustees  and  each  of  them  shall  continue  as  thougli 
no  such  proceedings  had  been  taken. 


JONES-LA CTGHLIN    STEEL   CO.    MORTGAGE        235 

ARTICLE  Six. 

IMMUNITY  OF  STOCKHOLDERS,  DIRECTORS  AND  OFFICERS. 

No  recourse  under  or  upon  any  obligation,  covenant  or  agreement 
contained  in  this  indenture,  or  in  any  of  the  bonds  or  coupons,  or 
under  or  upon  any  indebtedness  hereby  secured,  or  because  of  the 
creation  thereof,  shall  be  had  against  any  incorporator  of  the  Company 
or  any  stockholder,  director  or  officer,  past,  present  or  future,  of  the 
Company,  or  of  any  successor  corporation,  either  directly  or  through 
the  Company,  by  the  enforcement  of  any  assessment  or  by  any  legal 
or  equitable  proceedings  by  virtue  of  any  statute,  rule  of  law 'or  other- 
wise; it  being  expressly  agreed  and  understood  that  this  indenture 
and  the  obligations  hereby  secured  are  solely  corporate  obligations, 
and  that  no  personal  liability  whatever  shall  attach  to  or  be,  or  be 
deemed  to  have  been,  incurred  by  the  incorporators,  stockholders, 
officers  or  directors  of  the  Company,  or  of  any  successor  or  predecessor 
corporation,  or  any  of  them,  because  of  the  incurring  of  the  indebted- 
ness hereby  authorized,  or  under  or  by  reason  of  any  of  the  obligations, 
covenants  or  agreements  contained  in  this  indenture,  or  in  any^of  the 
bonds  or  coupons  hereby  secured,  or  implied  therefrom ;  and  that  any 
and  all  personal  liability  of  every  name  and  nature,  and  any  and  all 
rights  and  claims  against  every  such  incorporator,  stockholder,  officer 
or  director,  past,  present  or  future,  whether  arising  at  common  law 
or  in  equity,  or  created  by  statute  or  constitution,  are  hereby  expressly 
released  and  waived  as  a  condition  of,  and  as  part  of  the  consideration 
for,  the  execution  of  this  indenture  and  the  issue  of  the  bonds  and 
interest  obligations  hereby  secured. 

ARTICLE  SEVEN. 
BONDHOLDERS'  ACTS,  HOLDINGS  AND  APPARENT  AUTHORITY. 

Any  demand,  request,  notice,  waiver,  or  other  instrument  required 
by  this  indenture  to  be  signed  and  executed  by  bondholders  may  be  in 
any  number  of  concurrent  writings  of  the  same  tenor  and  may  be 
signed  or  executed  by  such  bondholders  in  person  or  by  agent  appointed 
in  writing.  Proof  of  the  execution  of  any  such  demand,  request,  notice, 
waiver  or  of  the  writing  appointing  any  such  agent,  or  other  instru- 
ment, and  of  the  ownership  by  any  person  of  coupon  bonds  trans- 
ferable by  delivery  or  of  coupons,  shall  be  sufficient  for  any  purpose 
of  this  indenture,  and  shall  be  conclusive  in  favor  of  the  Trustees  and 
each  of  them  and  of  the  Company  with  regard  to  due  action  taken  by 
them  or  either  of  them  under  such  instrument,  if  such  proof  be  made 

in  the  following  manner: 
9 


236         MATERIALS    OF   CORPORATION   FINANCE 

The  fact  and  date  of  the  execution  by  any  person  of  any  such 
demand,  request,  or  other  instrument  or  writing  may  be  proved  by 
the  certificate  of  any  notary  public  or  other  officer  of  any  jurisdiction 
authorized  by  the  law  thereof  to  take  acknowledgments  of  deeds  to 
be  recorded  therein  that  the  person  signing  such  request  or  other 
instrument  acknowledged  to  him  the  execution  thereof,  or  by  any 
affidavit  of  a  witness  to  such  execution. 

The  fact  of  the  holding  by  any  bondholder  of  coupon  bonds  trans- 
ferable by  delivery  or  of  coupons,  and  the  amounts  and  issue  numbers 
of  such  bonds  and  coupons,  and  the  date  of  his  holding  the  same,  may 
be  proved  by  a  certificate  executed  by  any  trust  company,  bank,  banker 
or  other  depositary  (wherever  situated),  if  such  certificate  shall  be 
deemed  by  the  corporate  Trustee  to  be  satisfactory,  showing  that  at 
the  date  therein  mentioned  such  bondholder  had  on  deposit  with  such 
depository  the  bonds  or  coupons  described  in  such  certificate.  For 
all  purposes  of  this  indenture  and  of  any  proceeding  for  the  enforce- 
ment thereof  such  person  shall  be  deemed  to  continue  the  holder  of 
such  bonds  or  coupons  until  the  corporate  Trustee  shall  have  received 
notic^  in  writing  to  the  contrary,  subject,  however,  to  the  provisions 
of  Section  6  of  Article  One  hereof.  The  ownership  of  bonds  registered 
as  to  principal  shall  be  proved  by  the  registry  of  such  bonds. 


ARTICLE  EIGHT. 
RELEASES  OF  MORTGAGED  PROPERTY. 

SECTION"  1. — If  at  any  time  any  property  of  whatsoever  kind  and 
nature  subject  to  the  lien  of  this  indenture,  including  stocks  and 
other  securities,  cannot  be  advantageously  used  in  the  proper  and 
judicious  operation  of  the  business  of  the  Company,  or,  if  the  sale 
or  disposition  thereof  has  become  necessary  or  advisable  for  any  cause, 
the  same  or  any  interest  therein  may  be  sold  or  exchanged  for  other 
property,  and,  upon  the  request  of  the  Company,  approved  by  a 
resolution  of  the  Board  of  Directors  in  favor  of  which  at  least  a 
majority  of  such  Board  shall  have  voted,  the.  Trustees  shall  release 
the  same  from  the  lien  and  effect  of  this  indenture  upon  the  following 
provisions  and  conditions: 

(a)  Before  any  such  property  (unless  the  same  in  the  judg- 
ment of  a  majority  of  the  members  of  the  Board  of  Directors  shall 
be  of  a  less  value  than  $50,000)  shall  be  sold,  the  same  shall  be 
appraised  by  an  appraiser  or  by  more  than  one  appraiser,  who 
shall  be  selected  by  the  corporate  Trustee. 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE        23v 

(&)  In  case  of  any  such  sale  of  property  or  of  any  interest 
therein  the  price  or  proceeds  of  sale,  not  less  than  the  value  of 
such  property  or  of  such  interest  therein  as  appraised  by  such 
appraiser  or  appraisers  (or  not  less  than  the  value  of  such  property 
as  determined  by  a  certificate  or  resolution  of  a  majority  of  the 
members  of  the  Board  of  Directors  in  case  of  property  deemed 
by  them  to  be  worth  less  than  $50,000)  or  a  sum  equal  to  such 
price  or  proceeds,  shall  be  deposited  with  the  corporate  Trustee 
to  be  held  for  the  further  security  of  the  bonds  until  paid  over 
or  applied  as  hereinafter  provided. 

(c)  In  case  of  an  exchange  the  property  received  in  exchange 
(which  must  be  property  free  and  clear  of  any  liens  and  encum- 
brances and  of  a  value  at  least  equal  to  the  value  of  the  property 
given  in  exchange  less  any  cash  that  may  be  received  in  exchange) 
shall  be  subjected  to  the  lien  and  operation  of  this  indenture 
and  any  cash  received  upon  any  such  exchange  shall  be  deposited 
as  above  provided  in  respect  to  the  proceeds  of  any  sale.  Tbe 
value  of  the  property  given  in  exchange  and  of  the  property  re- 
ceived in  exchange  shall  be  determined  by  an  appraiser  or  ap- 
praisers selected  by  the  corporate  Trustee,  or  in  case  said  property 
given  in  exchange  or  received  in  exchange  shall,  in  the  opinion 
of  a  majority  of  the  members  of  the  Board  of  Directors,  be  of  a 
value  less  than  $50,000,  shall  be  determined  by  a  certificate  or 
resolution  of  a  majority  of  the  members  of  the  Board  of  Directors 
of  the  Company. 

The  moneys  received  by  the  Trustees  or  either  of  them  upon  any 
such  sale  and  any  moneys  which  it  is  elsewhere  provided  in  this 
indenture  shall  be  applied  in  the  same  way  as  the  proceeds  of  released 
property,  shall  be  applied  as  and  when  directed  by  the  Company,  as 
follows : 

(1)  To  the  purchase  of  real  estate,  coal  or  ore  properties  or 
leases  of  coal  or  ore  properties,  or  the  erection  or  acquisition  of 
improvements,  buildings,  structures,  fixtures,  machinery  and  ap- 
paratus necessary  or  useful  for  the  business  of  the  Company  or 
otherwise  for  the  benefit  of  the  property  of  the  Company  upon 
which  this  indenture  is  a  first  lien,  all  of  which  real  estate,  coal 
or  ore  properties  or  leases  of  coal  or  ore  properties,  improvements, 
buildings,  structures,  fixtures,  machinery  and  apparatus  shall 
forthwith  be  or  shall  be  made  subject,  to  this  indenture  as  a 
first  lien  thereon. 


238         MATEEIALS    OF   COKPOBATION   FINANCE 

(2)  To  the  purchase  of  real  estate,  coal  or  ore  properties  or 
leases  of  coal  or  ore  properties,  for  any  company  (other  than  a 
railroad  or  steamship  company)    at  least  95  per  cent,  of  the 
capital  stock  whereof  shall  at  the  time  he  pledged  under  this 
indenture,  provided  that  for  all  amounts  so  expended  a  purchase 
money  bond  and  mortgage  or  purchase  money  bonds  and  mort- 
gages or  bonds  secured  by  a  first  mortgage  or  deed  of  trust  upon 
the  property  so  acquired   (or  in  case  the  property  so  acquired 
shall  be  acquired  subject  to  any  mortgage,  lien  or  other  charge, 

.  or  in  case  the  subsidiary  company  shall  pay  only  a  part  of  the 
purchase  money  for  the 'property  so  acquired  and  shall  give  a 
mortgage  for  the  unpaid  part  of  the  purchase  price,  then  and 
in  any  such  event  a  bond  and  mortgage  or  bonds  secured  by  a 
mortgage  or  deed  of  trust  subject  only  to  such  prior  mortgages, 
liens  or  other  charges)  of  a  face  amount  equal  at  least  to  the 
amounts  so  expended  are  taken  by  the  Company  and  assigned 
and  delivered  to  the  Trustees  to  be  held  by  the  corporate  Trustee 
under  this  indenture  as  part  of  the  trust  estate. 

(3)  At   the   option  of   the   Company   the   Trustees  or   the 
corporate  Trustee  shall  apply  such  proceeds  or  any  part  thereof 
in  purchasing  as  they  or  it  shall  be  directed  by  the  Company 
bonds  issued  under  this  indenture  then  outstanding.    All  bonds 
so  purchased  shall  forthwith  upon  the  acquisition  thereof  be  can- 
celled by  the  corporate  Trustee  and  delivered  to  the  Company 
and  no  bonds  shall  be  issued  hereunder  in  substitution  thereof. 

The  Trustees  and  each  of  them  accept  as  conclusive  evidence  as  to 
the  fact  that  any  property  cannot  be  advantageously  used  in  the 
proper  and  judicious  operation  of  the  business  of  the  Company,  or 
that  the  sale  or  disposition  of  any  property  has  become  necessary  or 
advisable  for  any  cause,  or  as  to  the  usefulness  or  necessity  for  the 
business  of  the  Compan}-,  or  as  to  the  benefit  otherwise  to  the  mort- 
gaged propert}r,  of  any  real  estate,  coal  or  ore  properties  or  leases  of 
coal  or  ore  properties,  improvements,  buildings,  structures,  fixtures, 
machinery  or  apparatus,  a  certificate  of  a  majority  of  the  members  of 
the  Board  of  Directors  of  the  Company  then  in  office  including  the 
President  or  a  Vice-President,  and  the  Trustees  and  each  of  them  shall 
be  absolutely  protected  for  all  action  taken  by  them  or  either  of  them 
in  good  faith  thereon. 

SECTION  2. — The  Company  from  time  to  time  while  in  possession 
of  the  mortgaged  premises,  and  while  not  in  default  hereunder,  shall 
have  full  power  in  its  discretion  to  dispose  of  free  from  the  lien  hereof 
without  release  from  the  Trustees  any  portion  of  the  machinery,  equip- 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE        239 

ment,  tools  and  implements  at  any  time  subject  to  the  lien  hereof 
which  may  have  become  unserviceable  or  can  no  longer  be  advantage- 
ously used  in  the  conduct  of  its  business,  the  proceeds  being  used  to 
replace  the  same  by  new  machinery,  equipment,  tools  or  implements 
of  equal  value,  which  shall  become  subject  to  this  indenture;  or  such 
proceeds  being  paid  to  the  corporate  Trustee  to  be  applied  by  it  as 
provided  in  Section  1  of  this  Article,  with  respect  to  proceeds  of 
released  property. 

SECTION  3. — In  case  any  of  the  property  subject  to  this  indenture 
shall  be  in  the  possession  of  a  receiver  lawfully  appointed,  the  powers 
in  and  by  this  Article  conferred  upon  the  Company  may  be  exercised 
by  such  receiver  with  the  approval  of  the  corporate  Trustee,  and  if 
the  Trustees  or  either  of  them  shall  be  in  possession  of  any  of  such 
property  under  any  provision  of  this  indenture,  then  all  the  powers 
in  this  Article  conferred  upon  the  Company  may  be  exercised  by  the 
Trustee  or  Trustees  in  possession  in  the  discretion  of  the  corporate 
Trustee. 

SECTION  4. — Any  release  made  under  the  powers  in  and  by  this 
Article  conferred,  may  be  executed  by  the  corporate  Trustee  alone  and 
when  so  executed  shall  be  as  full  and  sufficient  a  release  as  if  executed 
by  the  Trustees  jointly;  and  in  no  event  shall  the  purchaser  or  pur- 
chasers of  any  property  disposed  of  under  any  provision  of  this  Article 
be  required  to  see  to  the  application  of  the  purchase  money. 


ARTICLE  NINE. 
POSSESSION  UNTIL  DEFAULT — DEFEASANCE  CLAUSE. 

SECTION  1. — Until  some  default  shall  have  been  made  in  the  due 
and  punctual  payment  of  the  interest  or  of  the  principal  of  the  bonds 
at  any  time  outstanding  or  of  some  part  of  such  interest  or  principal, 
or  until  some  default  shall  have  been  made  in  the  due  and  punctual 
performance  and  observance  of  some  covenant  or  condition  hereof 
obligatory  upon  the  Company,  and  any  such  default  shall  have  con- 
tinued beyond  the  period  of  grace,  if  any,  herein  provided  in  respect 
thereof,  the  Company,  its  successors  and  assigns,  shall  be  suffered  and 
permitted  to  retain  actual  possession  of  all  the  property,  real,  personal 
or  mixed,  corporeal  or  incorporeal  rights  and  interests  and  everything 
else  of  every  kind  and  nature  now  or  hereafter  subject  to  this  indenture 
(other  than  the  certificates  of  stock,  and  other  securities  pledged 
with  and  delivered,  or  to  be  pledged  with  and  delivered,  to  the  Trustees 
or  either  of  them  as  herein  provided),  and  to  manage,  mine,  operate 
and  use  the  same  and  every  part  thereof,  with  the  rights  and  franchises 


240         MATERIALS    OF    CORPORATION   FINANCE 

appertaining  thereto,  and  to  collect,  receive,  take,  use,  enjoy  and 
distribute  the  earnings,  income,  rents,  issues  and  profits  thereof  and 
of  the  business  of  the  Company  and  of  all  subsidiary  companies. 

SECTION  2. — If,  when  the  bonds  shall  have  become  due  and  payable, 
the  Company  shall  well  and  truly  pay,  or  cause  to  be  paid,  the  whole 
amount  of  the  principal  and  interest  due  upon  all  of  the  bonds  and 
coupons  then  outstanding,  or  shall  provide  for  the  payment  of  such 
bonds  and  coupons  by  depositing  with  the  corporate  Trustee  hereunder 
the  entire  amount  due  thereon  for  principal  and  interest,  and  also 
shall  pay  or  cause  to  be  paid,  all  other  sums  payable  hereunder  by 
the  Company,  and  shall  well  and  truly  keep  and  perform  all  the 
things  herein  required  to  be  kept  and  performed  by  it  according  to 
the  true  intent  and  meaning  of  this  indenture,  then  and  in  that  case 
all  property,  rights  and  interests  hereby  conveyed  or  assigned  or 
pledged  shall  revert  to  the  Company,  and  the  estate,  right,  title  and 
interest  of  the  Trustees  shall  thereupon  cease,  determine  and  become 
void,  and  the  Trustees  in. such  case,  on  demand  of  the  Company,  and 
at  its  cost  and  expense,  shall  enter  satisfaction  of  this  indenture  upon 
the  record;  and  shall  re-assign,  re-transfer  and  deliver  the  certificates 
for  all  shares  of  stock  and  all  notes  or  other  obligations  and  claims 
and  the  evidences  thereof  which  are  then  on  deposit  with  them  or 
either  of  them  hereunder  to  the  Company,  its  successor  or  assigns, 
otherwise  the  same  shall  be,  continue  and  remain  in  full  force  and 
virtue. 

SECTION  3. — If  any  of  the  bonds  shall  not,  within  six  years  after 
the  date  when  the  bonds  shall  have  become  due  and  payable,  be 
presented  to  the  corporate  Trustee  for  payment,  or  the  amount  due 
thereon  for  principal  and  interest  which  shall  have  been  deposited 
with  the  corporate  Trustee  for  payment  thereof,  as  hereinbefore  pro- 
vided, shall  not  be  claimed  by  the  owner  or  owners  of  such  bonds, 
the  corporate  Trustee  shall,  upon  demand,  pay  over  to  the  Company 
any  amount  so  deposited. 

ARTICLE  TEN. 

CONCERNING  THE  TRUSTEES 

SECTION  1. — The  Trustees  accept  the  trusts  of  this  indenture  and 
agree  to  execute  them  upon  the  following  terms  and  conditions  to 
which  the  parties  and  the  holders  of  the  bonds  agree: 

Unless  and  until  the  Trustees  shall  have  received  written  notice 
to  the  contrary  from  the  holders  of  not  less  than  ten  per  cent,  in 
amount  of  the  bonds  outstanding,  the  Trustees  may,  for  all  purposes, 


JONES-LAUGHL1N    STEEL   CO.    MORTGAGE         241 

conclusively  assume  that  no  default  has  been  made  in  the  payment 
of  any  of  the  bonds,  or  of  the  interest  thereon,  or  in  the  observance 
or  performance  of  any  of  the  covenants  contained  in  the  bonds  or  in 
this  indenture;  and  that  no  receiver  has  been  appointed  of  the  Com- 
pany, or  of  any  or  its  property  or  of  the  trust  estate  or  any  part 
thereof;  and  they  may  so  assume  unless  the  said  notice  shall  distinctly 
specify  the  default  desired  to  be  brought  to  the  attention  of  the 
Trustees. 

The  Trustees  shall  not  be  under  any  obligation  to  take  any  action 
towards  the  execution  or  enforcement  of  the  trusts  hereby  created 
which  in  their  opinion  shall  be  likely  to  involve  them  in  expense  or 
liability,  unless  one  or  more  of  the  holders  of  the  bonds  shall,  as 
often  as  requested  by  the  Trustees  or  the  corporate  Trustee,  furnish 
them  reasonable  security  and  indemnity  against  such  expense  or 
liability,  anything  herein  contained  to  the  contrary  notwithstanding. 
The  Trustees  shall  not  be  required  to  take  notice  of  any  default 
hereunder,  unless  notified  in  writing  of  such  default  by  the  holders 
of  at  least  ten  per  cent,  in  amount  of  the  bonds  then  outstanding,  or 
to  take  any  action  in  respect  to  any  such  default  involving  expense 
or  liability,  unless  requested  by  an  instrument  in  writing,  signed  by 
the  holders  of  not  less  than  ten  per  cent,  in  amount  of  the  bonds  then 
outstanding,  unless  tendered  reasonable  security  and  indemnity,  as 
aforesaid,  anything  herein  contained  to  the  contrary  notwithstanding ; 
but  neither  any  such  notice  or  request,  nor  this  provision  therefor, 
shall  affect  any  discretion  herein  elsewhere  specially  given  to  the 
Trustees  or  either  of  them  to  determine  whether  or  not  the  Trustees 
or  either  of  them  shall  take  action  with  respect  to  such  default  or 
to  take  action  without  such  request. 

The  Trustees  shall  incur  no  liability  for  or  in  respect  of  the  validity 
or  sufficiency  of  this  indenture,  or  of  the  due  execution  thereof  by 
the  Company,  or  of  the  lien  purported  or  intended  to  be  hereby  created, 
nor  for  or  in  respect  of  the  title  or  value  of  the  property  or  security 
hereinbefore  or  at  any  time  hereafter  conveyed  or  intended  so  to  be. 
The  Trustees  shall  not  be  responsible  for  the  recording  of  this  in- 
denture or  of  any  supplement  hereto  or  of  any  conveyance  or  transfer 
of  further  assurance,  and  shall  not  be  required  to  record  or  register 
the  same  nor  to  file  or  re-file  the  same  as  a  chattel  mortgage  or  other- 
wise. The  Trustees  shall  not  be  under  any  obligation  to  give  notice 
of  the  existence  of  the  lien  of  this  indenture  nor  to  extend  or  supple- 
ment the  lien  sought  to  be  created  hereby,  nor  to  do  any  act  whatever, 
other  than  the  acceptance  of  this  indenture,  for  creating,  effecting  or 
continuing  the  lien  of  this  indenture,  but  the  Company  covenants 
that  it  will,  with  all  convenient  speed,  cause  this  indenture  to  be  duly 


242         MATERIALS    OF   CORPORATION   FINANCE 

filed  and  recorded,  and  that  it  will  do  all  other  things  requisite  to 
create,  effect  and  continue  the  lien  hereof.  The  Trustees  need  not 
see  to  the  application  of  the  bonds  or  their  proceeds,  nor  except  as 
expressly  required  in  Article  One  hereof,  take  any  action  to  secure 
the  conveyance,  pledge  or  deposit  to  or  with  the  Trustees  or  either 
of  them,  of  after-acquired  property  of  the  Company,  until  requested  in 
writing  by  the  holders  of  ten  per  cent,  in  amount  of  the  bonds  then 
outstanding,  as  hereinbefore  provided. 

The  Trustees  shall  be  under  no  duty  while  not  in  possession  of  the 
mortgaged  property  to  pay,  nor  to  keep  themselves  informed  as  to  the 
payment  of,  the  rents,  taxes  or  assessments  thereupon,  nor  to  effect 
insurance  against  fire  or  other  damage  to  any  portion  of  said  property, 
nor  to  renew  any  policies  of  fire  or  other  insurance  thereon ;  nor  shall 
the  Trustees  or  either  of  them  be  liable  or  responsible  for  the  collection 
or  adjustment  of  any  insurance  in  case  of  loss. 

The  Trustees  shall  be  entitled  to  reasonable  compensation  for  all 
services  rendered  by  them  or  either  of  them  in  the  execution  of  the 
trusts  hereby  created,  and  the  Company  agrees,  from  time  to  time,  to 
pay  such  compensation  and  to  reimburse  them  and  each  of  them  for 
all  liabilities  and  expenses  (with  interest)  which  they  or  either  of 
them  may  have  incurred  hereunder;  and  the  charges  and  expenses  of 
the  Trustees  and  all  liabilities  by  them  incurred  shall  be  secured  by 
the  lien  of  this  indenture;  and  if  the  Company  shall  fail,  neglect  or 
delay  to  pay  the  same  promptly,  they  shall  be  paid  from  and  out  of 
the  trust  estate  and  mortgaged  property  and  premises  prior  to  any 
payment  therefrom  of  or  on  account  of  any  of  the  bonds,  coupons  or 
claims  for  interest  hereby  secured. 

The  Trustees  shall  not  be  personally  liable  for  any  debt  contracted 
by  them  or  either  of  them  or  for  damages  to  persons  or  property  or 
for  salaries  or  non-fulfilment  of  contracts  during  any  period  wherein 
the  Trustees  or  either  of  them  shall  manage  the  trust  property  or 
premises  upon  entry  or  voluntary  surrender  as  aforesaid,  and  the  trust 
estate  is  hereby  charged  with  a  first  lien  in  favor  of  the  Trustees  for 
their  security  and  indemnification  against  any  such  liability. 

All  matters  recited  herein  and  in  the  bonds  secured  hereby  (save 
only  the  corporate  Trustee's  certificates  upon  the  bonds),  shall  be 
conclusively  deemed  to  be  the  statements  of  the  Company  and  not 
of  the  Trustees. 

The  Trustees  may  advise  with  legal  counsel  and  the  opinion  of 
counsel  shall  be  a  full  protection  and  justification  to  the  Trustees 
for  anything  suffered  or  done  by  them  or  either  of  them  in  good  faith 
and  in  accordance  with  such  opinion. 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE         243 

The  Trustees  may  employ  agents,  accountants,  appraisers,  or  at- 
torneys in  fact  and  shall  not  be  answerable  for  the  default  or  mis- 
conduct of  any  agent,  accountant,  appraiser,  or  attorney  appointed 
by  them  or  either  of  them  in  pursuance  hereof,  if  such  agent,  account- 
ant, appraiser,  or  attorney  shall  have  been  selected  with  reasonable 
care,  nor  shall  any  Trustee  be  liable  for  anything  whatever  in 
connection  with  this  trust,  except  his  or  its  own  wilful  misconduct  or 
gross  negligence  after  personal  notice  and  distinct  specification  in 
writing  from  some  person  interested  in  the  trust. 

The  Trustees  or  either  of  them  may  acquire  or  own  bonds  and 
coupons  issued  hereunder  with  the  same  rights  which  they  would  have 
if  they  were  not  Trustees. 

The  Trustees  and  each  of  them  shall  be  protected  and  held  harmless 
in  acting  upon  any  notice,  demand,  request,  consent,  waiver,  certificate, 
bond  or  other  instrument  or  paper  provided  for  in  this  indenture  and 
believed  by  such  Trustee  to  be  genuine  and  to  have  been  signed  or 
executed  by  the  proper  party.  In  any  case  where  it  is  provided  in  this 
indenture  that  the  Trustees  or  either  of  them  may  accept  or  act  or 
shall  act  upon  a  certificate  from  the  Company  or  from  any  of  its 
officers  or  directors,  or  a  resolution  of  the  Board  of  Directors  of  the 
Company,  or  of  its  executive  committee,  concerning,  or  as  conclusive 
proof  of,  any  fact  upon  which  the  Trustees  or  either  of  them  shall 
be  required  or  permitted  to  take  or  refrain  from  taking  action,  the 
Trustees  shall  not  be  bound  absolutely  by  such  certificate  or  resolution, 
but  may,  in  the  discretion  and  at  the  option  of  the  corporate  Trustee 
make  any  independent  investigation  into  the  truth  or  accuracy  of  any 
such  fact;  and  in  case  it  shall,  after  such  independent  investigation, 
be  satisfied  that  the  said  certificate  or  resolution,  or  any  statement 
of  fact  contained  therein,  is  inaccurate,  the  Trustees  or  either  of  them 
may  take  or  refuse  to  take  or  refrain  from  taking  any  action  predicated 
or  intended  to  be  predicated  upon  such  fact.  Nothing  in  this  section 
contained  shall,  however,  take  from  the  Trustees  or  either  of  them  the 
absolute  protection  herein  conferred  upon  them  in  case  they  shall 
accept,  without  further  investigation,  any  certificate  or  resolution 
herein  provided  for. 

As  to  any  fact  upon  which  the  Trustees  or  either  of  them  shall 
be  required  or  permitted  to  take,  or  refrain  from  taking,  action,  in 
respect  of  which  this  indenture  does  not  make  specific  provision  for 
the  evidence  upon  which  the  Trustees  or  either  of  them  may  act,  the 
Trustees  or  either  of  them  may  accept  as  conclusive  the  certificate  of 
the  president  or  a  vice-president  and  secretary  or  treasurer  of  the 
Company. 


244         MATERIALS    OF    CORPORATION    FINANCE 

Any  company  into  which  the  corporate  Trustee  may  be  merged  or 
with  which  it  may  be  consolidated  or  any  company  resulting  from 
any  merger  or  consolidation  to  which  the  corporate  Trustee  shall 
be  a  party,  shall  be  the  successor  of  the  corporate  Trustee  hereunder 
without  the  execution  or  filing  of  any  paper  or  any  further  act  on  the 
part  of  any  of  the  parties  hereto,  anything  herein  to  the  contrary 
notwithstanding.  In  case  any  of  the  bonds  hereunder  shall  have  been 
authenticated  but  not  delivered,  any  successor  corporate  Trustee  may 
adopt  the  certificate  of  the  First  Trust  and  Savings  Bank  and  deliver 
the  same  so  authenticated;  and  in  case  any  of  said  bonds  shall  not 
have  been  authenticated,  any  successor  corporate  Trustee  may  authen- 
ticate such  bonds  in  the  name  of  such  successor  corporate  Trustee; 
and  in  all  such  cases  such  authentication  shall  have  the  full  force  which 
it  is  anywhere  in  said  bonds  or  in  this  indenture  provided  that  the 
authentication  of  the  corporate  Trustee  shall  have. 

Any  notice,  request,  or  other  writing  by  or  on  behalf  of  the  bond- 
holders delivered  solely  to  the  First  Trust  and  Savings  Bank  or  its 
successor  in  the  trust  shall  be  deemed  to  have  been  delivered  to  all 
the  Trustees  hereunder  as  effectually  as  if  delivered  to  each  of  them. 
Said  Emile  K.  Boisot  and  any  of  his  successors  in  the  trust  and  any 
additional  Trustee  may,  so  far  as  may  be  permitted  by  law,  at  any 
tinse  by  an  instrument  in  writing  constitute  said  First  Trust  and 
Savings  Bank  and  its  successors  in  the  trust  hereunder,  his  or  its  agent 
and  attorney  in  fact  with  full  power  and  authority  to  the  fulUextent 
which  may  be  permitted  by  law,  to  do  all  acts  and  things  and  exercise 
all  discretions  hereunder  for  and  in  behalf  and  in  the  name  of  the 
Trustee  or  Trustees  executing  such  instrument. 

All  cash  collected  by  or  payable  to  the  Trustees  shall  be  paid  to  and 
be  deposited  with,  and  all  stocks,  bonds  and  other  securities  be  held 
by,  the  corporate  Trustee.  Any  moneys  at  any  time  coming  into  the 
hands  of  any  trustee  other  than  the  corporate  Trustee  shall  be  at 
once  paid  over  to  the  corporate  Trustee. 

So  long  as  any  notes  or  other  obligations  or  securities  pledged  here- 
under shall  remain  so  pledged  any  instrument  to  be  executed  or  action 
taken  under  the  mortgage  or  agreement  securing  the  same  by  the 
noteholders  or  other  security  holders  may  be  executed  or  taken  by  the 
corporate.  Trustee  hereunder. 

All  the  assets,  right,  title  and  interest  by  this  indenture  conveyed 
or  assigned  or  transferred  to  the  Trustees  are  conveyed,  assigned  or 
transferred  to  them  as  joint  tenants  and  not  as  tenants  in  common. 

In  case  the  said  Emile  K.  Boisot,  or  any  additional  Trustee  or  a 
successor  to  either  of  them,  shall  die,  become  incapable  of  acting, 
resign  or  be  removed,  all  the  assets,  property,  rights,  powers,  trusts, 


JONES-LAUGIILIN    STEEL   CO.    MORTGAGE         245 

duties  and  obligations  of  the  Trustees  hereunder  shall  vest  in  and  be 
exercised  by  said  First  Trust  and  Savings  Bank  or  its  successor  in 
the  trust  without  the  appointment  of  a  new  trustee  as  successor  to 
said  Emile  K.  Boisot  or  to  any  additional  trustee  shall  be  appointed 
unless  such  appointment  shall  be  necessary  for  the  full  protection  of 
the  bondholders  hereunder  nor  unless  the  First  Trust  and  Savings 
Bank  or  its  successor  or  the  holders  of  a  majority  in  amount  of  the 
bonds  then  outstanding  shall  deem  such  appointment  expedient  for 
any  cause. 

SECTION  2. — The  Trustees  or  either  of  them  or  any  successor  or 
successors  may  resign  and  be  discharged  of  the  trusts  created  by  this 
indenture,  by  executing  an  instrument  in  writing,  resigning  such 
trusts,  specifying  the  date  when  such  resignation  shall  take  effect, 
and  filing  the  same  with  the  Company  at  its  office  or  agency  in  the 
City  of  New  York  three  months  (or  such  shorter  time  as  may  be 
accepted  by  the  Board  of  Directors  of  the  Company  as  adequate) 
before  such  resignation  shall  take  effect,  and  by  giving  notice  of  such 
resignation  by  publication  at  least  once  a  week  for  two  successive 
weeks  in  a  daily  newspaper  of  general  circulation  published  in  the 
City  of  New  York,  and  a  daily  newspaper  of  general  circulation 
published  in  the  City  of  Chicago.  Such  resignation  shall  take  effect 
on  the  day  specified  in  said  writing  and  notice,  unless  previously  a 
successor  Trustee  or  Trustees  shall  be  appointed  as  hereinafter  pro- 
vided, in  which  event  such  resignation  shall  take  effect  immediately 
upon  the  appointment  of  such  successor  Trustee  or  Trustees. 

The  Trustees  or  either  of  them  or  any  successor  or  successors,  with 
the  written  consent  of  the  Company  if  at  the  time  it  be  not  in  default 
hereunder,  or  without  such  consent  if  the  Company  shall  then  be  in 
default  hereunder,  may  be  removed  at  any  time  by  an  instrument  or 
concurrent  instruments  in  writing  executed  in  counterparts  by  the 
holders  of  two-thirds  in  amount  of  the  bonds  then  outstanding  ap- 
pointing a  successor  to  the  trustee  so  removed,  and  filed  with  the 
Company,  with  the  trustee  so  removed,  and  with  the  successor  trustee 
so  appointed,  respectively;  provided  that  there  be  filed  at  the  same  time 
with  the  Company  and  with  the  trustee  so  removed,  respectively,  an 
instrument  in  writing  executed  in  duplicate  by  the  successor  trustee 
so  appointed  accepting  such  appointment. 

In  case  the  Trustees  or  either  of  them  or  any  successor  or  suc- 
cessors shall  at  any  time  resign  or  otherwise  become  incapable  of  acting, 
a  successor  or  successors  may  be  appointed  by  the  holders  of  a  majority 
in  amount  of  the  bonds  then  outstanding,  by  an  instrument  or  con- 
current instruments  executed  by  such  bondholders  or  their  attorneys 
in  fact  duly  authorized  and  filed  with  the  Company  and  with  the 


246         MATERIALS    OF   CORPORATION    FINANCE 

successor  trustee  so  appointed  and  upon  written  notice  thereof,  and 
of  the  acceptance  of  such  appointment,  given  by  the  successor  trustee 
to  the  Company;  but  it  shall  be  the  duty  of  the  Company,  subject  to 
the  foregoing  provisions  hereof,  by  an  instrument  executed  by  order 
of  its  Board  of  Directors  or  the  Executive  Committee  thereof,  to 
appoint  a  trustee  to  fill  a  vacancy  in  the  office  of  Trustee  hereunder 
until  a  new  trustee  shall  be  appointed  by  the  bondholders  as  herein 
authorized.  The  Company  shall  at  once  upon  the  making  thereof 
publish  notice  of  such  appointment  by  it  once  a  week  for  four  suc- 
cessive weeks  in  a  daily  newspaper  of  general  circulation  published 
in  the  City  of  New  York  and  a  daily  newspaper  of  general  circulation 
published  in  the  City  of  Chicago.  Any  new  trustee  so  appointed  by 
the  Company  shall  immediately  and  without  further  act  be  superseded 
by  a  trustee  appointed  in  the  manner  above  provided  by  the  holders 
of  a  majority  in  amount  of  the  bonds  then  oustanding. 

Every  such  trustee  appointed  in  place  of  the  corporate  Trustee 
herein  named,  or  its  successor  in  the  trust,  shall  always  be  a  trust 
company  in  good  standing  authorized  to  accept  such  trusts  and  car- 
rying on  business  in  the  Borough  of  Manhattan  in  the  City  of  New 
York,  or  in  the  City  of  Chicago,  Illinois,  and  having  a  capital,  undi- 
vided profits  and  surplus  aggregating  at  least  $5,000,000  if  there  be 
such  a  trust  company  willing  and  able  to  accept  the  trust  upon  rea- 
sonable or  customary  terms;  and  every  Trustee  appointed  in  place 
of  the  individual  Trustee  herein  named  or  his  successor  in  the  trust 
shall  always  be  a  person  satisfactory  to  and  approved  by  the  First 
Trust  and  Savings  Bank  or  its  successor  in  the  trust  and  the  Com- 
pany. The  Trustees  and  each  of  them  and  every  successor  trustee, 
shall  be  exempt  from  giving  any  bond  or  surety  in  respect  of  the 
execution  of  the  trusts  or  powers  herein  provided  for  or  otherwise 
in  respect  of  the  premises.  . 

Any  new  trustee  appointed  hereunder  shall  execute,  acknowledge 
and  deliver  to  the  trustee  last  in  office,  and  also  to  the  Company,  an 
instrument  accepting  such  appointment  hereunder,  and  thereupon 
such  new  trustee  shall  without  any  further  act,  deed  or  conveyance, 
become  vested  with  all  the  estates,  properties,  rights,  powers,  duties 
and  trusts  of  its  predecessor  in  the  trust  hereunder  with  like  effect  as 
if  originally  named  as  trustee  herein;  but  the  trustee  retiring  shall, 
nevertheless,  on  the  written  demand  of  the  new  trustee,  and  upon  the 
filing  with  it  of  proof  of  the  appointment  of  such  new  trustee,  exe- 
cute and  deliver  an  instrument  conveying  and  transferring  to  such 
new  trustee,  upon  the  trusts  herein  expressed,  all  the  estates,  proper- 
ties, rights,  powers  and  trusts  of  the  trustees  so  retiring,  and  shall 
duly  assign,  transfer  and  deliver  to  the  new  trustee  so  appointed  in 


JONES-LAUGHLIN    STEEL   CO.   MORTGAGE         247 

its  place  all  properties  and  moneys  held  by  it  under  this  indenture, 
subject,  nevertheless,  to  the  retiring  trustee's  first  lien  on  all  of  the 
trust  estate  for  its  reasonable  compensation  and  reimbursement  of 
all  its  costs  and  expenses  hereunder.  Should  any  deed,  conveyance  or 
instrument  in  writing  from  the  Company  be  required  by  any  new 
trustee  for  more  fully  and  certainly  vesting  in  and  confirming  to  such 
new  trustee  the  said  estates,  properties,  rights,  powers,  trusts  and 
duties,  then  any  and  all  such  deeds,  conveyances  and  instruments  in 
writing  shall,  on  request  of  such  new  trustee,  be  made,  executed,  ac- 
knowledged and  delivered  by  the  Company. 

If  at  any  time  or  times,  in  order  to  conform  to  any  legal  require- 
ment, the  Company  shall  so  request  or  the  Trustees  shall  deem  it 
advisable,  the  Company  shall,  and  the  Trustees  shall  have  power  to, 
appoint,  and  the  said  parties  shall  unite  in  the  execution,  delivery  and 
performance  of  all  instruments  and  agreements  necessary  or  proper 
to  appoint,  another  trust  company  or  one  or  more  persons  approved 
by  the  Trustees,  either  to  act  as  co-trustee  or  co-trustees  of  all  or 
any  of  the  property  subject  to  the  lien  hereof  jointly  with  the  Trus- 
tees originally  named  herein  or  their  respective  successor  or  succes- 
sors, or  to  act  as  a  separate  trustee  or  trustees  of  any  such  property. 

In  case  of  the  appointment  of  any  new  trustee  under  the  provi- 
sions of  this  Article  a  copy  of  the  instrument  making  such  appoint- 
ment, duly  authenticated  by  the  President  or  Vice-President  or  the 
Secretary  of  the  Company  (such  officer  having  inspected  and  com- 
pared said  copy  with  the  original  as  a  true  copy),  shall  be  filed  with 
each  corporation  any  of  the  stock  or  securities  whereof  shall  then  be 
subject  to  this  indenture 

SECTION  3. — Emile  K.  Boisot,  one  of  the  parties  of  the  second  part, 
has  been  joined  as  Trustee  hereunder,  so  that  if  by  any  present  or 
future  law  in  any  jurisdiction,  in  which  it  may  be  necessary  to  per- 
form any  act  in  the  execution  of  the  trusts  herein  created,  the  First 
Trust  and  Savings  Bank,  Trustee,  or  its  successor  or  successors,  may 
be  incompetent  or  unqualified  to  act  as  such  Trustee,  then  all  of 
the  acts  required  to  be  performed  in  such  jurisdiction  in  the  execu- 
tion of  the  trusts  hereby  created,  shall  and  will  be  performed  by  said 
Emile  K.  Boisot,  as  .Trustee,  or  his  successor  or  successors,  acting 
alone.  Except  as  it  may  be  deemed  necessary  for  said  Emile  K. 
Boisot  solely  to  execute  the  trusts  hereby  created,  the  First  Trust  and 
Savings  Bank,  Trustee,  or  its  successor  or  successors,  may  solely  have 
and  execute  the  powers,  and  shall  be  solely  charged  with  the  per- 
formance of  the  duties  hereinbefore  declared  on  the  part  of  the 
Trustees  to  be  had  and  exercised,  or  to  be  performed.  Any  request 
in  writing  by  the  First  Trust  and  Savings  Bank  Trustee  or  by  any 


248         MATERIALS    OF   CORPORATION   FINANCE 

trust  company  appointed  in  succession  to  it  to  the  individual  Trustee 
hereunder  or  any  Trustee  appointed  in  succession  to  him .  shall  be 
sufficient  warrant  for  the  individual  Trustee,  or  his  successor,  taking 
such  action  as  may  be  so  requested.  Such  individual  Trustee,  or  any 
successor,  may  delegate  to  the  First  Trust  and  Savings  Bank,  or  any 
trust  company  appointed  in  succession  to  it,  the  exercise  of  any 
power,  discretionary  or  otherwise,  conferred  by  any  provisions  of 
this  indenture. 

ARTICLE  ELEVEN 
SUNDRY  PROVISIONS 

SECTION  1. — All  of  the  covenants,  stipulations,  promises  and  agree- 
ments in  this  indenture  contained,  by  or  in  behalf  of  the  Company, 
shall  bind  its  successors  and  assigns,  whether  so  expressed  or  not. 

SECTION  2. — Nothing  contained  in  this  indenture,  or  in  any  of  the 
bonds  shall  prevent  any  lease,  subject  to  the  continuing  lien  of  this 
indenture  and  to  all  the  provisions  thereof,  of  all  the  property  sub- 
ject to  this  indenture,  to  a  corporation  at  that  time  existing  under 
and  by  virtue  of  the  laws  of  any  State  or  States  of  the  United  States, 
and  empowered  to  take  such  a  lease,  provided,  however,  that  such  lease 
shall  be  made  subject  to  termination  by  the  corporate  Trustee,  in 
case  of  the  happening  of  any  event  of  default  hereunder  (even  though 
the  same  shall  not  have  continued  for  the  time  named  with  respect 
thereto  in  any  provision  of  this  indenture  or  for  any  special  period), 
or  by  the  purchaser  at  any  sale  of  the  trust  estate,  made  in  enforce- 
ment of  this  indenture. 

SECTION  3. — Nothing  contained  in  this  indenture  or  in  any  of 
the  bonds  shall  prevent  the  consolidation  or  merger  of  the  Company 
with  any  other  corporation,  or  prevent  any  consolidation  or  merger 
with  the  Company  of  any  other  corporation,  or  prevent  any  sale  sub- 
ject to  the  continuing  lien  of  this  indenture,  and  to  all  the  provisions 
thereof,  of  all  the  property  subject  to  this  indenture,  as  an  entirety  , 
provided  that  such  consolidation,  merger  or  sale  shall  be  on  such 
terms  as  to  preserve  and  not  to  impair  the  lien  or  security  under  this 
indenture,  and  the  rights  and  powers  of  the  Trustees  and  of  the 
holders  of  the  bonds,  and  that  any  successor  corporation  formed  by 
such  consolidation,  or  the  corporation  into  which  the  Company  shall 
be  merged,  shall,  as  part  of  such  consolidation  or  merger,  expressly 
assume  the  due  and  punctual  payment  of  the  principal  and  interest 
of  all  the  bonds  and  the  performance  of  all  the  covenants  and  condi- 
tions of  this  indenture,  and  provided  that,  as  a  condition  of  any  such 
sale  of  the  property  of  the  Company  as  an  entirety,  the  corporation 


JONES-LAUGIILIN    STEEL   CO.    MORTGAGE         249 

to  which  such  property  shall  be  sold  as  an  entirety,  shall,  as  a  part  of 
the  purchase  price  thereof,  assume  the  due  and  punctual  payment  of 
the  principal  and  interest  of  all  the  bonds  and  the  performance  of 
all  the  covenants  and  conditions  of  this  indenture,  and  shall,  simul- 
taneously with  the  delivery  to  it  of  a  transfer  and  conveyance  thereof, 
execute  and  deliver  a  proper  indenture  to  the  Trustees,  in  form  satis- 
factory to  the  Trustees,  whereby  such  purchasing  corporation  shall  so 
assume  the  due  and  punctual  payment  of  the  principal  and  interest 
of  all  of  the  bonds,  and  the  performance  of  all  of  the  covenants  and 
conditions  of  this  indenture,  and  charge  therewith  the  property  and 
franchises  so  taken  over. 

SECTION  4. — In  case  any  company  shall  be  consolidated  or  merged 
with  the  Company  as  aforesaid,  or  in  case  the  Company  shall  be  so 
consolidated  or  merged  with  any  other  corporation,  or  in  case  of  a 
sale  of  the  property  of  the  Company  as  an  entirety,  the  corporation 
formed  by  such  consolidation  or  into  which  the  Company  shall  have 
been  merged,  or  to  which  such  sale  shall  have  been  made,  upon  ex- 
ecuting and  causing  to  be  recorded  an  indenture  with  the  Trustees, 
whereby  such  corporation  shall  assume  the  due  and  punctual  pay- 
ment of  all  the  bonds  and  the  performance  of  all  the  covenants  and 
conditions  of  this  indenture,  and  charge  therewith  the  property  and 
franchises  so  taken  over,  shall  succeed  to  and  be  substituted  for  the 
Company,  with  the  same  effect  as  if  it  had  been  named  herein  as 
party  of  the  first  part  hereto  and  such  corporation  may  thereupon 
cause  to  be  signed  and  may  issue  either  in  its  own  name  or  in  the 
name  of  the  Company  any  or  all  of  the  bonds  which  shall  not  there- 
tofore have  been  signed  by  the  Company  and  delivered  to  the  corpo- 
rate Trustee,  and  the  corporate  Trustee,  upon  the  order  of  such  cor- 
poration in  lieu  of  the  Company,  and  subject  to  all  the  terms,  condi- 
tions and  restrictions  herein  prescribed,  shall  authenticate  any  and  all 
of  the  bonds  which  shall  have  been  previously  signed  by  the  officers 
of  the  Company  and  delivered  to  the  corporate  Trustee  for  authen- 
tication, and  any  of  the  bonds  which  such  corporation  shall  thereafter 
cause  to  be  signed  and  delivered  to  the  corporate  Trustee  for  that 
purpose.  All  bonds  so  issued  shall  in  all  respects  have  the  same  legal 
rank  and  security  as  the  bonds-  theretofore  or  thereafter  issued  in 
accordance  with  the  terms  of  this  indenture,  as  though  all  of  said 
bonds  had  been  actually  issued  by  the  Company  as  of  the  date  of  the 
execution  hereof. 

For  every  purpose  of  this  Indenture,  including  the  execution,  iwuio 
and  use  of  any  and  all  the  bonds,  the  term  Company  includes  and 
means  not  only  the  Jones  &  Laugh! in  Steel  Company,  but  also  any 
such  successor  corporation.  Every  such  successor  corporation  shall 


250         MATERIALS    OF    COBPOEATION    FINANCE 

possess,  and  from  time  to  time  may  exercise,  each  and  every  right  and 
power  hereunder  of  the  Jones  &  Laughlin  Steel  Company  in  its 
name  or  otherwise,  and  any  act  or  proceeding  by  any  provision  of 
this  indenture  required  to  be  done  or  performed  by  any  board  or 
officer  of  the  Company  may  be  done  and  performed  with  like  force 
and  effect  by  the  like  board  or  officer  of  any  corporation  that  shall 
at  the  time  be  such  lawful  successor  of  the  Company. 

SECTION  5. — Except  when  otherwise  indicated,  the  words  "the 
Trustees"  or  any  other  equivalent  term,  as  used  in  this  indenture,  shall 
be  held  and  construed  to  mean  the  Trustees  for  the  time  being  here- 
under, whether  original  or  successor;  the  words  "corporate  Trustee" 
mean  the  corporate  trustee  hereinbefore  named,  and  each  and  every 
successor  thereof ;  the  words  "Trustee,"  "bond,"  "bondholder,"  "holder," 
shall  include  the  plural  as  well  as  the  singular  number,  unless  other- 
wise expressly  indicated. 

By  "order  of  the  Company,"  whenever  those  words  are  used  in  this 
indenture,  is  meant,  unless  otherwise  expressly  provided,  a  written 
order,  signed  by  (1)  the  president  or  any  vice-president,  and  (2)  the 
comptroller,  the  auditor,  the  treasurer  or  the  assistant  treasurer  of  the 
Company,  and  whenever  any  moneys  or  bonds  or  securities  are  deliv- 
erable by  the  terms  hereof  to  the  Company,  or  upon  the  order  of  the 
Company,  such  delivery  or  payment  shall  be  made  only  upon  the  re- 
ceipt of  such  a  written  order. 

SECTION  6. — Any  written  demand,  request,  notice,  approval,  waiver, 
designation,  direction  or  nomination  to  be  made  by  the  Company 
under  any  of  the  provisions  hereof,  shall  be  deemed  sufficiently  made 
and  executed  if  executed  by  the  president  or  by  a  vice-president  of 
the  Company  under  the  corporate  seal  of  the  Company,  duly  attested 
by  its  secretary  or  an  assistant  secretary.  Any  notice  or  demand  in 
respect  of  the  bonds  and  coupons  or  under  this  indenture  may  be 
served  or  presented,  and  such  demand  may  be  made,  at  the  office 
in  the  City  of  Chicago,  of  the  corporate  Trustee,  or,  in  the  case  of  a 
notice  or  demand  upon  the  Company,  at  the  office  of  the  Company 
in  the  City  of  Pittsburgh,  Pennsylvania,  or  at  the  agency  of  the  Com- 
pany in  the  City  of  New  York,  and  such  presentation,  service  or 
demand  hereunder  upon  the  corporate  Trustee  or  upon  the  Company, 
shall  be  sufficient.  The  Trustees  or  either  of  them  may  receive  a 
certificate  under  the  corporate  seal  of  the  Company,  signed  by  the 
secretary  or  by  an  assistant  secretary  of  the  Company,  as  sufficient 
evidence  of  the  passage  of  any  resolution  by  the  Board  of  Directors 
or  by  the  Executive  Committee  of  the  Company. 

SECTION  7. — In  order  to  facilitate  the  record  of  this  indenture,  the 
same  rnav  be  simultaneously  executed  in  several  counterparts,  each  of 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE         251 

which  so  executed  shall  be  deemed  to  be  an  original,  and  such  coun- 
terparts shall  together  constitute  one  and  the  same  instrument. 


ARTICLE  TWELVE 
PARTIES  IN  INTEREST 

Nothing  in  this  indenture  expressed  or  implied  is  intended  or  shall 
be  construed,  to  confer  upon,  or  to  give  to,  any  person  or  corporation, 
other  than  the  parties  hereto  and  the  holders  of  the  bonds,  any  right, 
remedy  or  claim,  under  or  by  reason  of  this  indenture  or  any  covenant, 
condition  or  stipulation  hereof;  and  all  the  covenants,  stipulations, 
promises  and  agreements  in  this  indenture  contained  by  or  on  behalf 
of  the  Company  are  and  shall  be  held  to  be  for  the  sole  and  exclusive 
benefit  of  the  parties  hereto  and  of  the  holders  of  the  bonds. 

The  Board  of  Directors  of  Jones  &  Laughlin  Steel  Company  has 
by  resolution  duly  adopted,  authorized  and  appointed  B.  F.  Jones,  Jr., 
and  the  said  Jones  &  Laughlin  Steel  Company  does  hereby  constitute 
and  appoint  said  B.  F.  Jones,  Jr.,  its  attorney,  for  it  and  in  its 
name  and  as  and  for  its  corporate  act  and  deed,  to  acknowledge  this 
indenture  before  any  person  or  persons  having  authority  by  the  laws 
of  the  Commonwealth  of  Pennsylvania  to  take  such  acknowledgment 
to  the  intent  that  the  same  may  be  duly  recorded,  and  First  Trust 
and  Savings  Bank  does  hereby  constitute  and  appoint  Emile  K. 
Boisot  to  be  its  attorney,  for  it  and  in  its  name  and  as  and  for  its 
corporate  act  and  deed  to  acknowledge  this  indenture  before  any  per- 
son having  authority  by  the  laws  of  the  Commonwealth  of  Pennsyl- 
vania to  take  such  acknowledgment  to  the  intent  that  the  same  may 
be  duly  recorded. 

IN  WITNESS  WHEREOF,  JONES  &  LAUGHLIN  STEEL  COMPANY  has 
caused  its  corporate  seal  to  be  hereunto  affixed  and  this  indenture  to 
be  signed  in  its  corporate  name  by  its  president  or  vice-president  and 
its  secretary,  and  FIRST  TRUST  AND  SAVINGS  BANK,  in  token  of  its 
acceptance  of  this  trust,  has  caused  its  corporate  seal  to  be  hereunto 
affixed  and  this  indenture  to  be  signed  in  its  corporate  name  by  its 
president  or  a  vice-president  and  its  secretary,  and  the  said  EMILE  K. 
BOISOT  has  hereunto  set  his  hand  and  seal,  all  the  day  and  year  first 
above  written.  Executed  in  five  counterparts. 

JONES  &  LADGIILIN  STEEL  COMPANY, 

Attest:  By  B.  F.  JONES,  JR., 

CORPORATE  W.  C.  MORELAND,  President. 

SEAL  Secretary. 


252         MATERIALS    OF   CORPORATION   FINANCE 

Signed,  sealed,  executed  and  delivered 
by  Jones  &  Laughlin  Steel  Company 
in  the  presence  of  us : 
GEO.  C.  WILSON, 
B.  H.  INNESS  BROWN. 

FIRST  TRUST  AND  SAVINGS  BANK, 

By  EMILE  K.  BOISOT,  CORPORATE 

Attest:  Vice-President.  SEAL. 

D.  W.  WEBSTER, 

Secretary. 

Signed,  sealed,  executed  and  delivered 
by  First  Trust  and  Savings  Bank  in 
the  presence  of  us: 
0.  A.  BESTEL, 
J.  R.  JULIN, 

EMILE  K.  BOISOT.     [SEAL.] 
Signed,  sealed,  executed  and  delivered 
by  Emile  K.  Boisot  in  the  presence 
of  us: 

0.  A.  BESTEL, 
J.  R.  JULIN, 

COMMONWEALTH  OP  PENNSYLVANIA,  ] 

(.     QQ^  • 

County  of  Allegheny,  J 

I  hereby  certify  that  on  this  Fifth  day  of  May,  in  the  year  of  our 
Lord  One  thousand  nine  hundred  and  nine  before  me  the  subscriber, 
a  Notary  Public  within  and  for  said  County  and  Commonwealth,  per- 
sonally appeared  B.  F.  Jones,  Jr.,  the  attorney  of  Jones  &  Laughlin 
Steel  Company,  named  in  the  foregoing  indenture  and  by  virtue  and 
in  pursuance  of  the  authority  therein  conferred  upon  him  acknowl- 
edged the  said  indenture  to  be  the  act  and  deed  of  said  Jones  & 
Laughlin  Steel  Company. 

WITNESS  my  hand  and  Notarial  seal  the  day  and  year  aforesaid. 
My  commission  expires  January  16,  1913. 
NOTARIAL  S.  W.  SHAW, 

SEAL.  Notary  Public  in  and  for  the  County 

of    Allegheny   in    the    Common- 
wealth of  Pennsylvania. 

COMMONWEALTH  OF  PENNSYLVANIA,  } 

(     SS   * 

County  of  Allegheny,  / 

I,  S.  W.  SHAW,  a  Notary  Public  within  and  for  the  County  and 
Commonwealth  aforesaid,  do  hereby  certify  that  B.  F.  Jones,  Jr., 


JONES-LAUGHLIN    STEEL   CO.    MORTGAGE         253 

President  of  the  above-named  Jones  &  Laughlin  Steel  Company,  per- 
sonally known  to  me  to  be  the  same  person  whose  name  is  subscribed 
to  the  foregoing  instrument  as  such  President  and  to  be  such  Presi- 
dent, appeared  before  me  this  day  in  person  and  acknowledged  that 
he  signed  sealed  and  delivered  the  said  instrument  as  the  free  and 
voluntary  act  of  said  Jones  &  Laughlin  Steel  Company  and  as  his 
own  free  and  voluntary  act  as  such  President  for  the  uses  and  pur- 
poses therein  set  forth. 

GIVEN  under  my  hand  and  official  seal  this  Fifth  day  of  May,  A.  D. 
1909.    My  commission  expires  January  16,  1913. 
NOTARIAL  S.  W.  SHAW, 

SEAL.  Notary  Public  in  and  for  the  County 

of    Allegheny   in    the    Common- 
wealth of  Pennsylvania. 
STATE  OF  ILLINOIS, 


County  of  Cook,      '  SS' 

I  hereby  certify  that  on  the  6th  day  of  May,  in  the  year  of  our 
Lord  one  thousand  nine  hundred  and  nine  before  me  the  subscriber, 
a  Notary  Public  within  and  for  said  County  and  State,  having  a  seal 
of  office,  personally  appeared  Emile  K,  Boisot,  the  attorney  of  First 
Trust  and  Savings  Bank  named  in  the  foregoing  indenture  and  by 
virtue  and  in  pursuance  of  the  authority  therein  conferred  upon  him 
acknowledge  the  said  indenture  to  be  the  act  and  deed  of  the  said 
First  Trust  and  Savings  Bank. 

WITNESS  my  hand  and  official  notarial  seal  the  day  and  year  afore- 
said.   My  commission  expires  January  2,  1910. 
NOTARIAL  OLIVER  A.  BESTEL, 

SEAL.  Notary    Public    in    and    for    the 

County  of  Cook  and  the  State 
of  Illinois. 
STATE  OF  ILLINOIS,    1 

>  88  * 

County  of  Cook,       / 

I,  OLIVER  A.  BESTEL,  a  Notary  Public  in  and  for  the  County  and 
State  aforesaid, -do  hereby  certify  that  Emile  K.  Boisot,  Vice-Presi- 
dent of  the  above  named  First  Trust  and  Savings  Bank,  personally 
known  to  me  to  be  the  same  person  whose  name  is  subscribed  to  the 
foregoing  instrument  as  such  Vice-President  and  to  be  such  Vice- 
President  appeared  before  me  this  day  in  person  and  acknowledged 
that  he  signed,  sealed  and  delivered  the  said  instrument  as  the  free 
and  voluntary  act  of  said  First  Trust  and  Savings  Bank  and  as  his 
own  free  and  voluntary  act  as  such  Vice-President  for  the  uses  and 
purposes  therein  set  forth. 


254         MATERIALS    OF   CORPORATION   FINANCE 

GIVEN  under  my  hand  and  official  seal  this  6th  day  of  May,  A.  D. 
1909.  My  commission  expires  January  2,  1910. 

NOTARIAL  OLIVER  A.  BESTEL, 

SEAL.  Notary    Public    in    and   for    the 

County  of  Cook  and  the  State 
of  Illinois. 

STATE  OF  ILLINOIS,    } 

V    gg    • 

County  of  Cook,        / 

BE  IT  REMEMBERED,  that  on  the  6th  day  of  May,  1909,  before  me, 
Oliver  A.  Bestel,  a  Notary  Public  in  and  for  the  County  and  State 
aforesaid,  having  a  seal  of  office,  personally  came  Emile  K.  Boisot  above 
named  and  acknowledged  the  foregoing  indenture  to  be  his  act  and 
deed  and  desired  the  same  to  be  recorded  as  such. 

WITNESS  my  hand  and  official  seal  the  day  and  year  aforesaid. 
My  commission  expires  January  2,  1910. 

NOTARIAL  OLIVER  A.  BESTEL, 

SEAL.  Notary   Public    in    and   for    the 

County  of  Cook  and  the  State 
of  Illinois. 

STATE  OF  ILLINOIS,    ) 

>  S3  * 

County  of  Cook,        / 

I,  OLIVER  A.  BESTEL,  a  Notary  Public  in  and  for  the  County  and 
State  aforesaid,  do  hereby  certify  that  Emile  K.  Boisot,  personally 
known  to  me  to  be  the  same  person  whose  name  is  subscribed  to  the 
foregoing  instrument  appeared  before  me  this  day  in  person  and  ac- 
knowledged that  he  signed,  sealed  and  delivered  the  said  instrument 
as  his  free  and  voluntary  act  for  the  uses  and  purposes  therein  set 
forth. 

GIVEN  under  my  hand  and  official  seal  this  6th  day  of  May,  A.  D. 
1909.  My  commission  expires  January  2,  1910. 

NOTARIAL  OLIVER  A.  BESTEL, 

SEAL.  Notary   Public    in    and   for    the 

County  of  Cook  and  the  State 
of  Illinois. 


MORTGAGE    OF   THE    MORTGAGE   BOND   CO.      255 


TRUST  AGREEMENT— THE  MORTGAGE  BOND  COMPANY 
OF  NEW  YORK  WITH  UNITED  STATES  TRUST  COM- 
PANY OF  NEW  YORK. 

This  Agreement,  made  the  first  day  of  October,  Nineteen  hundred 
and  six,  by  and  between  the  Mortgage-Bond  Company  of  New  York, 
a  corporation  duly  created  and  existing  by  and  under  the  laws  of 
the  State  of  New  York,  hereinafter  termed  "the  Company,"  party 
of  the  first  part,  and  the  United  States  Trust  Company  of  New  York, 
a  corporation  duly  created  and  existing  by  and  under  the  laws  of  the 
State  of  New  York,  and  having  power  to  execute  the  trust  hereby 
created  and  hereinafter  termed  "the  Trustee,"  party  of  the  second 
part; 

[Whereas  clauses  stating  purposes  of  agreement  and  acceptance  of 
trust]1 

Whereas,  the  said  mortgage  bonds,  series  2  thereof,  are  to  be  issued 
in  denominations  of  $100,  or  $500,  or  $1,000  each,  and  the  body  of 
each  bond  is  to  be  in  the  English,  French,  German  and  Dutch  lan- 
guages, arranged  in  four  parallel  columns,  and  said  bonds  are  to  be 
substantially  in  the  following  form,  varying  only  as  to  amount, 
namely : 

(Form  of  $1,000  bond.) 

THE  MORTGAGE-BOND  COMPANY  OF  NEW  YORK. 

UNITED  STATES  OF  AMERICA,  STATE  OF  NEW  YORK. 

4%  GOLD  MORTGAGE  BOND. 

No Series  2  $1,000 

$1,000.00 

£205.15.2  Fs.  5,180 

Mks.  4,200  D.  R.  W.        Guilders  2,487.50 

(Column  1) 

For  value  received  the  Mortgage-Bond  Company  of  New  York 
(herein  called  the  Company)  promises  to  pay  to  the  bearer  hereof, 
not  later  than  October  1,  1966,  One  Thousand  Dollars  ($1,000)  in 
gold  coin  of  the  United  States  of  America,  of  the  present  standard  of 
weight  and  fineness,  at  the  office  of  the  company,  or  at  the  office  of 
Ladenburg,  Thalmann  &  Co.,  in  the  City  of  New  York,  United  States 
of  America,  or  at  the  holder's  option,  205  pounds,  15  sh.,  2d.,  ster- 

»  Statements  included  in  brackets  [  1  «re  digests  of  part*  omitted.  Thew 
parts,  however,  have  been  abbreviated  because  they  are  practically  duplicated 
in  the  Corporate  Mortgage  of  the  Jones  &  Laughlin  Steel  Company,  to  which 
reference  is  made  as  follows:  J.  &  L.  8.  Co.  Art.  — ,  Sec.  — ,  P. — 


256         MATERIALS    OF   CORPORATION    FINANCE 

ling,  at  the  banking  house  of  Coutts  &  Co.  in  London,  England,  or 
5,180  Francs  at  the  Banque  de  1'Union  Parisienne  in  Paris,  France, 
or  4,200  Marks,  D.  R.  W.,  at  the  office  of  L.  Behrens  und  Sohne  in 
Hamburg,  Germany,  or  at  the  Bank  fur  Handel  und  Industrie  in 
Berlin,  Germany,  or  2,487.50  guilders,  at  Maatschappij  tot  Beheer 
van  het  Administrate  kantoor  van  Amerkaansche  Fondsen,  opgerigt 
door  Broes  &  Gosman  Ten  Have  en  Van  Essen  en  Jarman  en  Zoonen 
in  Amsterdam,  Holland,  and  to  pay  interest  thereon  in  any  of  the 
cities  in  said  respective  currencies,  at  the  rate  of  four  per  cent  (4%)^ 
per  annum  from  October  1,  1906,  semi-annually,  on  the  first  day  of 
April  and  of  October  in  each  year,  to  the  bearer  of  the  annexed 
coupons,  upon  presentation  and  surrender  thereof  as  they  respectively 
mature. 

This  bond  is  one  of  a  series,  known  as  Series  2,  not  exceeding  five 
million  dollars  ($5,000,000)  of  principal  payable  in  gold  or  its 
equivalent  in  foreign  currencies,  as  stated,  all  of  which  are  issued 
and  to  be  issued,  under  a  certain  trust  agreement  between  the  Com- 
pany and  the  United  States  Trust  Company  of  New  York,  dated 
October  1,  1906,  assigning  to  said  United  States  Trust  Company  of 
New  York,  as  trustee,  certain  securities  specified  therein,  to  which 
agreement  reference  is  hereby  made  for  a  description  of  the  securities 
assigned,  the  nature  and  extent  of  the  security,  the  rights  and  reme- 
dies of  the  holders  of  said  bonds  in  relation  thereto,  and  the  terms 
and  conditions  upon  which  the  said  bonds  are  issued  and  secured. 
Said  trust  agreement  expressly  provides  "if  any  question  shall  arise 
touching  the  meaning  of  the  company's  bonds,  the  English  version 
shall  prevail  in  the  construction." 

This  bond  shall  not  become  obligatory  until  the  certificate  hereon 
shall  have  been  signed  by  the  said  trustee,  and  is  redeemable  at  the 
option  of  the  company  on  and  after  October  1,  1916,  upon  any 
interest  day,  in  the  manner  in  said  agreement  provided. 

The  bonds  of  this  series  are  entitled  to  the  benefits  of  the  amortiza- 
tion provisions  contained  in  said  agreement,  and  the  drawings  under 
said  provisions  are  to  be  effected  according  to  the  table  endorsed 
hereon. 

(Column  2) 

The  Mortgage-Bond  Company  of  New  York  (ci-apres  appelee  la 
Compagnie)  s'engage  a  payer  au  porteur  le  ler  Octobre  1966  au  plus 
tard,  pour  valeur  regue :'  Mille  Dollars  en  monnaie  d'or  des  Etats- 
Unis  d'Amerique,  aux  titre  et  poids  actuels  et  ce,  soit  au  Siege  de 
la  Compagnie,  soit  chez  M.M.  Ladenburg,  Thalmann  &  Co.,  a  New 
York,  ou,  au  choix  du  porteur:  205  Livres,  15  shillings,  2  pence 


MORTGAGE  OF  THE  MORTGAGE  BOND  CO.   257 

sterling  chez  M.M.  Coutts  &  Co.,  Banquiers,  a  Londrcs  (Angleterre), 
ou  Fs.  5,180  a  la  Bauque  de  1' Union  Parisienne  a  Paris  (France),  ou 
Mks.  4,200  D.  R.  W.  chez  M.M.L.  Behrens  &  Sohne  a  Hambourg 
(Allemagne),  ou  &  la  Bank  fur  Handel  und  Industrie  a  Berlin 
(Allemagne),  ou  2,487.50  Florins  &  la  Maatschappij  tot  Behecr  van 
het  Administrate  Kantoor  van  Amerikaansche  Fondsen,  opgerigt  door 
Broes  &  Gosman,  Ten  Have  en  Van  Essen  en  Jarman  en  Zoonen,  a 
Amsterdam  (Hollande)  et  a  payer  dans  les  dites  villes  en  monnaie 
des  dits  pays,  les  interets  au  taux  de  quatre  pour  cent  (4%)  1'an,  a 
dater  du  ler  Octobre  1906,  semestriellement,  le  premier  Avril  et  le 
premier  Octobre,  le  dit  paiement  devant  etre  effectuS  au  porteur  des 
coupons  el-attache's,  contre  presentation  et  remise  de  ces  coupons  au 
fur  et  &  mesure  de  leur  echeance. 

La  presente  obligation  fait  partie  d'une  se>ie  d'obligations, 
d^signee  Serie  II,  dont  le  montant  total  ne  depassera  pas  cinq  mil- 
lions de  Dollars  or  ($5,000,000)  ou  leur  Equivalent  en  monnaies 
6trangeres,  comme  ci-dessus  indiquS,  et  qui  sont  ou  seront  e"mises 
conformement  aux  stipulations  d'un  contrat  (trust  agreement) 
intervenu  entre  la  Compagnie  et  la  United  States  Trust  Company  of 
New  York  en  date  du  ler  Octobre  1906  et  confe>ant  &  la  dite  United 
States  Trust  Company  of  New  York,  en  sa  qualit6  de  tiers  dSpositaire, 
(trustee)  certains  gages  specifies  au  dit  contrat.  La  Compagnie  se 
r6fere  par  la  prSsente  &  ce  contrat  pour  tous  details  relatifs  aux 
gages  conferes,  &  leur  nature  et  leur  montant,  aux  droits  et  privileges 
des  porteurs  des  obligations  par  rapport  &  ces  gages,  ainsi  qu'aux 
termes  et  conditions  dans  lesquels  les  obligations  sont  6mises  et 
garanties.  Le  Trust  Agreement  declare  expressement :  En  cas  de 
divergence  dans  ^interpretation  du  texte  des  obligations  de  la  com- 
pagnie,  le  texte  anglais  prevaudra. 

La  prSsente  obligation  ne  deviendra  valable  qu'apres  avoir  6t6 
dfiment  revf'tue  de  la  signature  du  dit  d6positaire;  elle  est  rem- 
boursable  au  choix  de  la  Compagnie,  b.  partir  du  ler  Octobre  1916, 
&  chaque  6ch6ance  des  coupons,  aux  termes  pr6vus  dans  le  sus-dit 
contrat. 

Les  obligations  de  la  pr6sente  se>ie  jouiront  des  stipulations  du  dit 
contrat  relatives  a  1'amortissement,  et  les  tiragcs  prcvua  par  cea 
stipulations  devront  Ctre  effectu6s  conform6mcnt  au  tableau  ci-annex6. 

(Column  3) 

The  Mortgage-Bond  Company  of  New  York  (hierin  die  Gesell- 
schaft  genannt)  verspricht  fiir  erhaltenn  Gcgenloiatung  dem  Inhnlx?r 
Dieses  nicht  spater  als  am  1.  Oktober  1966,  Ein  Tausend  Dollars 


258         MATEEIALS    OP   COEPORATION   FINANCE 

($1,000)  in  Goldmiinzen  der  Vereinigten  Staaten  von  Amerika  von 
dem  gegenwartigen  Gewicht  und  Feingehalt,  bei  der  Kasse  der  Gesell- 
schaft, oder  bei  den  Herren  Ladenburg,  Thalmann  &  Co.  in  New 
York,  Yereinigte  Staaten  von  Nord  Amerika,  zu  zahlen,  oder  nach 
Wahl  des  Inhabers  £205.15.2  sterling  l)ei  dem  Bankhaus  Coutts  & 
Co.  in  London,  England,  oder  Frs.  5,180  bei  der  Banque  de  1'TJnion 
Parisienne  in  Paris,  Frankreich,  oder  M.4,200  D.  E.  W.  bei  den  Her- 
ren L.  Behrens  &  Sohne  in  Hamburg,  Deutschland,  oder  der  Bank 
fiir  Handel  und  Industrie  in  Berlin,  Deutschland,  oder  2,487.50 
Gulden  bei  der  Maatschappij  tot  Beheer  van  het  Administratie  kantoor 
van  Amerikaansche  Fondsen,  opgerigt  door  Broes  &  Gosman,  Ten 
Have  en  Van  Essen  en  Jarman  en  Zoonen  in  Amsterdam,  Holland, 
und  Zinsen  hierauf  in  irgend  einer  der  genannten  Stadte  in  der 
diesbeziiglichen  Wahrung,  zum  Satz  von  vier  Prozent  (4%)  per 
Jahr,  vom  1.  Oktober,  1906,  ab  halbjahrlich,  am  1.  April  und  Okto- 
ber  jeden  Jahres,  dem  Inhaber  der  beigefiigten  Coupons,  gegen  Vor- 
zeigung  und  Ueberreichung  des  jeweilig  falligen  Coupons  zu  zahlen. 

Dieser  Bond  ist  ein  Bond  aus  einer  Serie,  genannt  Serie  II,  von 
nicht  mehr  als  Fiinf  Millionen  Dollars  ($5,000,000)  Nominalbetrag 
in  Gold,  oder  dessen  Gegenwert  in  fremden  Wahrungen,  wie  oben 
angegeben,  und  diese  sammtlichen  Bonds  sind  und  werden  ausgegeben 
unter  einem  Trust  Agreement  zwischen  der  Geselleschaft  und  der 
United  States  Trust  Company  of  New  York,  d.  d.  1  Oktober,  1906, 
wodurch  der  genannten  United  States  Trust  Company  of  New  York, 
als  Treuhander,  bestimmte  darin  naher  bezeichnete  Sicherheiten 
iibertragen  werden.  Fiir  eine  Beschreibung  der  iibertragenen  Sicher- 
heiten, der  Art  und  des  Umfangs  der  Sicherheit,  der  Eechte  und 
Befugnisse  der  Inhaber  der  Bonds,  und  der  Vorschriften  und  Bedin- 
gungen,  unter  welchen  die  Bonds  ausgegeben  und  sicher  gestellt  sind, 
wird  auf  das  genannte  Agreement  Bezug  genommen.  Das  Trust  Agree- 
ment schreibt  ausdriicklich  vor;  Falls  irgend  eine  Frage  hinsichtlich 
der  Auslegung  des  Textes  der  Obligationen  der  Gesellschaft  entstehen 
sollte,  so  soil  der  englische  Text  solcher  Auslegung  als  entscheidend 
zu  Grunde  gelegt  werden. 

Dieser  Bond  verpflichtet  die  Gesellschaft  nicht  eher  als  bis  das 
darauf  befindliche  Certifikat  von  dem  genannten  Treuhander  unter- 
zeichnet  ist.  Die  Gesellschaft  hat  das  Eecht  diesen  Bond  an  oder 
nach  dem  1.  Oktober,  1916,  an  irgend  einem  Zinszahlungstermine,  in 
der  in  dem  Trust  Agreement  vorgeschriebenen  Art  und  Weise 
einzulosen. 

Auf  die  Bonds  dieser  Serie  finden  die  in  dem  Trust  Agreement 
enthaltenen  Vorschriften  iiber  die  Amortisation  Anwendung,  und  die 


MORTGAGE  OF  THE  MORTGAGE  BOND  CO.   259 

Ziehungen  gemass  jenen  Vorschriften,  miissen  in  Uebereinstimmung 
mit  dem  beigefiigten  Plan  erfolgen. 

(Column  4) 

Voor  ontvangen  waarde  verbindt  The  Mortgage-Bond  Company  of 
New  York  (hierin  de  Maatschappij  genoemd)  zich,  den  houder  dezes, 
niet  later  dan  1  October  1966,  te  betalen,  duizend  dollars  ($1,000.00) 
in  gouden  munt  van  de  Vereenigde  Staten  van  Amerika,  van  den 
tegenwoordigen  standaard  van  gewicht  en  gehalte,  ten  kantore  der 
Maatschappij,  of  ten  kantore  van  Ladenburg,  Thalmann  &  Co.,  in 
de  stad  New  York,  in  de  Vereenigde  Staten  van  Amerika,  of,  tor 
keuze  van  den  houder,  205  pond,  15  sh.,  2  d.  sterling,  ten  kantore 
van  Coutts  &  Co.,  te  Londen,  in  Engeland,  of  5,180  francs  by  de 
Banque  de  1'Union  Parisienne  te  Parys  in  Frankryk,  of  4,200  ryks- 
mark,  ten  kantore  van  L.  Behrens  und  Sohne  te  Hamburg,  in  Duitsch- 
land,  of  by  de  Bank  fur  Handel  und  Industrie  te  Berlyn,  in  Duitsch- 
land,  of  2,487.50  gulden  by  de  Maatschappij  tot  Beheer  van  het 
Administratiekantoor  van  Amerikaansche  Fondsen,  opgerigt  door 
Broes  &  Gosmann,  Ten  Have  en  Van  Essen  en  Jarman  en  Zoonen  te 
Amsterdam,  in  Holland,  en  daarover,  in  eene  dier  steden,  in 
genoemde  respectieve  muntscorten,  interest  te  betalen,  a  vier  percent 
(4%)  's  jaars,  van  1  October  1906  af,  halfjaarlyks,  op  de  eerste 
dagen  van  April  en  October  van  elk  jaar,  aan  den  houder  van  by- 
gaande  coupons,  tegen  aanbieding  en  overgave  daarvan,  naarmate  ze 
vervallen. 

Deze  obligatie  behoort  tot  eene  serie,  genaamd  Serie  II,  niet  te 
boven  gaande  een  bedrag  van  Vyf  Millioen  Dollars  ($5,000,000) 
nominaal  in  goud,  of  het  equivalent  daarvan  in  vreemde  muntsoorten 
als  boven  gezegd,  welke  alle  zyn  of  zullen  worden  uitgegeven  volgens 
de  bepalingen  van  zekere  Trust  overeenkomst  tusschen  de  Maatschappij 
en  de  United  States  Trust  Company  of  New  York,  gedateerd  1  Octo- 
ber 1906,  waarby  aan  genoemde  United  States  Trust  Company  of 
New  York,  als  Trustee,  worden  overgedragen  zekere  daarin 
omschreven  onderpanden,  en  naar  welke  overeenkomst  hierby  wordt 
verwezen  ter  omschryving  van  de  overgedragen  onderpanden,  den 
aard  en  omvang  van  het  onderpand,  de  rechten  en  reehtsmiddelen 
van  de  houders  der  genoemde  obligatien  met  betrekking  daartoe,  en 
de  voorwaarden  en  condition  waarop  genoemde  obligatien  zyn  uitge- 
geven en  verzekerd.  Genoemde  trustovereenkomst  bepaalt  uitdruk- 
kelijk:  "indien  eenige  questie  zich  mocht  voordoen  betreffonde  do 
bedoeling  der  obligatien  van  dc  Maatschappij,  zal  in  de  opvatting 
volgens  den  Engelschen  tekst  wordcn  geoordeeld." 


260         MATEEIALS   OF   CORPORATION   FINANCE 

Deze  obligatie  zal  niet  geldig  zijn  voordat  de  daarop  gestelde  ver- 
klaring  door  genoemden  trustee  zal  zyn  geteekend.  Deze  obligatie  is 
aflosbaar  naar  verkiezing  der  Maatschappij  op  en  na  1  October  1916, 
op  iederen  vervaldag  der  rente  op  de  wyze  als  in  genoemde  overeen- 
komst  is  geregeld. 

De  obligatien  dezer  hebben  recbt  op  aflossing  volgens  de  regels  in 
genoemde  overeenkomst  vervat,  en  de  trekkingen  overeenkomstig  d'e 
regels  moeten  plaats  hebben  volgens  den  hier  aangehecbten  staat. 

(Testimonium  Clause.) 

IN  WITNESS  WHEREOF,  the  Company  has  caused  these  presents  to 
be  signed  by  its  President  or  Vice-President,  and  its  corporate  seal 
to  be  affixed  hereto,  attested  by  its  treasurer  or  assistant  treasurer, 
and  has  caused  the  coupons  thereto  annexed  to  bear  the  facsimile 
signature  of  its  treasurer,  as  of  the  1st  day  of  October,  1906. 

THE  MORTGAGE-BOND  COMPANY  OF  NEW  YORK, 

By . 

[SEAL]  President. 

Attest 

Treasurer. 

And  Whereas,  each  of  the  coupons  to  be  attached  to  said  Mor- 
gage  Bonds,  Series  2,  is  to  be  in  the  following  form,  varying  only  as 
to  amount  namely 

(FORM  OF  COUPON  FOR  $1,000  BOND.) 
THE  MORTGAGE-BOND  COMPANY  OF  NEW  YORK. 
No 

$20  U.  S.  Gold 
£4.24  Fs.  103.60 

Mks.  84  D.  R.  W.    Guilders  49.75 

The  Mortgage-Bond  Company  of  New  York  will  pay  to  bearer  in 
the  City  of  New  York,  United  States  of  America,  twenty  dollars 
($20)  in  gold,  or  in  London,  England,  4  pounds  sterling,  2  sh.  4  d., 
or  in  Paris,  France,  103.60  Francs,  or  in  Hamburg,  or  Berlin,  Ger- 
many, 84  Marks,  D.  R.  W.,  or  in  Amsterdam,  Holland,  49.75  guilders, 
on  the  first  day  of  ,  19  ,  being  the  interest  of  the 

preceding  six  months  on  its  Four  Per  Cent  Gold  Mortgage  Bond 

Series  2,  No ,  unless  said  bond  shall  have  been  previously 

redeemed  under  the  provisions  of  the  Trust  Agreement  securing  the 
same. 

Treasurer. 


MORTGAGE    OF   THE    MORTGAGE    BOND   CO.      261 


(BACK  OF  COUPON.) 


No. 


Payable  in  New  York  at  the  office  of  The  Mortgage-Bond  Com- 
pany of  New  York,  or  at  the  office  of  Ladenburg,  Thal- 
mann  &  Co. 

Payable  in  London  at  the  banking  house  of  Coutts  &  Co. 

Payable  a  Paris  chez  la  Banque  de  1'Union  Parisienne. 

Zahlbar  in  Hamburg  bei  dem  Bankhaus  L.  Behrens  und  SOhne. 

Zahlbar  in  Berlin  bei  der  Bank  fiir  Handel  und  Industrie. 

Betaalbaar  in  Amsterdam  by  het  Adininistratiekantoor  Broes  & 
Gosman  c.  s. 

And  Whereas,  each  of  said  mortgage  bonds,  series  2  thereof,  is  to 
bear  the  following  endorsements,  to-wit : 

TABLE  OF  DRAWINGS  FOR  THE  AMORTIZATION  OF  MORTGAGE 
BONDS  SERIES  2,  OP 

THE  MORTGAGE-BOND  COMPANY  OF  NEW  YORK 


DATE    OP 

Percentage  of 
Bonds  Issued 

PAYMENT 

to  be  drawn  for 

Payment 

April 

1,  1912.... 

2 

October 

1,  1912.... 

2 

April 

1,  1913... 

3 

October 

1,  1913.... 

3 

April 

1,  1914... 

3 

October 

1,  1914... 

3 

April 

1,  1915... 

3 

October 

1,  1915... 

3 

April 

1,  1916.... 

.  .  .'.     .3 

October 

1,  1918... 

3 

April 

1,  1917... 

3 

October 

1,  1917... 

3 

April 

1,  1918.... 

3 

October 

1,  1918... 

3 

April 

1,  1919... 

3 

October 

1,  1919... 

3 

April 

1,  1920... 

3 

October 

1,  1920... 

4 

April 

1,  1921... 

4 

October 

,  1921-... 

4 

April 

,  1922... 

4 

October 

,  1922... 

4 

April 

,  1923... 

4 

October 

,  1923... 

4 

April 

.  1924... 

4 

October 

,  1924... 

4 

April 

,  1925... 

4 

DAT*  Of 
PATMEN1 

April       1 
October 
April       1 
October 
April        ] 
October 
April        ] 
October    '. 
April 
October 
April 
October 
April 
October 
April 
October 
April 
October 
April 
October 
April 
October 
April 
October 
April 
October 

Ai.ril 

Percentage  of 
Bonds  Issued 
to  be  drawn  for 
Payment 
,   1940  H 

1,   1940  

.  ..      .8 

,  1941  

...      .8 

1,  1941  

...      .8 

[,  1942   

..  .     .8 

1,  1942  

...     .9 

[,  1943  

...     .9 

,  1943  

...      .9 

,  1944  

...     .9 

,  1944   

...     .9 

,  1945  

...     .9 

,  1945.  .    . 

...   1. 

,  1940  

,  1940  

,  1947  

,  1947  

...     .1 

,  1948  

...     .1 

,  1948  

...     .1 

,  1949  

...     .1 

,  1949  

...     .1 

,  1950  

...     .1 

,  1950  

...   1.2 

,  1951  

...    1.2 

,  1951  

...   1.2 

,  1952  

...   1.2 

,  1952  

...   1.3 

.  1953.. 

.   1.3 

262         MATERIALS    OF    CORPORATION    FINANCE 


Percentage 

DATE    OF 

Bonds  Issued 

PAYMENT 

to  be  drawn  for 

Payment 

October    1,  1925.. 

4 

April        1,  1926.. 

4 

October    1,  1926.. 

5 

April        1,  1927.. 

5 

October    1,  1927.. 

5 

April        1,  1928.. 

5 

October    1,  1928.. 

5 

April        1,  1929.. 

5 

October     1,  1929.. 

5 

April        1,  1930.. 

5 

October    1,  1930.. 

5 

April        1,  1931.. 

5 

October    1,  1931.. 

6 

April        1,  1932.. 

6 

October    1,  1932.. 

6 

April        1,  1933.. 

6 

October    1,  1933.. 

6 

April        1,  1934.. 

6 

October     1,  1934.. 

6 

April        1,  1935.. 

6 

October     1,  1935.. 

6 

April        1,  1936.. 

7 

October    1,  1936.. 

7 

April        1,  1937.. 

7 

October    1,  1937.. 

7 

A'pril        1,  1938.. 

7 

October    1,  1938.. 

7 

April        1,  1939.. 

8 

October    1,  1939.. 

8 

Percentage  of 

DATE    OF 

Bonds  Issued 

PAYMENT 

to  be  drawn  for 

Payment 

October    1,  1953.. 

1.3 

April        1,  1954.. 

1.3 

October    1,  1954.. 

1.4 

April        1,  1955.. 

1.4 

October    1,  1955.. 

1.4 

April        1,  1956.. 

1.5 

October    1,  1956.. 

1.5 

April       1,  1957.. 

.1.5 

October    1,  1957.. 

1.6 

April       1,  1958.. 

1.6 

October    1,  1958.. 

1.6 

April        1,  1959.. 

1.6 

October    1,  1959.. 

1.7 

April       1,  I960.. 

1.7 

October    1,  I960.. 

1.8 

April        1,  1961.. 

1.8 

October    1,  1961.. 

1.8 

April        1,  1962.. 

1.8 

October    1,  1962.. 

1.9 

April       1,  1963.. 

1.9 

October    1,  1963.. 

2. 

April       1,  1964.. 

2. 

October    1,  1964.. 

2. 

April        1,  1965.. 

2.1 

October    1,  1965.. 

2.1 

April       1,  1966.. 

2.2 

October    1,  1966 

2.2 

100% 


Drawing  of  bonds  at  par  as  above  provided  will  take  place  at  the  office  oi 
the  Trustee  twice  a  year,  sixty  days  before  the  date  fixed  for  payment,  and 
bonds  will  be  drawn  as  nearly  as  possible  proportionately  from  the  different 
denominations.  Notice  of  the  result  of  such  drawings,  containing  the  numbers 
of  the  bonds  drawn,  shall  be  published  once  a  week  for  the  four  weeks  sub- 
sequent to  the  date  of  drawing,  in  one  daily  newspaper  in  each  of  the  cities 
New  York,  London,  Paris,  Hamburg,  Berlin  and  Amsterdam,  and  interest  shall 
cease  upon  the  bonds  so  drawn  from  and  after  the  day  fixed  for  such  payment. 
All  as  provided  in  said  Trust  Agreement. 

(To  BE  PRINTED  ON  THE  BACK  OF  BONDS) 

EXTRACT  FROM  ARTICLE  SEVEN  OF  THE  BANKING  LAW  OF  THE  STATE  OF  NEW 

YORK 

SECTION  199.  GENERAL  POWERS. — In  addition  to  the  powers  conferred  by 
the  general  and  stock  corporation  laws,  a  corporation  organized  as  provided 
in  the  two  preceding  sections*  shall  have  power  to  sell,  offer  for  sale  or 
negotiate  bonds  or  notes  secured  by  deed  of  trust  or  mortgages  on  real  property 
situated  in  this  State  or  outside  of  this  State,  or  choses  in  action  owned, 
issued,  negotiated  or  guaranteed  by  it  or  may  receive  money  or  property 


MORTGAGE  OF  THE  MORTGAGE  BOND  CO.   263 

either  from  its  own  stockholders  or  other  persons  in  instalments  or  otherwise 
and  may  enter  into  any  contract,  engagement  or  undertaking  with  such  per- 
sons for  the  withdrawal  of  such  money  or  property,  at  any  time,  with  any 
increase  thereof,  or  for  the  payment  to  them  or  to  any  person  of  any  sum 
of  money  at  any  time,  either  fixed  or  uncertain,  excepting  that  said  corpora- 
tion can  not  do  a  general  deposit  business  without  complying  with  the  pro- 
vision of  section  fourteen  of  this  chapter. 

•[SECTIONS  197-198  provide  that  a  mortgage,  loan  or  investment  corporation 
may  be  formed  with  the  authorization  rf  the  Superintendent  of  Banks,  where 
the  capital  stock  has  been  paid  in  cash  and  a  deposit  of  $1,000  made  with 
him  as  a  guaranty  of  compliance  with  the  banking  laws.] 

EXTRACTS  FBOM  CERTIFICATE  OF  INCORPORATION  OF  THE  COMPANY. 

NAME  OF  COMPANY. — The  name  by  which  such  corporation  is  to  be  known  is 
THE  MORTGAGE-BOND  COMPANY  OF  NEW  YORK. 

HEAD  OFFICE. — The  particular  city  where  the  operations  are  to  be  carried 
on  is  the  City  of  New  York  in  the  State  of  New  York,  and  it  is  to  be  estab- 
lished in  the  Borough  of  Manhattan  in  said  City  and  in  the  County  of  New 
York. 

CAPITAL  STOCK. — The  amount  of  its  Capital  Stock  is  Two  Million  Dollars, 
divided  into  twenty  thousand  shares  of  the  par  value  of  One  Hundred  Dollars 
each. 

LENGTH  OF  FRANCHISE. — The  date  at  which  said  corporation  shall  com- 
mence is  the  27th  day  of  March,  1905,  and  it  shall  terminate  on  the  24th 
day  of  March,  2905. 

INCREASE  OF  CAPITAL  STOCK. — The  Capital  Stock  of  the  Company  may  be 
increased  from  time  to  time  in  the  manner  provided  by  law  at  the  time  of 
such  increase. 

EXTRACT  FROM  THE  BY-LAWS  OF  THE  COMPANY.  ARTICLE  ONE  SECTION  IA. 
No  such  bonds  shall  be  issued  unless  the  same  shaJl  have  been  authorized 
by  a  vote  of  a  majority  of  the  Directors  of  this  Company  at  a  regular  meeting 
thereof  or  at  a  special  meeting  duly  called  for  that  purpose.  Before  any 
issue  of  such  bonds  shall  be  authorized  by  the  Board  of  Directors  there  shall 
be  presented  to  the  Board  a  certificate  by  a  public  accountant  to  be  eelected 
in  advance  by  the  Board  for  that  purpose,  showing  the  amount  of  the  then 
outstanding  obligations  and  indebtedness  of  the  Company  as  the  same  ap- 
pears from  its  books.  No  issue  of  such  bonds  shall  be  authorized  at  any  time 
which,  together  with*  the  other  obligations  and  indebtedness  of  the  Company 
then  outstanding,  as  shown  by  the  said  report  of  said  accountant,  shall  be 
in  excess  of  fifteen  times  the  amount  of  its  Capital  Stock  at  the  time  of  the 
issue  of  such  obligation.  This  section  shall  not  be  amended  or  repealed  ex- 
cept by  the  written  consent  duly  acknowledged  of  every  member  of  the  Board 
of  Directors  at  the  time  being  and  of  the  holders  of  all  of  the  bonds  of  tin- 
Company  then  outstanding  issued  as  herein  provided. 

STATEMENT  OF  THE  COMPANY 

The  Mortgage-Bond  Company  of  New  York  was  incorporated  with  the  au- 
thorization of  the  Superintendent  of  Banks  of  the  State  of  New  York  under 
date  of  April  18,  1905.  The  Company  is  subject  to  the  supervision  and  exami- 
nation of  the  Superintendent  of  Banks  in  accordance  with  Section  201,  Article 
7,  of  the  Banking  Law  of  the  State  of  New  York. 


MATERIALS   OF   CORPORATION    FINANCE 

These  Bonds  are  secured  by  first  mortgages,  equal  in  unpaid  principal  to  the 
principal  of  the  bonds  outstanding,  on  improved  real  estate  in  cities  of  the 
United  States  of  America  of  not  less  than  forty  thousand  population.  No 
mortgages  can  be  used  as  security  which  are  secured  by  farm  property,  un- 
improved property,  an  undivided  interest  in  property,  leaseholds,  churches, 
factories,  clubs  or  theatres.  All  mortgages  used  as  security  are  limited  to 
one-half  of  the  value  of  the  property  mortgaged,  except  that  in  cities  of 
three  hundred  thousand  population  and  over  they  are  limited  to  three-fifths 
of  the  value  of  the  property,  and  in  New  York  City  to  two-thirds  of  the  value 
of  the  property.  All  as  provided  in  the  said  Trust  Agreement. 

And  Whereas,  on  each  bond  issued  and  to  be  issued  hereunder 
there  is  to  be  endorsed  a  certificate  of  the  United  States  Trust  Com- 
pany of  New  York,  or  its  successor  as  trustee,  that  such  bond  is  one 
of  the  bonds  mentioned  in  the  agreement  therein  referred  to,  and  no 
bond  shall  be  secured  by  this  agreement  or  be  obligatory  for  any  pur- 
pose unless  such  certificate  shall  have  been  executed  by  said  Trust 
Company  or  its  successor  as  trustee  hereunder;  such  certificate  to  be 
substantially  of  the  following  tenor: 

(FORM  OF  CERTIFICATE  OF  TRUSTEE.) 

It  is  hereby  certified  that  this  bond  is  one  of  the  bonds  mentioned 
in  the  trust  agreement  referred  to  within. 
Dated,  New  York 

UNITED  STATES  TRUST  COMPANY  OF  NEW  YORK, 

Trustee. 

By 

[Clause  of  due  authorization.] 
[Consideration  clause.] 

The  Mortgage-Bond  Company  of  New  York,  party  of  the  first  part, 
has  granted,  bargained,  sold,  assigned  and  set  over,  and  by  these 
presents  does  grant,  bargain,  sell,  assign  and  set  over  unto  the  United 
States  Trust  Company  of  New  York,  party  hereto  gf  the  second  part, 
its  successors  and  assigns  forever,  all  the  bonds  and  mortgages  set 
forth  and  described  in  the  schedule  in  the  next  paragraph  hereof  de- 
scribed, and  also  all  other  bonds  and  mortgages  which  the  Company 
at  any  time  hereafter  shall  deposit  with  and  deliver  to  the  Trustee 
under  this  Agreement,  either  concurrently  with  the  authentication 
and  issue  of  bonds  hereunder  or  otherwise. 

The  schedule  above  referred  to  is  to  be  identified  by  a  certificate 
signed  by  the  Company  and  the  Trustee  at  the  beginning  thereof,  in 
the  following  form,  to- wit : 

"Schedule  of  bonds  and  mortgages  assigned  by  The  Mortgage- 
Bond   Company  of  New  York  to  and   deposited   with  the  United 


MORTGAGE  OF  THE  MORTGAGE  BOND  CO.   265 

States  Trust  Cojnpany  of  New  York,  as  Trustee,  for  the  holders  of 
The  Mortgage-Bond  Company's  Mortgage  Bonds,  Series  2,  and  of  all 
other  of  the  said  Company's  Mortgage  Bonds  issued  under  and  pur- 
suant to  the  provisions  of  a  certain  Agreement  or  Deed  of  Trust 
bearing  date  the  first  day  of  October,  1906,  between  the  said  The 
Mortgage-Bond  Company  of  New  York  and  United  States  Trust 
Company  of  New  York,  as  Trustee,  and  subject  to  and  upon  all  the 
trusts,  covenants  and  conditions  in  said  Agreement  contained  and 
with  all  the  powers  conferred  by  said  Agreement  or  Deed  of  Trust 
upon  the  Mortgage-Bond  Company  of  New  York  and  the  United 
States  Trust  Company  of  New  York,  as  Trustee,  and  the  Bondholders 
respectively." 

The  particulars  of  each  bond  and  mortgage  and  of  the  papers  evi- 
dencing and  relating  to  the  same  shall  be  set  forth  in  other  schedules 
or  documents  in  such  form  as  the  Trustee  shall  devise,  advise  or  ap- 
prove. Such  schedule  when  so  certified  by  the  signatures  of  the 
Company  and  Trustee  shall  be  taken  and  deemed  to  be  a  part  of  this 
instrument. 

The  delivery  to  and  deposit  hereunder  with  the  Trustee  of  bonds, 
mortgages  or  other  securities,  as  herein  provided,  shall  constitute  an 
assignment  and  pledge  under  this  Agreement  of  the  securities  so 
delivered  and  deposited,  and  of  the  income  and  interest  due  and  to 
become  due  thereon. 

The  Trustee  shall  have  and  hold  such  bonds  and  mortgages  upon 
the  trusts  hereby  created  for  the  equal  pro  rata  benefit  and  security 
of  the  holders  of  bonds  issued  and  to  be  issued  under  this  agreement, 
without  any  preference  or  priority  to  any  one  bond  over  another, 
by  reason  of  priority  in  the  time  of  issue  or  negotiation  thereof,  or 
otherwise,  and  to  secure  the  payment  of  each  of  the  said  bonds  to- 
gether with  the  interest  thereon,  and  for  all  the  other  uses  and 
purposes,  and  upon  the  terms  and  conditions  herein  declared  and 
expressed. 

1.  The  term  "Company's  Bonds"  when  used  in  this  instrument 
shall  be  taken  to  mean  all  the  Mortgage  Bonds  irrespective  of  series 
issued  by  the  Company  under  this  Agreement  and  authenticated  by 
the  Trustee  as  herein  provided,  and  no  others.  The  term  "Bond- 
holder" when  used  in  this  instrument  shall  be  taken  to  mean  the 
holder  of  any  one  of  the  "Company's  Bonds."  The  term  "Trust 
Fund"  when  used  in  this  instrument  shall  be  taken  to  mean  and 
include  all  the  property  of  what  kind  soever,  which  from  time  to 
time  the  Trustee  shall  hold  as  security  for  payment  of  the  "Com- 
pany's Bonds."  The  term  "Bond  and  Mortgage"  when  used  in  thie 


266         MATERIALS    OF   CORPORATION   FINANCE 

instrument  shall  be  taken  to  mean  any  obligation  of  whatsoever  kind 
for  the  payment  of  money,  and  secured  by  an  instrument  correspond- 
ing to  the  requirements  hereof  with  respect  to  instruments  to  secure 
obligations  to  be  assigned  to  and  deposited  with  the  Trustee  under 
this  Agreement,  together  with  such  instrument.  Whenever  the  plural 
is  used  in  this  instrument  it  shall  be  construed  to  include  the  singular 
and  the  singular  the  plural  if  the  context  so  requires.  If  any  question 
shall  arise  touching  the  meaning  of  the  Company's  Bonds,  the  English 
version  shall  prevail  in  the  construction. 

2.  Inasmuch  as  at  the  time  of  the  execution  and  delivery  of  these 
presents  the  Company  may  not  desire  to  have  all  of  the  Company's 
Bonds,  Series  2,  authenticated  by  the  Trustee,  and  to  assign  to  and 
deposit  with  the  Trustee  bonds  and  mortgages  to  the  full  contemplated 
amount  of  Five  Million  Dollars  ($5,000,000),  it  is  agreed  that  from 
time  to  time  hereafter  the  Company  may  have  Bonds  of  Series  2 
authenticated  by  the  Trustee  and  delivered  to  the  Company  (subject 
to  the  provision   of  Article   One  of  this   Agreement  touching  the 
authentication  of  bonds)  upon  assigning  to  and  depositing  with  the 
Trustee  bonds  and  mortgages  until  the  amount  of  Five  Million  Dol- 
lars ($5,000,000)  of  unpaid  principal  of  such  bonds  and  mortgages 
is  made  up,  and  that  as  the  said  bonds  and  mortgages  are  assigned 
to  and  deposited  with  the  Trustee,  they  shall  be  entered  in  the 
schedule  hereinbefore  mentioned,  and  shall  form  a  part  of  the  Trust 
Fund  hereby  created,  and  shall  in  all  respects  be  subject  to  the  pro- 
yisions  of  this  Agreement  with  like  force  and  effect  as  if  they  and  the 
particulars  thereof  had  been  entered  in  the  said  Schedule  hereinbefore 
mentioned  at  the  time  of  the  execution  and  delivery  hereof,  and  as  if 
such  bonds  and  mortgages  then  had  been  assigned  to  and  deposited 
with  the  Trustee. 

3.  The  Company  shall  have  the  right  to  make  further  issues  of 
bonds  in  addition  to  Series  2,  to  be  issued  under  and  secured  by  this 
Agreement,  to  an  amount  not  to  exceed,  together  with  all  other  in- 
debtedness of  the  Company  then  outstanding,  secured  and  unsecured, 
fifteen  times  the  Capital  Stock  of  the  Company  outstanding  at  the 
time  of  any  such  issue.     Such  issues  may  be  in  one  or  more  series, 
bearing  different  dates  both  as  to  issuance  and  maturity,  different 
rates  of  interest,  payable  in  different  currencies,  and  at  places  and 
cities  other  than  the  places  and  cities  mentioned  in  the  bonds  of 
Series  2,  and  the  bonds  of  the  different  series  may  in  tenor  and  form 
vary  from  the  form  of  the  bonds  of  Series  2,  and  from  the  bonds  of 
each  of  the  other  series.     The   Company   may  issue   concurrently 
bonds  of  different  series;  but  as  long  as  any  bonds  issued  or  to  b*1 


MORTGAGE  OF  THE  MORTGAGE  BOND  CO.   267 

issued  under  this  Agreement  are  outstanding  the  Company  shall 
make  no  further  issues  of  bonds  except  under  this  Agreement;  this 
shall  not  apply,  however,  to  Series  1  of  the  Mortgage  Bonds  of  the 
Company. 

4.  The  bonds  of  any  such  additional  series  so  issued  may  contain 
such  provisions  touching  the  redemption  thereof,  at  the  option  of 
the  Company,  prior  to  maturity,  as  the  Company  may  determine. 
And  the  Company  may  provide  by  provisions  satisfactory  to  it  for 
the  creation  and  establishment  of  a  Sinking  Fund  or  for  a  Scheme 
of  Amortization  applicable  to  any  such  additional  series,  not  neces- 
sarily identical  with  the  Amortization  provisions  with  respect  to  the 
bonds  of  Series  2  herein  set  forth.  Any  such  Sinking  Fund  or  Amor- 
tization Scheme  or  provisions  touching  the  Redemption  of  any  bonds 
of  any  such  additional  series  shall  be  fully  set  forth  in  an  instrument 
supplemental  hereto,  and  such  instrument  when  executed  by  the 
Company  shall  be  attached  to  this  Agreement  and  shall  form  a  part 
hereof  as  far  as  the  Series  of  Bonds  to  which  it  is  applicable  is 
concerned  as  fully  to  all  intents  and  purposes  as  if  it  had  formed  a 
part  of  this  Agreement;  and  the  provisions  of  paragraph  (c),  Article 
Six,  hereof,  shall  apply  to  such  Sinking  Fund  or  Amortization  or 
Redemption  provisions,  and  a  failure  on  the  part  of  the  Company  to 
comply  with  such  provisions  shall  constitute  and  be  an  event  of 
default  within  the  meaning  of  paragraph  (c)  of  Article  Six  of  this 
instrument. 

Each  of  the  bonds  of  any  such  series  so  issued  may  contain  suitable 
provision  for  its  registration  as  to  principal,  or  as  to  principal  and 
interest,  in  which  event  the  Company,  by  the  corporate  resolutions 
authorizing  the  issue  of  such  series,  shall  provide  for  the  maintenance 
of  an  office  in  the  City  of  New  York  under  suitable  restrictions,  where 
bonds  of  such  series  may  be  registered  and  when  so  registered  may 
be  transferred. 

If  at  any  time  the  Company  shall  desire  to  issue  any  such  additional 
series  of  bonds,  and  shall  be  thereunto  duly  authorized  by  corporate 
action  to  that  end  duly  had,  it  shall  file  with  the  Trustees  a  certified 
copy  of  the  resolution  of  the  Directors  of  the  Company  authorizing 
such  issue,  stating  the  aggregate  principal  amount  of  such  series  and 
prescribing  the  form  of  bonds  which  is  to  evidence  the  indebtedness 
included  in  such  series,  and  a  certified  copy  of  such  form  of  bonds 
shall  be  annexed  to  this  Agreement  by  the  Trustee  with  the  same 
force  and  effect  as  though  the  same  had  been  affixed  hereto  at  the 
time  of  the  execution  hereof  and  constituted  a  part  hereof.  And  the 
Trustee  thereafter  shall  authenticate  and  deliver  the  bonds  of  each 
such  series  in  the  manner  herein  provided. 
10 


268         MATEEIALS    OF   CORPORATION   FINANCE 

The  resolution  of  the  Directors  of  the  Company  authorizing  an) 
such  series  may  provide  that,  concurrently  with  the  delivery  of  bonds 
of  that  series  for  authentication,  and  as  a  condition  precedent  to  such 
authentication,  the  Company  shall  deposit  with  the  Trustee  such 
papers,  documents,  affidavits  or  certificates  in  addition  to  those  re- 
quired in  Section  3  of  Article  One  hereof,  as  the  Company  may 
approve. 

Any  and  all  bonds  of  any  such  additional  series  shall  otherwise  be 
subject  to  all  the  covenants,  conditions  and  provisions  of  this  Agree- 
ment, except  such  covenants,  conditions  and  provisions  as  are  by 
their  terms  expressly  made  applicable  to  Series  2  exclusively,  and  the 
Company  and  the  Trustee  from  time  to  time  will  execute  such  supple- 
mental instruments  not  inconsistent  with  the  provisions  of  this  Agree- 
ment as  under  the  advice  of  counsel  the  Trustee  may  deem  appropriate 
to  accomplish  such  results  and  each  such  supplemental  instrument 
when  executed  by  the  Company  shall  be  attached  to  this  Agreement 
and  shall  form  a  part  hereof  as  fully  to  all  intents  and  purposes  as 
if  it  had  formed  a  part  of  this  Agreement. 

Each  bond  secured  hereby  shall  bear  a  Trustee's  certificate  in 
the  form  herein  provided,  and  when  and  as  soon  as  the  Trustee  shall 
authenticate  any  of  said  bonds,  by  the  execution  of  such  certificate, 
each  such  bond  so  authenticated  shall  be  deemed  to  be  issued  and 
outstanding  hereunder  and  to  be  entitled  to  the  benefit  of  the  security 
deposited  hereunder  and  the  trusts  hereof,  and  until  so  authenticated 
by  the  Trustee  no  such  bond  shall  be  entitled  to  any  benefit  hereunder. 

[Officers  who  may  execute  bonds.  See  J.  &  L  S.  Co.  Art.  1, 
Sec.  4,  p.  200.] 

Series  1  of  the  Mortgage  Bonds  of  the  Company  are  not  issued 
under  nor  affected  by  any  of  the  provisions  of  this  Agreement,  and 
the  holders  thereof  derive  and  possess  no  benefit  or  advantage  here- 
from  or  rights  hereunder. 

ARTICLE  ONE 

[All  bonds  equally  secured.] 

The  Company's  Bonds,  Series  2,  secured  hereby,  may  be  issued 
from  time  to  time  as  herein  provided  and  not  otherwise,  but  the  total 
amount  thereof  outstanding  shall  at  no  time  exceed  in  the  aggregate 
Five  Million  Dollars  ($5,000,000)  of  principal,  and  the  entire  in- 
debtedness of  the  Company,  secured  and  unsecured,  shall  at  no  time 
exceed  fifteen  times  the  capital  stock  of  the  Company  at  such  time 
issued  and  outstanding. 

[Execution  of  bonds  and  coupons.] 


MORTGAGE  OF  THE  MORTGAGE  BOND  CO.   269 

[Authentication  essential  to  validity  of  bonds.  See  J.  &  L.  S.  Co. 
Art.  1,  Sec.  4,  p.  200.] 

[Redeemed  bonds  not  to  be  reissued.] 

[Matured  coupons  to  be  clipped  before  delivery.  See  J.  &  L.  S.  Co. 
Art.  1,  Sec.  4,  p.  200.] 

[Bearer  of  coupon  bond  or  interest  coupon  treated  as  owner.  See 
J.  &  L.  S.  Co.,  Art.  1,  Sec.  6,  p.  201.] 

SECTION  3. — At  the  time  of  the  presentation  of  any  of  the  Com- 
pany's Bonds  to  the  Trustee  for  authentication,  there  shall  be  de- 
livered to  the  Trustee  a  copy  of  the  resolution  of  the  Board  of  Direc- 
tors of  the  Company  authorizing  their  issue,  certified  under  the  seal 
of  the  Company,  and  attested  by  its  President  and  Secretary,  or  such 
other  persons  as  the  Directors  of  the  Company  may  from  time  to 
time  appoint  for  that  purpose,  together  with  such  number  of  the  bonds 
specified  in  said  resolution  as  the  Company  may  desire  to  have  authen- 
ticated and  concurrently  therewith  there  shall  be  deposited  with  the 
Trustee,  by  it  to  be  held  under  the  trusts  hereof,  bonds  and  mortgages 
of  an  aggregate  unpaid  principal  amount  at  least  equal  to  the  aggre- 
gate principal  amount  of  the  bonds  so  to  be  authenticated,  together 
with  properly  executed  instruments  of  assignment  thereof  to  the 
Trustee,  accompanied  by  an  affidavit  of  the  Treasurer,  or  an  Assistant 
Treasurer,  of  the  Company  to  the  effect  that  each  bond  and  mortgage 
so  deposited  is  not  in  default  with  respect  to  the  payment  of  interest 
due  thereon,  and  that  the  principal  indebtedness  purporting  to  be 
secured  by  any  such  bond  and  mortgage  has  been  actually  advanced 
and  is  still  unpaid  thereon,  except  as  stated  thereon  or  in  said  affidavit, 
and  that  the  same  has  been  approved  by  the  Executive  Committee 
of  the  Company;  and  further  stating  the  total  amount  of  the  in- 
debtedness of  the  Company,  secured  and  unsecured,  then  existing,  and 
the  amount  of  the  capital  stock  of  the  Company  issued  and  outstand- 
ing. And  at  the  same  time  the  Company  shall  deliver  to  the  Trustee 
the  policies  of  title  insurance  or  certificates  of  title  and  policies  of 
fire  insurance  required  by  Article  Five  hereof,  with  respect  to  each 
bond  and  mortgage  so  deposited.  Upon  the  receipt  thereof  the  Trustee 
shall  permit  the  Company  to  enter  the  said  bonds  and  mortgages  in 
the  Schedule  as  hereinbefore  provided,  and  forthwith  shall  authenti- 
cate the  bonds  so  presented  to  it  for  authentication  and  shall  deliver 
the  same  to  the  Company  or  its  order. 

All  assignments  of  bonds  and  mortgages  executed  by  the  Company 
to  the  Trustee  to  be  held  as  part  of  the  Trust  Fund  shall  be  made  to 
the  Trustee  absolutely,  and  shall  contain  no  reference  to  this  Trust 
Agreement  or  any  of  the  trusts  hereby  created,  or  to  the  fact  that  the 


270         MATERIALS    OF   CORPORATION   FINANCE 

said  agreement  is  made  to  the  Trustee  as  Trustee  or  upon  any  trust 
whatever,  and  the  Trustee  shall  have  the  right,  if  it  shall  so  desire  and 
whenever  authorized  by  this  agreement  so  to  do,  to  assign,  satisfy 
or  sue  upon  any  of  the  said  bonds  and  mortgages  in  its  own  name 
in  the  same  manner  as  if  the  said  bonds  and  mortgages  had  been  its 
own  property  and  not  held  upon  any  trust;  provided,  however,  that 
the  amount  received  by  the  Trustee  from  any  of  the  said  bonds  and 
mortgages  in  any  manner  shall  be  held  upon  the  trust  herein  created. 

SECTION  4. — No  Company's  Bonds,  Series  2,  shall  at  any  time 
be  authenticated  by  the  Trustee,  which  shall  cause  the  aggregate  prin- 
cipal amount  of  the  bonds  outstanding  at  the  time  of  such  authentica- 
tion to  exceed  the  aggregate  principal  amount  of  such  bonds  which 
should  be  outstanding  at  that  time  according  to  the  requirements  of 
the  Amortization  Table  set  forth  on  said  bonds ;  and  in  order  to  secure 
this  result,  if  at  any  time  subsequent  to  the  first  day  of  April,  1912, 
the  Company  shall  request  the  Trustee  to  authenticate  an  instalment 
of  bonds,  the  Trustee  shall  forthwith  upon  the  tender  of  such  instal- 
ment for  authentication,  cancel  such  a  percentage  thereof  as  shall 
equal  the  total  percentage  of  all  the  Company's  theretofore  issued 
bonds  required  by  the  amortization  clause  to  be  drawn  for  payment 
on  or  prior  to  the  date  of  such  request  (fractions  being  treated  as  pro- 
vided in  Article  Sixteenth)  and  shall  thereupon  duly  authenticate 
the  balance  of  such  instalment  of  bonds  and  shall  deliver  to  the  Com- 
pany both  the  cancelled  and  the  authenticated  bonds.  The  bonds  so 
cancelled  shall  be  deemed  to  form  part  of  the  amount  of  bonds  au- 
thorized to  be  issued  hereunder  and  to  be  authenticated  by  the  Trustee, 
to  have  been  issued  prior  to  April  1,  1912,  to  have  been  outstanding  on 
that  date,  and  to  have  been  redeemed  and  cancelled  under  the  Amor- 
tization provisions,  and  no  such  bonds  so  cancelled  shall  be  reissued. 
For  bonds  so  cancelled  by  the  Trustee,  without  authentication,  no 
bonds  and  mortgages  need  be  assigned  or  deposited,  and  no  money  paid. 

SECTION  5. — [Temporary  bonds.  See  J.  &  L.  S.  Co.,  Art.  1,  Sec. 
8,  p.  202.] 

SECTION  6. — [Bonds  lost,  mutilated  or  destroyed.  See  J.  &  L.  S. 
Co.,  Art.  1,  Sec.  7,  p.  201.] 

SECTION  7. —  [Clause  reserving  right  for  Company  to  appoint  a  new 
banking  house  in  case  of  failure  or  refusal  to  act  of  any  bank  at  which 
its  securities  by  their  terms  are  made  payable.] 

ARTICLE  Two. 

SECTION  I, — The  Trustee  shall  hold  the  Trust  Fund  in  its  posses- 
sion, and  as'  long  as  and  at  any  time  when  the  Trustee  shall  have  in 


MORTGAGE  OF  THE  MORTGAGE  BOND  CO.   271 

its  possession  bonds  and  mortgages  assigned  to  it,  the  unpaid  principal 
of  which  shall  equal  in  the  aggregate  the  principal  of  all  the  Com- 
pany's Bonds  then  outstanding  and  secured  hereby,  and  if  no  event  of 
default  specified  in  Article  Six  shall  then  exist  of  which  the  Company 
has  been  notified  in  writing  by  the  Trustee,  the  Trustee  shall  permit 
the  Company  to  collect  and  retain  the  interest  from  time  to  time  ac- 
cruing upon  the  Trust  Fund  and  to  enforce  for  its  own  benefit,  in  the 
name  of  the  Trustee  or  otherwise,  any  and  all  provision  contained  in 
any  of  the  said  bonds  and  mortgages,  and  the  Trustee  at  any  such 
time  upon  the  request  of  the  Company  and  at  its  expense  shall  en- 
force any  and  all  the  provisions  for  the  benefit  of  the  mortgagee  of 
the  said  bonds  and  mortgages  therein  contained  which  at  such  time 
may  be  enforceable. 

SECTION  2. — If  the  Company  shall  be  obligated  for  any  reason  to 
deliver  to  any  mortgage  debtor  any  document  of  mortgage,  or  other 
instrument  forming  a  portion  of  the  Trust  Fund,  forthwith  upon  de- 
mand of  the  Company  the  Trustee  will  deliver  such  documents  to  the 
mortgage  debtor  upon  the  assignment  to  and  deposit  with  it  by  the 
Company  of  bonds  and  mortgages  of  an  equal  unpaid  principal 
amount,  or  on  receipt  of  cash  equal  to  the  unpaid  principal  amount 
of  the  mortgage  so  delivered,  and  shall  accept,  receive  and  hold  any 
cash  so  paid  as  cash  temporarily  deposited  with  the  Trustee  as  part  of 
the  Trust  Fund. 

SECTION  3. — The  Trustee  from  time  to  time,  at  the  written  request 
of  the  Company  and  at  its  expense,  shall  make,  execute  and  deliver 
all  asignments,  satisfaction  pieces  or  other  instruments  necessary  or 
proper  to  enable  the  Company  to  exercise  any  and  all  of  the  rights  con- 
ferred upon  it  or  reserved  to  it  by  any  provision  of  this  Agreement. 

ARTICLE  THREE 

In  case  for  any  reason  the  Company  shall  deem  it  necessary  to  take 
any  proceedings  for  the  collection  by  foreclosure  or  otherwise  of  any 
bond  and  mortgage  belonging  to  the  Trust  Fund,  forthwith  the  Com- 
pany shall  substitute  bonds  and  mortgages  of  an  equal  amount  of  un- 
paid principal,  and  shall  assign  the  same  to  and  deposit  the  same  with 
the  Trustee  to  be  held  as  part  of  the  Trust  Fund,  and  shall  thereupon 
be  entitled  to  the  delivery  and  assignment  to  it  of  the  bond  and  mort- 
gage so  to  be  collected,  and  such  bond  and  mortgage  shall  thereupon 
cease  to  form  any  part  of  the  Trust  Fund.  In  case  the  Trustee  shall 
deem  it  necessary  for  the  security  of  the  Bondholders,  that  any  bond 
and  mortgage,  the  interest  upon  which  has  been  delinquent  for  a 
period  of  not  less  than  one  year,  or  the  taxes  upon  the  property  cov- 


272         MATERIALS    OF   CORPORATION   FINANCE 

ered  by  which  have  been  delinquent  for  a  period  of  not  less  than  two 
years,  shall  be  collected  by  foreclosure  or  otherwise,  then,  and  in  each 
and  every  such  case,  the  Trustee  shall  give  notice  in  writing  to  the 
Company  requiring  it  to  substitute  and  assign  to  and  deposit  with  it 
for  each  such  bond  and  mortgage,  bonds  and  mortgages  of  an  equal 
amount  of  unpaid  principal,  and  in  case  the  Company  shall  fail  for 
twenty  (20)  days  after  the  service  upon  it  of  such  notice  to  make  such 
substitution,  assignment  and  deposit,  then  and  in  every  such  case  it 
shall  be  the  duty  of  the  Trustee  through  its  officers,  agents  or  attorneys 
to  proceed  with  the  collection  of  the  bond  and  mortgage  so  in  default 
by  foreclosure  or  otherwise.  If  upon  or  through  the  foreclosure  or 
other  collection  of  any  such  bond  and  mortgage  the  Trustee  shall  be- 
come the  absolute  owner  of  the  property  covered  thereby,  or  any  part 
thereof,  free  and  clear  of  any  right  of  redemption,  it  shall  forthwith 
certify  to  the  Company  the  amount  necessary  to  reimburse  it  for  its 
advances,  and  the  Company  within  fifteen  (15)  days  from  the  delivery 
to  it  of  such  certification  notice  shall  assign  to  and  deposit  with  the 
Trustee  bonds  and  mortgages  for  an  amount  of  unpaid  principal  equal 
to  that  of  the  mortgage  foreclosed,  and  pay  to  the  Trustee  in  cash  an 
amount  equal  to  its  advances  and  expenses  and  upon  making  such  pay- 
ment and  deposit  the  Company  shall  be  entitled  to  receive  a  convey- 
ance from  the  Trustee  of  the  said  property.  If  any  cash  shall  be  re- 
ceived by  the  Trustee  with  respect  to  any  bond  and  mortgage  liqui- 
dated by  it,  by  or  through  a  foreclosure  sale  or  otherwise  the  Trustee 
shall  retain  an  amount  necessary  to  reimburse  it  for  its  advances  and 
expenses  with  respect  to  the  mortgage  so  liquidated  and  if  no  event  of 
default  specified  in  Article  Six  hereof  shall  then  exist  of  which  the 
Company  has  been  notified  in  writing  by  the  Trustee,  on  assignment  to, 
and  deposit  with  the  Trustee  of  bonds  and  mortgages  for  an  unpaid 
principal  amount  equal  to  the  unpaid  principal  of  the  mortgage  fore- 
closed or  otherwise  liquidated,  it  shall  pay  over  the  balance  of  such 
moneys  so  collected  to  the  Company.  Immediately  on  receiving  any 
such  cash,  the  Trustee  shall  notify  the  Company  of  the  fact,  and 
within  fifteen  (15)  days  from  the  date  of  delivery  of  such  notice,  the 
Company  covenants  that  it  will  assign  to  and  deposit  with  the  Trustee 
bonds  and  mortgages  of  an  amount  of  unpaid  principal  equal  to  the 
unpaid  principal  amount  of  the  mortgage  foreclosed  or  otherwise 
liquidated. 

Nothing  in  this  article  shall  be  construed  in  any  way  to  impair  or 
abridge  any  right  or  power  herein  conferred  upon  the  Trustee  with 
respect  to  the  Trust  Fund  and  the  bonds  and  mortgages  constituting 
the  same,  in  case,  at  any  time,  an  event  of  default  specified  in  Article 
Six  hereof  shall  occur  and  exist. 


MORTGAGE  OF  THE  MORTGAGE  BOND  CO.   273 

ABTICLE  FOUK 

The  Company,  if  no  event  of  default  specified  in  Article  Six 
hereof  shall  then  exist  of  which  it  has  been  notified  in  writing  by  the 
Trustee,  if  it  so  elect  may  from  time  to  time  withdraw  any  of  the 
bonds  and  mortgages  belonging  to  the  Trust  Fund,  provided  that  upon 
such  withdrawal  it  shall  assign  to  and  deposit  with  the  Trustee  bonds 
and  mortgages  of  an  equal  amount  of  unpaid  principal. 

In  case  of  the  withdrawal  of  any  bond  and  mortgage  under  any 
of  the  provisions  of  this  Agreement,  the  Trustee  shall  reassign  the 
same  to  the  Company  and  redeliver  all  accompanying  papers,  and  the 
fact  of  such  withdrawal  shall  be  entered  upon  the  Schedule  hereinbe- 
fore mentioned  and  such  other  entries  shall  from  time  to  time 
be  made  therein  as  may  be  required  to  the  end  that  the  said 
Schedule  shall  at  all  times  show  in  what  manner  the  Trust  Fund  is 
constituted. 

In  any  case  where  the  terms  of  this  Agreement  permit  or  require 
the  Company  to  assign  to  and  deposit  with  the  Trustee  bonds  and 
mortgages,  the  Company  may  deposit  temporarily  with  the  Trustee,  in 
place  of 'one  or  more  such  bonds  and  mortgages  and  as  part  of  the 
Trust  Fund  an  equal  amount  of  principal  either  in  cash,  Government 
Bonds  of  the  United  States  of  America,  or  Bonds  or  Stock  of  the  City 
of  New  York ;  any  such  bonds  or  stock  so  deposited  shall  be  valued  at 
five  per  cent,  less  than  their  market  value. 

In  every  case  where  pursuant  to  any  provision  of  this  instrument 
the  Company  shall  assign  to  and  deposit  with  the  Trustee  any  bond 
and  mortgage,  concurrently  with  such  assignment  and  deposit  it  shall 
deliver  to  the  Trustee  an  affidavit  of  the  treasurer  or  an  assistant 
treasurer  of  the  Company  to  the  effect  that  each  such  bond  and  mort- 
gage so  assigned  and  deposited  is  not  in  default  in  respect  to  interest 
due  thereon  and  that  the  principal  indebtedness  purporting  to  be  se- 
cured thereby  has  been  actually  advanced  and  is  still  unpaid  thereon 
except  as  stated  thereon  or  in  said  affidavit,  and  that  the  same  has 
been  authorized  by  the  Executive  Committee  of  the  Company,  and 
the  delivery  of  such  an  affidavit  shall  be  a  condition  precedent  to  the 
exercise  by  the  Company  of  any  right  accruing  to  it  under  any  of  the 
provisions  of  this  agreement  in  respect  to  the  deposit  of  any  such  bond 
and  mortgage. 

The  Company  may  withdraw  from  the  Trustee,  and  the  Trustee 
shall  transfer  and  deliver  to  the  Company,  on  its  demand,  any  cash 
or  securities  so  deposited,  on  the  assignment  to  and  deposit  with  it  of 
the  bonds  and  mortgages  for  which  such  cash  and  securities  were 
temporarily  deposited. 


274         MATEEIALS    OF   COBPOKATION    FINANCE 

AETICLE  FIVE 

All  bonds  and  mortgages  assigned  to  and  deposited  with  the  Trus- 
tee by  the  Company  as  herein  provided  shall  be  accompanied  by  a 
policy  or  policies  of  fire  insurance  to  an  amount  sufficient  in  the 
opinion  of  the  Company  to  protect  the  mortgage;  and  by  a  policy 
or  policies  satisfactory  to  the  Company,  issued  by  some  corporation 
organized  for  the  purpose  of  insuring  the  titles  to  real  estate,  guar- 
anteeing, or  by  the  certificate  of  the  Company's  local  counsel  cer- 
tifying, that  the  said  mortgages  are  valid  first  liens  upon  the  premises 
covered  thereby.  But  the  existence  of  party  wall  agreements,  restric- 
tions as  to  the  use  of  property,  leases  or  other  like  incumbrances  upon 
the  title  of  the  mortgaged  property,  not  calling  for  the  payment  of 
money,  stated  as  exceptions  in  the  policies  of  title  insurance  or  coun- 
sel's certificate  of  title,  shall  not  be  considered  as  rendering  the  lien  of 
the  mortgage  not  a  first  lien  upon  the  property.  The  receipt  of  the 
proper  recording  officer  of  a  Title  Insurance  Company  may  be  depos- 
ited in  place  of  a  mortgage  or  assignment  of  mortgage  while  the  latter 
is  being  recorded. 

ARTICLE  Six 

If  at  any  time  there  shall  occur  on  the  part  of  the  Company  any 
case  of  default  or  failure  in  this  Article  specified,  and  herein  termed 
"events  of  default,"  as  follows,  namely: 

(a)  In  case  default  shall  be  made  in  the  payment  of  any  install- 
ment of  interest  upon  any  of  the  Company's  Bonds  when  and  as  the 
same  shall  become  payable,  as  therein  and  herein  expressed,  and  such 
default  shall  continue  for  sixty  days,  whether  demand  for  such  pay- 
ment be  made  at  the  time  such  interest  becomes  due  or  at  any  time 
thereafter;  or 

(b)  In  case  the  Company  shall  make  default  in  the  payment  of 
the  principal  of  any  of  said  Company's  Bonds,  when  the  same  shall 
become  due  and  payable  according  to  the  terms  thereof  or  hereof ;  or 

(c)  In  case  the  Company  shall  make  default  in  the  payment  of 
any  bond  drawn  for  payment  under  any  Amortization  or  Eedemption 
or  Sinking  Fund  provision  at  the  dates  and  in  the  manner  provided 
herein  or  in  any  supplement  hereof  for  such  drawing  and  payment ;  or 

(d)  In   case  the  entire  indebtedness   of  the   Company,  secured 
and  unsecured,  at  any  time  shall  exceed  fifteen  times  the  capital  stock 
of  the  Company  at  such  time  issued  and  outstanding ;  or 

(e)  In  case  the  Company  shall  collect  the  principal  of  any  bond 
and  mortgage  belonging  to  the  Trust  Fund,  and  within  fifteen  (15) 
days  after  written  demand  by  the  Trustee  shall  fail  to  pay  over  to  the 


MORTGAGE  OF  THE  MORTGAGE  BOND  CO.   275 

Trustee  the  proceeds  of  any  such  collection,  or  to  assign  to  and  deposit 
with  the  Trustee  bonds  and  mortgages  of  an  amount  of  unpaid  princi- 
pal equal  to  the  amount  of  such  collection ;  or 

(f)  In  case  the  Company,  upon  notice  from  the  Trustee,  shall 
fail  to  comply  with  the  provisions  of  Article  Three  or  with  the  pro- 
visions of  Section  2  of  Article  Nine  hereof  within  the  times  therein 
specified;  or 

(g)  In  case  an  order  shall  be  made  for  the  appointment  of  a 
receiver  of  the  Company  or  of  its  property,  and  shall  remain  in  force 
for  a  period  of  ninety  days  or  for  the  winding  up  and  liquidation  of 
the  business  and  affairs  of  the  Company,  or  in  case  corporate  action 
shall  be  taken  on  the  part  of  the  Company  for  either  of  the  purposes 
aforesaid ;  or 

(h)  In  case  the  Company  shall  fail  to  comply  with  any  final 
judgment,  or  decree  of  any  court  as  specified  in  Article  Fourteen  of  this 
Agreement,  within  thirty  days  from  the  service  upon  it  of  a  copy  of  said 
judgment  or  decree  and  notice  of  entry  of  such  final  judgment  or  de- 
cree, as  is  provided  in  said  Article  Fourteen,  unless  the  Company  shall 
have  duly  and  timely  within  the  said  thirty  days  taken  an  appeal  from 
such  judgment  to  a  court  having  power  to  review  the  same ;  or 

(i)  In  case  at  any  time  the  Company  shall  fail  or  refuse  within 
ninety  days  after  written  demand  of  the  Trustee,  to  do  and  perform 
all  such  acts  as  may  be  required  by  the  laws  of  any  State  in  which  any 
of  the  property  covered  by  any  mortgage  forming  portion  of  the  Trust 
Fund  is  situated,  to  entitle  the  Company  to  transact  business  in  such 
State  to  an  extent  necessary  under  the  laws  thereof  to  enable  it  to 
hold  and  give  good  title  to  such  mortgage  and  to  enforce  the  security 
thereof  in  case  of  default  thereunder  or  in  the  bond  accompanying  the 
same,  or  to  assign  to  and  deposit  with  the  Trustee,  in  lieu  of  any  such 
bonds  and  mortgages,  bonds  and  mortgages  of  an  equal  unpaid  prin- 
cipal amount  upon  property  situated  in  a  State  or  States  wherein  the 
Company  is  authorized  so  to  do  business ; 

[Declaration  of  principal  due  on  default.  See  J.  &  L.  S.  Co.,  Art. 
5,  Sec.  4.  p.  227.] 

ARTICLE  SEVEN 

SECTION  1. — In  every  case  of  the  occurrence  of  any  event  of  de- 
fault specified  in  Article  Six  of  this  Agreement,  the  Trustee,  in  its  dis- 
cretion, may,  and  upon  a  request  in  writing  signed  by  the  holder  or 
holders  of  twenty-five  per  cent.  (25%)  in  amount  of  the  Company's 
Bonds  at  the  time  outstanding,  and  upon  proper  indemnification  for 
the  cost  and  expenses  to  be  incurred  by  it,  the  Trustee  must  and  shall 
proceed  to  protect  and  enforce  its  rights  and  the  rights  of  the  holders 


276         MATERIALS    OF    CORPORATION   FINANCE 

of  the  Company's  Bonds  under  this  Agreement  by  a  suit  or  suits  in 
equity  or  at  law,  for  the  specific  performance  of  any  covenant  or  agree- 
ment contained  herein,  or  in  aid  of  the  execution  of  any  power  herein 
granted,  or  it  may  proceed  to  realize  so  far  as  possible  by  the  sale  or 
foreclosure  or  other  collection  of  the  bonds  and  mortgages  which  shall 
then  constitute  the  Trust  Fund,  the  amounts  secured  thereby,  and  to 
apply  the  amounts  so  collected  to  the  payment  of  the  principal  and 
interest  then  due  upon  the  Company's  Bonds  in  the  manner  provided 
in  Section  7  of  this  Article. 

SECTION  2. — If  at  any  time  there  shall  occur  any  event  of  default 
specified  in  Article  Six  hereof,  in  its  discretion  and  regardless  of  the 
question  as  to  whether  the  principal  of  the  Company's  Bonds  be  yet 
due  or  not,  the  Trustee,  unless  the  company  shall  pay  to  it  prior  to 
sale  the  amount  due  for  principal  and  interest  on  all  the  outstanding 
Company's  Bonds  and  all  moneys  due  for  costs  and  the  compensation 
and  expenses  of  the  Trustee,  and  any  other  payment  directed  by  any 
decree  of  sale  (the  right  to  make  which  payment  is  hereby  conferred 
upon  the  Company)  shall  be  entitled  to  sell,  and  either  personally  or  by 
its  attorneys  or  agents  may  forthwith  sell,  at  a  single  sale  in  a  single 
block  and  as  an  entirety,  or  in  separate  parcels,  at  one  sale  or  at  suc- 
cessive sales,  all  the  property  at  the  time  of  such  default  constituting 
the  Trust  Fund.  Any  such  sale  or  sales  shall  be  made  at  public  auction, 
and  except  as  hereinafter  provided,  shall  take  place  at  such  place  in 
the  Borough  of  Manhattan,  City  and  County  of  New  York  as  the 
Trustee  may  determine.  Two  weeks'  notice  of  any  sale  by  the  Trustee 
at  public  auction,  whether  under  or  by  virtue  of  the  power  of  sale 
herein  contained  or  of  any  judgment  or  decree  of  foreclosure  and  sale, 
or  by  virtue  of  judicial  proceedings,  shall  be  served  upon  the  Company 
at  its  office  in  the  city  of  New  York  and  shall  state  the  time  when  and 
the  place  where  the  sale  is  to  be  made,  shall  contain  a  brief  general 
description  of  the  property  to  be  sold,  and  shall  be  published  once  in 
each  week,  commencing  on  any  day  of  the  week,  for  three  successive 
weeks  prior  to  such  sale,  in  two  daily  newspapers  published  in  the 
City  of  New  York,  and  otherwise  as  may  be  required  by  law.  In  the 
case  of  any  mortgage  of  real  property  or  of  any  parcel  of  Real  Estate 
which  may  form  a  portion  of  this  Trust  Fund,  situate  outside  of  the 
State  of  New  York  the  Trustee  may  in  its  disci  etion  sell  the  same  at 
public  auction  in  the  city  in  which  the  mortgaged  property  is  situated 
instead  of  in  the  City  of  New  York.  In  such  case  the  notice  of  sale 
above  provided  for  shall  state  the  place  of  sale  and  shall  be  published 
in  the  form  and  manner,  and  for  the  time  above  provided  in  respect  to 
sales  to  take  place  in  the  City  of  New  York,  in  a  daily  newspaper  pub- 
lished in  the  city  in  which  the  sale  shall  take  place,  as  well  as  in  two 


MORTGAGE  OF  THE  MORTGAGE  BOND  CO.   277 

daily  newspapers  published  in  the  City  of  New  York.  The  Trustee 
may  adjourn  any  such  sale,  or  cause  the  same  to  be  adjourned,  from 
time  to  time  by  announcement  at  the  time  and  place  appointed  for 
such  sale  or  of  any  adjourned  sale  or  sales,  and  without  further  notice 
or  publication  such  sale  may  be  made  at  the  time  and  place  to  which 
the  same  shall  be  so  adjourned,  but  the  provisions  of  this  Article  shall 
not  apply  to  any  sale  of  real  property  made  by  the  Trustee  pursuant 
to  the  terms  of  any  mortgage  securing  any  bonds  or  other  obligations 
forming  a  portion  of  the  Trust  Fund,  nor  be  construed  as  in  any  way 
affecting  any  rights  conferred  upon  the  mortgagee  by  the  terms  of  any 
such  mortgage  or  by  the  laws  of  the  State  within  which  the  mortgaged 
property  therein  described  may  be  situated. 

SECTION  3. — In  case  of  any  sale  of  the  Trust  Fund  made  by  the 
Trustee,  whether  under  any  power  by  this  article  conferred,  or  under, 
or  by  virtue  of  judicial  proceedings,  the  principal  of  all  the  Com- 
pany's Bonds,  if  not  previously  due,  shall  become  immediately  due  and 
payable,  anything  in  said  bonds  or  any  of  them  or  this  Agreement 
contained  to  the  contrary  notwithstanding.  Upon  the  completion  of 
any  such  sale  or  sales,  the  Trustee  shall  deliver  to  the  purchaser  or  pur- 
chasers thereat  the  property  sold,  with  good  and  sufficient  assignments 
or  transfers  thereof,  and  in  such  event  the  Company  hereby  appoints 
the  Trustee  and  its  successor  or  successors  its  true  and  lawful  attorney 
or  attorneys  irrevocable  to  make  any  and  all  such  assignments  or  trans- 
fers in  its  name  and  stead,  and  to  execute  in  the  name  of  the  Company 
all  necessary  acts  of  assignment  or  transfer,  and  to  substitute  one  or 
more  persons  or  corporations  with  like  power,  the  Company  hereby 
ratifying  and  confirming  all  that  its  said  attorney  or  attorneys  or  such 
substitute  or  substitutes  shall  lawfully  do  by  virtue  hereof.  But  the 
Company,  if  so  requested  by  the  Trustee,  shall  ratify  and  confirm  any 
such  sale  by  executing  and  delivering  to  the  Trustee  or  to  such  pur- 
chaser or  purchasers  thereat,  all  such  proper  transfers  and  assign- 
ments as  may  be  designated  in  such  request. 

Any  sale  or  sales  made  hereunder,  whether  under  any  power  of 
sale  hereby  granted  and  conferred  or  under  and  by  virtue  of  any 
judicial  proceeding,  shall  divest  all  right,  title,  interest,  claim,  estate 
or  demand  whatsoever,  either  at  law  or  in  equity,  of  the  Company,  of, 
in  and  to  the  property  sold,  and  shall  be  a  perpetual  bar  both  in  law  and 
in  equity  against  the  Company,  its  successors  and  assigns,  and  against 
any  and  all  persons  claiming  or  to  claim  the  property  sold,  or  any  part 
thereof  from,  through  or  under  the  Company  its  successors  or  assigns, 
and  no  purchaser  or  purchasers  at  any  such  sale  or  sales,  or  hi?  or  their 
representatives  or  assigns,  shall  be  bound  to  see  to  the  application  of 
the  purchase  moneys  upon  or  for  any  trust  or  purpose  of  this  Agree- 


278         MATEEIALS    OF   CORPORATION   FINANCE 

ment,  or  be  answerable  in  any  manner  whatsoever  for  any  loss,  misap- 
plication or  nonapplication  of  any  of  such  purchase  money  paid  by  him 
or  any  part  thereof,  or  be  bound  to  inquire  as  to  the  authorization, 
necessity,  expediency  or  regularity  of  any  such  sale.  In  case  of  any 
sale  of  the  Trust  Fund  made  hereunder,  whether  by  virtue  of  the  power 
of  sale  herein  conferred  or  pursuant  to  any  order  or  decree  of  any 
Court,  any  purchaser  thereat  shall  be  entitled  to  apply  any  bonds  and 
any  matured  and  unpaid  coupons  hereby  secured  in  settlement  or  pay- 
ment for  the  property  purchased  to  the  extent  of  the  sums  payable  out 
of  the  net  proceeds  of  such  sales,  to  the  holder  of  such  bonds  and 
coupons,  as  such  holder's  ratable  share  of  such  net  proceeds,  and  such 
purchaser  shall  be  credited  on  account  of  the  purchase  price  of  the 
property  purchased,  with  the  sums  so  payable  out  of  such  net  proceeds 
on  the  bonds  and  coupons  so  applied  by  such  purchaser  for  such  pur- 
pose; and  at  any  such  sale  the  Trustee  or  any  Bondholder  may  bid  for 
and  purchase  the  property  exposed  for  sale  thereat,  and  may  make 
payment  therefor  as  aforesaid,  and  upon  compliance  with  the  terms  of 
the  sale,  may  hold,  retain  and  dispose  of  such  property  without  further 
accountability  and  free  and  clear  of  any  trust  in  behalf  of  other  Bond- 
holders, and  the  receipt  of  the  Trustee  or  of  the  Court  Officer  conduct- 
ing such  sale  shall  be  a  sufficient  discharge  for  the  purchase  money  or 
any  part  thereof. 

SECTION  4. — Anything  in  this  Agreement  contained  to  the  con- 
trary notwithstanding,  the  holders  of  seventy-five  per  cent.  (75%)  in 
amount  of  the  Company's  Bonds  at  the  time  outstanding,  at  any  time 
prior  to  a  sale  of  the  whole  or  any  part  of  the  Trust  Fund  whether 
under  any  power  of  sale  herein  contained  or  under  judicial  proceedings, 
by  written  notice  to  the  Company  and  to  the  Trustee  may  waive  any 
default  under  this  Agreement  or  under  the  said  bonds,  or  the  conse- 
quences of  any  such  default,  and  in  like  manner  may  waive  the  exer- 
cise by  the  Trustee  of  any  other  power  conferred  on  the  Trustee  under 
this  Agreement,  and  may  waive  or  annul  the  exercise  by  the  Trustee  of 
any  power  under  this  Agreement,  and  may  dismiss  any  suit  brought 
against  the  Company  by  the  Trustee  or  by  any  holder  of  said  bonds, 
upon  or  under  this  Agreement  or  on  the  said  bonds,  and  may  release 
and  discharge  any  judgment  or  decree  obtained  thereunder  on  such 
terms  as  may  be  directed  by  said  holders  by  the  same  or  a  subsequent 
instrument.  Any  such  action  or  waiver  by  holders  of  no  less  than 
seventy- five  per  cent.  (75%)  in  amount  of  said  bonds  at  the  time  out- 
standing shall  be  binding  on  all  holders  of  said  bonds,  provided  that 
nothing  in  this  section  shall  be  construed  as  permitting  a  waiver  or 
postponement  of  the  payment  of  the  principal  of  said  bonds  at  the  time 
and  in  the  manner  therein  provided.  Any  such  action  on  the  part 


MORTGAGE  OF  THE  MORTGAGE  BOND  CO.   279 

of  the  Trustee  or  the  bondholders  shall  not  prejudice  or  affect  the 
powers  or  rights  of  the  said  Trustee  or  the  bondholders  in  the  event  of 
any  subsequent  default. 

SECTION  5. — All  remedies  conferred  by  this  Agreement  shall  be 
deemed  cumulative  and  not  exclusive,  and  shall  not  be  deemed  to 
deprive  the  Trustee  of  any  legal  or  equitable  remedy  by  judicial  pro- 
ceedings appropriate  to  enforce  the  conditions,  covenants  and  stipula- 
tions of  this  Agreement  or  otherwise,  and  on  the  occurrence  of  any 
event  of  default  specified  in  Article  Six  hereof,  the  Trustee  is  author- 
ized to  exercise  all  the  rights  and  remedies  with  respect  to  any  bond 
and  mortgage  deposited  hereunder,  which,  in  its  discretion,  it  may  deem 
advisable  and  for  the  benefit  of  the  Trust  Fund,  subject  to  the  power 
reserved  in  Section  4  of  this  Article  to  the  holders  of  seventy-five  per 
cent.  (75%)  in  amount  of  the  Company's  Bonds  issued  and  outstand- 
ing, as  fully  to  all  intents  and  purposes  as  legally  it  might  or  could  do, 
if  it  were  the  legal  owner  of  any  such  bond  and  the  obligation  given 
to  secure  the  same. 

If,  for  any  reason,  any  security  assigned  and  deposited  hereunder 
should  not  correspond  with  the  definition  of  a  bond  and  mortgage  here- 
inbefore given,  or  should  fail  to  comply  with  any  of  the  requirements 
hereof,  at  its  election  the  Trustee  is  fully  authorized  to  treat  such  secur- 
ity as  a  security  assigned  and  deposited  under  this  Agreement,  and 
as  constituting  a  part  of  the  Trust  Fund,  and  to  enforce  all  the  rights 
and  remedies  herein  conferred  with  respect  to  such  security,  as  fully 
as  though  it  complied  with  the  definition  given,  but  without  prejudice 
to  any  right  or  cause  of  action  which  the  Trustee  may  have,  or  which 
the  Bondholders  may  have,  by  reason  of  the  failure  of  such  security 
to  comply  with  the  requirements  of  this  Agreement. 

SECTION  6. — In  case  of  the  occurrence  of  any  event  of  default  speci- 
fied in  Article  Six  hereof,  the  Trustee  shall  have  power  in  its  dis- 
cretion, in  case  it  shall  be  satisfied  that  the  said  default  has  been 
remedied,  to  waive  the  said  default  and  discontinue  all  proceedings 
which  it  may  have  commenced  with  respect  to  such  default  unjess  other- 
wise directed  by  the  holders  of  seventy-five  per  cent.  (75%)  of  the  then 
outstanding  Company's  Bonds.  And  in  correction  of  any  such  default 
with  respect  to  the  payment  of  interest,  it  may  apply  all  moneys  col- 
lected by  it  during  the  continuance  of  such  default  as  the  income  from 
the  bonds  and  mortgages  held  by  it  as  part  of  the  Trust  Fund.  Any 
such  discontinuance  or  waiver  shall  be  without  prejudice  to  the  rights 
of  the  Trustee  and  the  Bondholders  in  case  of  the  subsequent  occur- 
rence of  an  event  of  default. 

SECTION  7. — It  is  understood  and  agreed,  subject  to  the  provi- 
sions of  Section  9  of  this  Article,  that  in  case  of  any  sale  of  the 


280         MATERIALS    OF   CORPORATION   FINANCE 

Trust  Fund,  whether  under  any  power  of  sale  hereby  granted  or  pur- 
suant to  judicial  proceedings,  the  purchase  money  proceeds  and  avails 
of  any  such  sale  or  sales,  or  which  shall  otherwise  be  received  by  the 
Trustee,  subsequent  to  the  occurrence  of  and  during  the  existence  of 
an  event  of  default  specified  in  Article  Six  hereof  of  which  the  Com- 
pany has  been  notified  by  the  Trustee  in  writing,  as  the  proceeds  of  any 
collection  of  any  bonds  and  mortgages  constituting  the  Trust  Fund, 
together  with  any  and  all  other  sums  which,  according  to  the  provi- 
sions of  this  Agreement,  shall  belong  or  appertain  to  the  Trust  Fund, 
and  be  applicable  to  the  satisfaction,  in  whole  or  in  part,  of  the  indebt- 
edness evidenced  by  the  Company's  Bonds  then  issued  and  outstand- 
ing, shall  be  applied  as  follows : — 

Out  of  such  moneys  the  reasonable  and  proper  compensation,  costs 
and  expenses  of  all  kinds  of  the  Trustee  in  the  administration  of 
the  trust,  including  all  expenses  of  foreclosure  and  sale,  and  the  rec- 
ordation  and  registration  of  instruments,  of  courts,  officers  and  re- 
ceivers, including  the  reasonable  counsel  and  attorney  fees  of  the 
Trustee,  shall  first  be  paid,  and  the  surplus  shall  be  devoted  first  to  the 
payment  of  the  whole  of  the  principal  indebtedness  of  all  the  Com- 
pany's bonds  hereby  secured  then  issued  and  outstanding,  and  interest 
thereon  accrued  at  the  rate  specified  therein  to  the  time  of  such 
payment,  including  interest  at  the  rate  of  six  per  cent.  (6%)  per 
annum  on  each  coupon  or  instalment  of  interest  on  registered  bonds 
then  due  and  in  default  from  the  date  of  the  maturity  thereof,  pro 
raid,  without  priority  of  principal  over  interest  or  of  one  coupon  over 
another  coupon,  save  as  herein  otherwise  provided,  whether  such 
principal  and  interest  shall  at  the  time  have  become  due  and  payable 
according  to  the  terms  of  the  bonds  and  coupons  or  not,  until  the 
whole  of  said  principal  sum  and  accrued  interest  is  paid,  and  if  there 
should  then  remain  any  surplus,  the  same  shall  be  paid  over  to  the 
Company,  its  successors  or  assigns,  or  to  whomsoever  shall  be  entitled 
to  receive  the  same. 

If  at  any  time  it  shall  be  necessary  or  proper  for  the  Trustee,  in 
order  to  fulfill  any  of  its  duties  or  to  exercise  any  of  its  rights  or 
powers  under  this  Agreement,  to  qualify  itself  to  do  business  in  any 
state  in  which  may  be  situated  any  real  property  belonging  to  the 
Trust  Fund  or  covered  by  any  bond  and  mortgage  belonging  to  the 
Trust  Fund,  it  shall  be  lawful  for  the  Trustee  at  the  expense  of  the' 
Company  to  do  all  acts  and  things  required  by  the  laws  of  such  state 
to  be  done  in  order  to  qualify  the  Trustee  to  do  and  transact  business 
in  such  state  to  the  extent  necessary  to  enable  it  to  fulfill  such  duties 
and  exercise  any  of  its  rights  and  privileges  in  respect  to  such 
property. 


MORTGAGE  OF  THE  MORTGAGE  BOND  CO.   281 

SECTION  8. — Any  property  or  securities  constituting  part  of  the 
Trust  Fund  which  may  not  have  been  sold,  and  which  after  payment 
in  full  as  aforesaid  of  all  the  Company's  Bonds,  and  the  costs  and 
expenses,  and  all  other  amounts  due  and  payable  under  any  of  the 
provisions  of  this  Agreement,  shall  remain  in  the  hands  of  the 
Trustee,  shall  be  assigned  to  and  delivered  by  the  Trustee  to  the 
Company,  its  successors  or  assigns,  or  to  whomsoever  may  be  lawfully 
entitled  to  receive  the  same.  In  making  any  sale  of  the  bonds  and 
mortgages  which  may  constitute  the  Trust  Fund,  or  any  of  them,  the 
Trustee  shall  finally  determine  the  order  in  which  the  deposited  se- 
curities shall  be  sold. 

SECTION  9. — In  order  to  prevent  any  accumulation,  after  maturity, 
of  coupons,  or  of  claims  for  interest  upon  registered  bonds,  the  Com- 
pany agrees  and  covenants  that  it  will  not,  directly  or  indirectly, 
extend  or  assent  to  the  extension  of  the  time  for  the  payment  of  any 
coupon  or  claim  for  interest  upon  any  bond  secured  hereby;  and  it 
will  not,  directly  or  indirectly,  be  a  party  to,  or  approve,  any  such 
arrangement  by  purchasing  or  funding  such  coupons  or  claims  for 
interest  upon  registered  bonds,  or  in  any  other  manner.  In  case  the 
time  for  payment  of  any  such  coupon  or  claim  for  interest  shall  be 
so  extended,  whether  or  not  such  extension  be  by  or  with  the  consent 
of  the  Company,  such  coupon  or  claim  for  interest  shall  not  be  en- 
titled, in  case  of  default  hereunder,  to  the  benefit  or  security  of  this 
Agreement,  except  subject  to  the  prior  payment  in  full  of  the  princi- 
pal of  all  bonds  issued  hereunder,  then  outstanding,  and  of  all  ma- 
tured coupons  and  claims  for  interest  on  such  bonds  and  interest 
accrued  thereon,  the  payment  of  which  has  not  been  so  extended. 
SECTION  10. — The  Company  covenants  that 

(1)  In  case  default  shall  be  made  in  the  payment  of  interest 
on  any  of  the  Company's  Bonds  when  and  as  the  same  shall  be- 
come payable  as  herein  and  therein  expressed  and  such  default 
shall  have  continued  for  sixty  days,  or 

(2)  In  case  default  shall  be  made  in  the  payment  of  the  prin- 
cipal of  any  of  the  Company's  Bonds  when  the  same  shall  become 
payable,  as  herein  and  therein  expressed 

then  upon  demand  of  the  Trustee,  the  Company  will  pay  to  the 
Trustee  for  the  benefit  of  the  holders  of  the  Company's  Bonds  then 
outstanding  and  secured  by  the  Trust  Fund,  the  whole  amount  due 
and  payable  on  all  such  bonds  and  coupons  for  principal  or  interest 
or  both,  as  the  case  may  be,  with  interest  at  the  rate  of  six  per  cent. 
(6%)  per  annum  upon  the  overdue  instalments  of  interest  from  the 
date  of  maturity  thereof  and  with  interest  on  said  principal  sum  at 


282         MATERIALS    OF   CORPORATION    FINANCE 

the  rate  of  four  per  cent.  (4%)  per  annum  from  the  maturity  of 
the  last  coupon  until  paid ;  and,  in  case  the  Company  shall  fail  to  pay 
the  same  forthwith  upon  such  demand,  the  Trustee,  in  its  own  name 
and  as  Trustee  of  an  express  trust,  shall  be  entitled  to  recover  judg- 
ment for  the  whole  amount  so  due,  and  unpaid,  interest  to  be  cal- 
culated continuously  at  the  aforesaid  rates  until  the  date  of  judgment. 
The  Trustee  shall  be  entitled  to  recover  judgment  as  aforesaid  either 
before  or  after  or  during  the  pendency  of  any  proceedings  for  the 
enforcement  of  the  lien  of  this  Agreement  upon  the  Trust  Fund,  and 
its  right  to  recover  such  judgment  shall  not  be  affected  by  any  sale 
hereunder,  or  by  the  exercise  of  any  other  right,  power  or  remedy  for 
the  enforcement  of  the  provisions  of  this  agreement,  or  for  the  fore- 
closure of  the  lien  hereof;  and,  in  case  of  a  sale  of  the  Trust  Fund 
and  of  the  applications  of  the  proceeds  of  sale  to  the  payment  of  the 
indebtedness  represented  by  the  Company's  Bonds  and  coupons,  the 
Trustee  in  its  own  name  and  as  Trustee  of  an  express  trust,  shall 
be  entitled  to  receive  and  to  enforce  payment  of  any  deficiency  or  of 
any  or  all  amounts  then  remaining  due  and  unpaid  upon  any  and  all 
of  the  Company's  Bonds  then  outstanding,  for  the  benefit  of  the 
holders  thereof,  and  shall  be  entitled  to  recover  judgment  for  any 
portion  of  such  indebtedness  remaining  unpaid,  with  interest  as 
aforesaid.  No  recovery  of  any  judgment  by'  the  Trustee,  and  no  levy 
of  any  execution  under  any  such  judgment,  upon  the  Trust  Fund,  or 
upon  any  other  property,  shall  in  any  manner  or  to  any  extent  affect 
or  impair  the  lien  of  the  Trustee  upon  the  Trust  Fund,  or  any  part 
thereof,  or  any  rights,  powers  or  remedies  of  the  Trustee  hereunder, 
or  any  rights,  powers  or  remedies  of  the  holders  of  the  Company's 
Bonds;  but  such  lien,  rights,  powers  or  remedies  shall  continue  un- 
affected and  unimpaired  as  before,  except  as  against  the  purchaser  of 
any  part  of  the  Trust  Fund  at  any  sale  made  by  the  Trustee  hereunder 
or  under  any  judicial  decree.  Any  moneys  thus  collected  by  the 
Trustee  under  this  Section  shall  be  applied  by  the  Trustee  in  the 
manner  provided  in  Section  7  of  this  Article. 


ARTICLE  EIGHT 

SECTION  1. — [Termination  of  trust.] 

SECTION  2. — If  no  event  of  default,  specified  in  Article  Six  hereof, 
shall  then  [discharge  of  the  trust  deed  through  payment  of  principal 
and  interest]  exist  of  which  the  Company  has  been  notified  in  writing 
by  the  Trustee,  payment  to  and  deposit  with  the  Trustee  of  the  prin- 
cipal and  interest  to  the  dates  upon  which  said  bonds  were  payable,  of 


MORTGAGE  OF  THE  MORTGAGE  BOND  CO.   283 

any  of  the  Company's  Bonds  which  at  the  time  of  such  payment  are 
payable  by  the  terms  thereof  (whether  by  reason  of  the  provisions  of 
any  Amortization  or  Redemption  clauses  applicable  to  such  bonds, 
or  otherwise)  and  which  shall  not  have  been  presented  for  payment, 
shall  entitle  the  Company  to  withdraw  from  the  Trust  Fund  bonds 
and  mortgages  for  an  unpaid  principal  sum  equal  to  the  amount  of 
principal  so  deposited  with  the  Trustee.  Such  deposit  shall  be  made 
to  the  credit  of  each  such  bond,  designating  it  by  its  series  and  num- 
ber. Such  deposit  shall  constitute  full  payment  of  each  such  bond 
and  the  interest  thereon  as  between  the  Company  and  the  holder 
thereof,  and  upon  such  deposit  being  made  with  the  Trustee  the  holder 
of  each  such  bond  shall  have  no  further  rights  in  the  Trust  Fund  and 
shall  look  for  payment  thereof  only  to  the  sums  deposited  with  the 
Trustee  to  the  credit  of  such  bond  and  in  no  event  to  the  Company. 
Such  sum  so  deposited  shall  be  held  by  the  Trustee  to  the  credit  of 
and  for  the  payment  of  such  bonds  and  shall  be  paid  by  the  Trustee  to 
the  holder  thereof  upon  presentation  and  surrender  to  it  or  its  agents 
of  such  bond  with  all  outstanding  coupons  thereto  belonging.  The 
holder  of  such  bond  shall  not  be  entitled  to  interest  on  the  deposit  in 
the  hands  of  the  Trustee.  The  moneys  so  deposited  with  the  Trustee 
and  not  used  for  the  payment  of  the  Company's  Bonds  and  Coupons 
presented  for  payment  shall  be  returned  by  the  Trustee  to  the  Com- 
pany at  the  expiration  of  three  years  from  the  date  of  such  deposit. 
In  that  event  the  rights  of  the  bondholder  shall  revive  against  the 
Company  to  the  extent  of  the  amounts  so  repaid  by  the  Trustee  to 
the  Company  but  without  interest  thereon,  but  not  his  rights  under 
this  Agreement,  nor  to  the  security  of  the  Trust  Fund. 

SECTION  3. — At  any  time  when  all  the  Company's  Bonds  which  have 
been  authenticated  by  the  Trustees  shall  be  paid,  or  being  at  any  time 
due  shall  have  been  provided  for  by  the  payment  to  and  deposit  with 
the  Trustee  as  provided  hereinbefore  or  hereinafter,  or  by  any  supple- 
mental agreement  applying  to  any  series  of  bonds  issued  hereunder, 
and  all  the  Trust  Fund  has  been  conveyed,  assigned  and  delivered  to 
the  Company  by  the  Trustee,  this  Agreement  ipso  facto  shall  cease 
and  come  to  an  end  except  as  to  the  amounts  so  deposited  with  the 
Trustee  in  payment  of  bonds  and  coupons  not  presented  for  payment. 

SECTION  4. — It  is  further  agreed  that  if  the  Company's  Bonds  shall 
be  placed  upon  the  market  by  the  Company  at  a  price  less  than  the 
face  value  thereof,  the  Company  is  authorized  to  carry  in  its  assets  an 
amount  equal  to  nine-tenths  of  the  discount;  from  the  amount  thus 
carried  in  its  assets  at  least  one-ninth  must  be  written  off  an- 
nually. 


284         MATEKIALS   OF   CORPORATION   FINANCE 

ARTICLE  NINE 

SECTION  1. — The  Trust  Fund  at  all  times  shall  consist  of  bonds 
and  mortgages  of  an  aggregate  principal  sum  unpaid  thereon  which 
together  with  the  cash  and  other  securities,  if  any,  belonging  to 
the  Trust  Fund  as  herein  provided  shall  be  equal  to  the  aggregate 
principal  amount  of  all  the  Company's  Bonds  then  outstanding,  and 
secured  by  the  Trust  Fund,  and  if  at  any  time  for  any  reason  the 
aggregate  principal  sum  unpaid  on  all  the  bonds  and  mortgages  then 
constituting  the  Trust  Fund  shall  exceed  the  aggregate  principal  sum 
of  all  the  Company's  Bonds  then  outstanding  and  secured  thereby,  the 
Company  shall  have  the  right  to  demand  and  to  receive  from  the 
Trustee  (if  no  event  of  default  specified  in  Article  Six  hereof  shall 
then  exist  of  which  the  Company  has  been  notified  in  writing  by  the 
Trustee)  the  assignment  and  delivery  to  it  of  bonds  and  mortgages 
belonging  to  the  Trust  Fund,  for  an  unpaid  principal  sum  equal  to 
such  excess. 

SECTION  2. — If  at  any  time  for  any  reason  the  Trust  Fund  shall 
be  less  than  the  amount  herein  provided,  the  Company  shall  within 
ten  days  after  service  upon  it  by  the  Trustee  of  a  demand  in  writing 
so  to  do  assign  to  and  deposit  with  the  Trustee  bonds  and  mortgages 
of  an  unpaid  principal  amount  equal  to  the  amount  of  such  deficiency. 

ARTICLE  TEN 

[Terms  of  acceptance  of  Trust. 

(1)  Full  discretion  in  instituting  proceedings. 

(2)  Under  no  obligation  to  record  this  instrument  or  assign- 

ments of  Trust  Fund  prior  to  default. 

(3)  Immunity  of  Trustee. 

(4)  Liable  only  for  authentication  of  bonds  and  its  misconduct 

and  negligence. 

Entitled  to  reasonable  compensation.  See  J.  &  L.  S.  Co.  Art.  10, 
Sec.  1,  p.  240.] 

ARTICLE  ELEVEN 

[Resignation  of  Trustee.  Removal  of  Trustee.  Appointment  of 
successor.  See  J.  &  L.  S.  Co.,  Art.  10,  Sec.  2,  pp.  245-247.] 

ARTICLE  TWELVE 

[Covenants  of  the  Company: 

(1)  To  pay  principal  and  interest. 


MORTGAGE  OF  THE  MORTGAGE  BOND  CO.   285 

(2)  To  keep  an  office  in  New  York  City. 

(3)  To  obtain  authority  to  do  business  in  various  states.     See 

J.  &  L.  S.  Co.,  Art.  2,  Sec.  1,  pp.  202-3.] 


ARTICLE  THIRTEEN 

Exclusively  for  the  benefit  of  the  Trustee  and  the  holders  of  the 
Company's  Bonds  the  Company  further  covenants  and  agrees  with 
the  Trustee  and  its  successor  or  successors  that  it  will  observe  the 
following  rules  with  respect  to  the  conduct  of  its  business  touching 
the  bonds  and  mortgages  assigned  to  and  deposited  with  the  Trustee 
from  time  to  time  under  this  Agreement: 

(1)  That  each  and  every  mortgage  which  it  shall  at  any  time 
assign  to  and  deposit  with  the  Trustee  under  this  Agreement,  shall 
be  (subject  to  the  provisions  of  Article  Five  hereof)  a  first  lien  upon 
improved  real  estate  in  a  city  situated  in  the  United  States  of  Amer- 
ica having  a  population  of  not  less  than  forty  thousand,  for  an  amount 
not  exceeding  one-half  of  the  value  of  the  mortgaged  property  as 
appraised  for  the  Company,  except  that  in  cities  having  a  population 
of  not  less  than  three  hundred  thousand  such  mortgage  may  be  for 
an  amount  not  exceeding  three-fifths  of  the  value  of  the  mortgaged 
property  as  appraised  for  the  Company,  and  that  within  the  political 
boundaries  of  New  York  City  such  mortgage  may  be  for  an  amount 
not  exceeding  two-thirds  of  the  value  of  the  mortgaged  property  as 
appraised  for  the  Company.    The  term  "city"  is  used  throughout  thia 
instrument  in  the  economic  sense  to  designate  an  urban  community, 
and  without  reference  to  its  political  boundaries. 

(2)  That  it  will  not  assign  to  and  deposit  with  the  Trustee  under 
this  Agreement  any  mortgage  on  a  single  building  which  shall  exceed 
an  amount  equal  to  $2.00  for  each  inhabitant  of  the  city  in  which 
the  property  is  located. 

(3)  That  the  aggregate  unpaid  principal   amount  of  all   mort- 
gages forming  portion  of  the  Trust  Fund  upon  property  in  any  one 
city  will  not  exceed  in  amount  $2.00  for  each  inhabitant  of  such  city 
per  $1,000,000  of  the  Company's  Bonds  issued  and  outstanding  and 
secured  by  this  agreement. 

(4)  That  the  aggregate  unpaid  principal  amount  of  all  mortgages 
forming  portion  of  the  Trust  Fund  upon  property  in  any  one  city 
shall  not  exceed  in  amount  twenty  per  cent,  of  the  total  amount  of 
the  Company's  Bonds  issued  and  outstanding,  unless  such  mortgagee 
are  upon  property  situated  within  the  political  boundaries  of  New 
York  City. 


286         MATERIALS    OF    CORPORATION    FINANCE 

(5)  That  the  aggregate  unpaid  principal  amount  of  all  mortgages 
forming  portion  of  the  Trust  Fund  upon  property  in  any  city  of  from 
40,000  to  70,000  inhabitants  shall  not  exceed  a  total  of  $40  per  in- 
habitant, and  in  cities  of  from  70,000  to  100,000  inhabitants  shall  not 
exceed  a  total  of  $50  per  inhabitant. 

(6)  That  no  single  bond  and  mortgage  shall  be  assigned  to  and 
deposited  with  the  Trustee  under  this  Agreement  which  shall  exceed 
in  principal  amount  ten  per  cent,  of  the  capital  and  surplus  of  the 
Company  then  outstanding. 

(7)  That  the  appraised  value  taken  as  a  basis  for  the  mortgage 
loans  is  not  to  exceed  the  selling  value  determined  by  the  Company 
by  careful  investigation.     In  arriving  at  this  value  only  the  estab- 
lished utility  of  the  property  and  the  earning  power  under  systematic 
management  will  be  considered. 

(8)  That  such  appraised  value  of  properties  securing  bonds  and 
mortgages  assigned  to  and  deposited  with  the  Trustee  under  this 
Agreement  shall  be  in  all  cases  based  on  two  appraisals,  one  of  which 
shall  be  made  by  the  Company's  appraiser  in  the  city  where  the  prop- 
erty is  located,  and  the  other  shall  be  made  by  a  representative  of 
the  Company  in  the  home  office,  who  shall  have  personal  knowledge 
of  values  in  all  the  cities  in  which  he  makes  appraisals.     From  time 
to  time  the  Board  of  Directors  shall  issue  instructions  to  the  ap- 
praisers touching  the  methods  to  be  employed  in  fixing  the  value  of 
properties  on  which  loans  are  to  be  made.     No  mortgage  shall  be 
assigned  to  and  deposited  with  the  Trustee  unless  it  has  been  approved 
by  the  Executive  Committee  of  the  Company.     In  case  any  mort- 
gage amounts  to  $100,000  or  over,  a  third  appraisal  shall  be  obtained, 
made  by  an  additional  appraiser  selected  by  the  Company. 

(9)  That  the  bonds  and  mortgages  which  it  shall  assign  to  and 
deposit  with  the  Trustee  under  this  Agreement  shall  in  no  case  be 
secured  by  farm  property,  unimproved  property,  undivided  interests 
in  property  representing  less  than  the  entire  ownership  of  the  prop- 
erty, leaseholds,  or  by  churches,  factories,  clubs  or  theatres. 

(10)  That  mortgages  on  new  buildings  which  are  not  completed 
and  productive  must  not  form  more  than  one-tenth  of  the  total  of 
mortgages  assigned  to  and  deposited  with  the  Trustee  under  this 
Agreement.     No  building  loans  shall  be  made  in  New  York  City 
without  a  guarantee  either  of  the  completion  of  the  building  or  of 
the  repurchase  of  the  mortgage  by  a  corporation  in  good  standing 
competent  to  make  such  a  contract,  nor  in  other  cities  without  retain- 
ing at  all  times  from  the  moneys  to  be  advanced  upon  the  mortgage 
an  amount  which  the  Company  shall  deem  sufficient  to  entirely  com- 
plete the  building  according  to  the  plans  and  specifications. 


MORTGAGE  OF  THE  MORTGAGE  BOND  CO.   287 

(11)  That  no  real  estate  shall  be  acquired  except  to  avoid  losses 
under  foreclosure,  or  to  provide  offices  for  the  Company's  own  use. 
All  real  estate  acquired  under  foreclosure  shall  be  promptly  sold. 

(12)  That  fire  insurance  policies  to  an  amount  which  the  Com- 
pany shall  deem  sufficient  to  protect  the  mortgage  in  Fire  Insurance 
Companies  in  good  standing  shall  be  obtained  by  the  Company  and 
deposited  with  the  Trustee. 

(13)  That  the  time  within  which  an  action  hereunder  or  upon 
any  of  the  coupons  or  bonds  of  the  Company  may  be  commenced 
shall  be  that  now  established  by  the  laws  of  the  State  of  New  York, 
namely,  twenty  years  from  accrual  of  such  right  of  action. 

(14)  That  so  long  as  any  of  the  Company's  Bonds  shall  be  out- 
standing, the  Company  agrees  that  it  shall  have  an  annual  audit  of 
its  books  by  independent  auditors  or  chartered  accountants  to  be  desig- 
nated from  time  to  time  by  the  Executive  Committee  of  the  Company. 

(15)  That  it  will  from  time  to  time  duly  pay  and  discharge  all 
taxes,  assessments  and  governmental  charges  lawfully  imposed  upon 
the  Trust  Fund,  or  upon  any  part  thereof,  and  all  taxes,  assessments 
and  governmental  charges  lawfully  imposed  upon  the  interest  of  the 
Trustee  therein;  provided,  however,  that  the  Company  shall  not  be 
required  to  pay  any  such  tax,  assessment  or  governmental  charge  so 
long  as  it  shall  in  good  faith,  by  appropriate  legal  proceedings,  con- 
test the  validity  thereof. 

(16)  That  it  will  do,  execute,  acknowledge  and  deliver,  or  cause 
to  be  done,  executed,  acknowledged  and  delivered,  all  and  every  such 
further  acts,  deeds,  transfers  and  assurances  for  the  better  assuring, 
assigning  and  confirming  unto  the  Trustee  each  and  every  bond  and 
mortgage  which  shall  at  any  time  be  assigned  to  and  deposited  with 
the  Trustee  or  intended  so  to  be,  as  portion  of  the  Trust  Fund,  as 
the  Trustee  shall   reasonably  require  for  better  accomplishing  the 
provisions  and  purposes  of  this  Agreement,  and  for  better  securing 
the  payment  of  the  principal  and  interest  of  the  bonds  issued  and 
outstanding  hereunder. 

(17)  That  it  will  not  do  or  perform  nor  voluntarily  permit  to  be 
done  or  performed,  any  act  or  thing  by  which  the  security  of  this 
Agreement  and  the  assignment  and  deposit  of  the  bonds  and  mort- 
gages which  shall  from  time  to  time  form  portion  of  the  Trust  Fund 
can  be  in  any  way  or  manner  impeached  or  impaired. 

(18)  That  it  will  well  and  truly  at  all  times  fully  inform  the 
Trustee  in  writing  with  respect  to  all  payments  of  principal  received 
by  the  Company  from  or  with  respect  to  any  bond  and  mortgage 
assigned  and  deposited  hereunder  and  will  give  the  Trustee  such  addi- 


288         MATEEIALS    OF   CORPORATION   FINANCE 

tional  information  touching  any  of  such  bonds  and  mortgages,  or  the 
property  covered  thereby,  as  the  Trustee  may  reasonably  require  from 
time  to  time. 


ARTICLE  FOURTEEN 

[Action  for  specific  performance  or  damages  when  one  or  more  of 
covenants  in  Article  Thirteen  violated.] 


ARTICLE  FIFTEEN 

[Assignment  by  Company  of  interest  in  Trust  Fund.  See  J.  &  L. 
S.  Co.,  Art  11,  Sec.  4,  p.  249.] 

ARTICLE  SIXTEEN 

On  the  first  day  of  April,  1912,  and  on  the  first  days  of  October 
and  April  in  each  and  every  year  thereafter,  until  the  payment  of 
all  the  Company's  Bonds,  Series  2,  the  Company  will  pay  or  cause  to 
be  paid,  in  gold  coin  of  the  United  States,  of  the  present  standard 
of  weight  and  fineness,  the  principal  and  interest  of  such  of  the 
Company's  Bonds,  Series  2,  as  shall  be  drawn  for  payment  according 
to  the  Table  of  Drawings  for  Amortization,  endorsed  upon  the  back 
of  said  bonds,  in  the  manner  herein  provided. 

The  numbers  of  the  bonds  at  any  time  drawn  for  payment  under 
such  Amortization  provisions  shall  be  determined  by  the  Trustee  by 
drawing  by  lot  from  the  entire  number  of  bonds,  Series  2,  issued  and 
outstanding,  and  secured  by  the  Trust  Fund,  in  the  manner  provided 
in  Section  2  of  Article  Seventeen  of  this  Agreement,  for  the  deter- 
mination of  the  Company's  Bonds,  Series  2,  to  be  redeemed  and 
discharged,  in  the  event  that  the  Company  shall  elect  to  redeem  only 
a  part  of  the  entire  number  thereof;  subject,  nevertheless,  to  the  fol- 
lowing provisions: 

The  bonds  shall  be  drawn  as  nearly  as  possible  proportionately 
from  the  different  denominations  of  the  Company's  Bonds,  Series  2, 
issued  and  outstanding  and  secured  by  the  Trust  Fund  at  the  time  of 
such  drawing,  but  the  decision  of  the  Trustee  in  this  matter  shall 
be  final. 

In  the  event  that  the  requisite  percentage  of  bonds  issued  and 
outstanding  at  the  time  of  any  drawing  should  equal  an  amount  of 
principal  not  divisible  by  100,  any  balance  shall  be  carried  over  to 
the  next  drawing  and  shall  be  added  to  the  percentage  of  bonds  to 
be  drawn  at  the  next  drawing. 


MORTGAGE  OF  THE  MORTGAGE  BOND  CO.   289 

Notice  of  the  result  of  such  drawing  shall  be  published  as  pro- 
vided in  Article  Seventeen,  Section  2  hereof. 

Upon  publication  by  the  Company  of  such  notice  in  the  manner 
aforesaid,  and  upon  filing  proof  of  such  publication  with  the  Trustee, 
interest  shall  cease  to  accrue  upon  the  bonds  so  drawn  for  payment, 
from  their  respective  dates  of  payment  as  specified  in  the  said  notice, 
provided  the  Company  shall  make  in  respect  to  such  bonds  a  deposit 
of  money  with  the  Trustee  as  specified  in  Section.  3  of  Article  Seven- 
teen hereof. 

All  bonds  so  drawn  for  payment  shall,  when  paid,  be  cancelled 
by  the  Trustee,  together  with  all  coupons  belonging  thereto.  The 
Trustee  shall  enter  the  Serial  numbers  of  all  bonds  which  it  shall  be 
required  to  cancel  under  any  provision  hereof  in  a  book  or  books  to 
be  kept  for  that  purpose,  so  that  there  shall  be  at  all  times  a  com- 
plete and  accurate  record  of  the  Company's  Bonds,  Series  2,  issued 
and  outstanding  under  this  Agreement. 

After  such  cancellation  and  the  entry  of  the  numbers  of  said 
bonds  by  the  Trustee,  as  aforesaid,  the  same  are  to  be  returned  to  the 
custody  and  control  of  the  Company. 

ARTICLE  SEVENTEEN 

[Redemption  of  Bonds,  Series  2: 
SECTION  1. — Right  of  redemption   October   16,   1916,  at   par. 

Redeemed  bonds  cancelled. 
SECTION  2. — Numbers  of  bonds  ascertained  by  lot.    Publication 

of  Notice.    Interest  to  cease  on  bonds  drawn. 
SECTION  3. — Deposit  to  pay  bonds  not  presented.     After  three 

years  deposit  returned  to  Company.] 

ARTICLE  EIGHTEEN 

[SECTION    1. — Right    limited    to    parties    and    bondholders.      See 

J.  &  L.  S.  Co.,  Art.  12,  p.  251.] 
SECTION  2. — Bondholders  requests: 

(1)  Proof  of  fact  and  date  of  execution. 

(2)  Proof  of  ownership  of  bonds. 

(3)  Proof  of  ownership  of  registered  bonds.     See 

J.  &  L.  S.  Co.,  Art.  7,  pp.  235-6.] 
SECTION  3. — Actions  by  Trustee. 
SECTION  4. — Provisions  for  publishing  notices  in  foreign  countries.] 

ARTICLE  NINETEEN 
[Waiver  of  personal  liability.    See  J.  &  L.  S.  Co.,  Art.  6,  p.  235.] 


[Bondholders'  right  to  sue: 

SECTION  1. — Prerequisites  to  action  by  bondholder. 
SECTION  2. — Omission  of  Trustee  or  bondholder  not  a  waiver. 
SECTION  3. — Direction  by  seventy-five  per  cent,  bondholders. 
SECTION  4. — Waiver  by  Company. 
SECTION  5. — Consolidation  permitted. 
SECTION  6. — Company's  rights  not  limited.] 


ARTICLE  TWENTY-ONE 
[Trustee  accepts  trust.] 

[Testimonium.     See  J.  &  L.  S.  Co.,  Art.  12,  p.  251.] 

[Acknowledgments  of  Company  and  Trustee.     See  J.  &  L.  S.  Co., 
Art.  12,  pp.  252-4.] 


SHORT  TERM  NOTE  AGREEMENT  291 


AGREEMENT    SECURING    SHORT    TERM    NOTES 

AGREEMENT  made  this  first  day  of  August,  1911,  between  AMERI- 
CAN POWER  &  LIGHT  COMPANY,  a  corporation  of  the  State  of  Maine 
(hereinafter  called  the  "Company"),  party  of  the  first  part,  and 
GUARANTY  TRUST  COMPANY  OF  NEW  YORK,  a  corporation  of  the 
State  of  New  York  (hereinafter  called  the  "Trustee"),  party  of  the 
second  part 

Whereas,  the  Company  has  resolved  to  execute  and  issue  a  series 
of  notes  to  be  known  as  Ten- Year  Six  Per  Cent.  Gold  Notes  for  the 
principal  sum  in  the  aggregate  of  two  million  two  hundred  thousand 
dollars  ($2,200,000)  each  for  the  principal  sum  of  $1,000  or  $500 
or  $100,  with  interest  payable  semi-annually  at  the  rate  of  six  per 
centum  per  annum,  evidenced  by  interest  coupons  attached  thereto, 
said  notes  to  be  duly  authenticated  by  the  certificate  of  the  Trustee 
hereunder;  and 

Whereas,  said  $1,000  notes  and  the  interest  coupons  and  Trustee's 
certificate  therein  provided  for  are  to  be  in  substantially  the  follow- 
ing form,  suitable  changes  being  made  therein  for  the  $500  and 
$100  notes: 

UNITED  STATES  OF  AMERICA 

State  of  Maine 
AMERICAN   POWER   &   LIGHT    COMPANY 

Ten- Year  Six  Per  Cent.  Gold  Note 
No $1,000 

For  value  received,  AMERICAN  POWER  &  LIGHT  COMPANY 
promises  to  pay  to  bearer,  or  in  case  this  note  is  registered,  to 
the  registered  holder  hereof,  one  thousand  dollars  in  gold  coin 
of  the  United  States  of  America  of  the  present  standard  of 
weight  and  fineness,  at  the  office  or  agency  of  the  obligor  com- 
pany in  the  City  of  New  York  on  August  1,  1921,  and  to  pay 
interest  thereon  in  like  gold  coin  at  the  rate  of  six  per  centum 
per  annum  from  August  1,  1911,  on  presentation  and  surrender, 
at  the  office  of  Guaranty  Trust  Company  of  New  York,  in  the 
City  of  New  York,  of  the  annexed  coupons  as  they  severally 
become  due,  on  the  first  days  of  February  and  August  in  each 
year  until  such  principal  shall  be  paid,  without  deduction  from 
principal  or  interest  on  account  of  any  tax  or  taxes,  which  the 
obligor  company  may  be  required  to  pay  or  retain  therefrom  by 
virtue  of  any  present  or  future  law  or  requirement. 


292         MATERIALS    OF   CORPORATION   FINANCE 

This  note  is  one  of  a  series  of  notes  for  the  aggregate  principal 
sum  of  two  million  two  hundred  thousand  dollars  ($2,200,000), 
entitled  to  the  benefits  and  subject  to  the  provisions  of  an 
agreement,  dated  August  1,  1911,  between  American  Power  & 
Light  Company  and  Guaranty  Trust  Company  of  New  York, 
as  Trustee,  to  which  reference  is  made  for  a  complete  statement 
of  the  terms  and  conditions  under  which  said  notes  are  issued, 
received  and  held. 

The  principal  of  said  notes  may  become  due  in  case  of  default 
under  said  agreement,  as  provided  in  said  agreement. 

This  note  shall  be  subject  to  redemption  at  102  and  accrued 
interest  upon  any  interest  date  upon  notice  as  provided  in  said 
agreement. 

Upon  the  exercise  of  the  right  of  the  holders  of  the  option 
warrants  referred  to  in  said  agreement  to  purchase  at  par  com- 
mon stock  of  the  obligor  company,  this  note,  when  presented  to 
the  obligor  company  (with  all  unmatured  coupons  attached)  by 
the  holder  of  an  option  warrant  for  ten  (10)  shares  of  said 
common  stock,  shall  entitle  such  holder  to  receive  a  certificate 
for  such  ten  (10)  shares  of  stock  or,  at  the  option  of  the  obligor 
company,  voting  trust  certificates  therefor,  and  also  to  receive 
in  cash  the  amount  of  interest  accrued  on  this  note  from  the 
last  coupon  date  to  date  of  such  presentation,  as  provided  in  said 
agreement. 

This  note  may  be  registered  on  the  books  of  the  obligor  com- 
pany kept  at  the  office  of  the  Trustee  under  said  agreement  and 
the  registration  noted  hereon,  after  which  no  valid  transfer 
hereof  can  be  made  except  on  said  books  until  after  registered 
transfer  to  bearer,  but  registration  shall  not  restrain  negotiability 
of  the  coupons,  which  shall  continue  to  be  transferable  by  deliv- 
ery merely. 

No  recourse  shall  be  had  for  the  payment  of  the  principal  or 
interest  of  this  note  against  any  present  or  future  stockholder, 
officer  or  director  of  the  obligor  company. 

In  witness  whereof,  AMERICAN  POWER  &  LIGHT  COMPANY 
has  caused  its  corporate  seal  to  be  affixed  hereto,  attested  by  its 
Secretary  or  Assistant  Secretary,  and  these  presents  to  be  signed 
by  its  President  or  a  Vice-President,  this  first  day  of  August, 
1911. 

AMERICAN  POWER  &  LIGHT  COMPANY, 

By .., 

President. 


SHORT   TERM   NOTE   AGREEMENT  293 

Attest: 

Secretary. 

[COUPON] 

$30.00  No 

On  the  first  day  of  AMERICAN  POWER  &  LIGHT 

COMPANY  will  pay  the  bearer  Thirty  Dollars' ($30)  in  gold  coin 
of  the  United  States,  at  the  office  of  Guaranty  Trust  Company 
of  New  York,  in  the  City  of  New  York,  being  six  months'  interest 

then  due  upon  its  Ten- Year  Six  Per  Cent.  Gold  Note  No 

Not  due  if  note  redeemed  or  called  for  previous  redemption. 

Treasurer. 

[TRUSTEE'S  CERTIFICATE] 

This  note  is  one  of  the  series  of  notes  described  in  the  agree- 
ment in  this  note  referred  to. 

GUARANTY  TRUST  COMPANY  OF  NEW  YORK, 

Trustee. 

By 

and 

Whereas,  the  option  warrants  referred  to  in  said  note  and  in  this 
agreement  are  to  be  in  substantially  the  following  form: 

UNITED  STATES  OF  AMERICA 
State  of  Maine 

AMERICAN  POWER  &  LIGHT  COMPANY 

OPTION  WARRANT 
No..  $.. 


For  value  received,  AMERICAN  POWER  &  LIGHT  COMPANY 
promises  to  issue  to  a  certificate 

for  shares  of  the  par  value  of  Dollars 

($  )  of  its  full-paid  common  stock  (or,  at  its  option,  to 

deliver  voting  trust  certificates  therefor) ,  at  the  office  of  Guaranty 
Trust  Company  of  New  York,  at  any  time  before  August  1, 
1921,  upon  the  surrender  hereof  and  upon  payment  in  cash  for 
said  stock  at  par,  or,  in  lieu  of  such  cash  payment,  the  delivery 
of  a  note  or  notes  (with  all  unmatured  coupons  attached)  issued 
under  an  agreement  between  American  Power  &  Light  Company 
and  Guaranty  Trust  Company  of  New  York,  as  Trustee,  dated 
August  1,  1911,  for  a  principal  amount  equal  to  the  par  value 
of  said  stock  to  which  the  holder  of  this  warrant  shall  be  en- 


294         MATERIALS    OF    CORPORATION    FINANCE 

titled.  Provided,  however,  that  if  any  such  note  or  notes  shall 
have  been  called  for  redemption  the  right  to  deliver  such  note 
or  notes  hereunder  shall  cease  at  the  close  of  business  upon  the 
date  for  redemption  specified  in  such  call.  Holders  of  notes  so 
delivered  in  payment  for  stock  shall  be  entitled  to  receive  in 
cash  the  amount  of  interest  accrued  on  such  notes  from  the  last 
coupon  date  to  date  of  such  delivery. 

The  rights  represented  hereby  are  transferable  only  on  the 
books  of  American  Power  &  Light  Company  at  the  office  of 
Guaranty  Trust  Company  of  New  York  by  said  holder  or  by 
attorney,  upon  surrender  of  this  certificate  properly  endorsed. 

AMERICAN  POWER  &  LIGHT  COMPANY, 

By .., 

President. 
Attest : 


Secretary. 

[ENDORSEMENT] 

For  value  received,  the  undersigned  hereby  assigns  to 

all  the  rights  and  interest  represented  by 

the  within  option  warrant  and  hereby  irrevocably  constitutes  and 
appoints  attorney  to  transfer  the  same  on 

the  books  of  American  Power  &  Light  Company  with  full  power 
of  substitution  in  the  premises. 
Dated, 
Witness : 
and 

Whereas,  the  execution  and  delivery  of  this  agreement  have  been 
duly  authorized  by  the  Board  of  Directors  of  the  Company  at  a 
meeting  duly  called  for  that  purpose; 

Now,  therefore,  this  agreement  ivitnesseth :  That,  in  order  to  secure 
the  payment  of  said  notes  and  the  interest  thereon  and  to  declare  the 
terms  and  conditions  on  which  said  notes  are  to  be  issued,  received 
and  held,  the  Company,  in  consideration  of  the  premises  and  of  one 
dollar  to  it  paid,  receipt  whereof  is  hereby  acknowledged,  hereby 
agrees  and  provides  as  follows: 

ARTICLE  I 

Notes  for  the  aggregate  principal  amount  of  two  million  two  hun- 
dred thousand  dollars  ($2,200,000)  shall  be  certified  by  the  Trustee 


SHORT  TERM  NOTE  AGREEMENT      295 

upon  the  request  of  the  Company  at  once  or  at  any  time  or  times 
hereafter  and  delivered  in  accordance  with  the  order  or  orders  of  the 
Company  evidenced  by  a  writing  or  writings  signed  by  its  President 
or  a  Vice- President  and  its  Treasurer  or  Assistant  Treasurer. 
[Temporary  Notes.    See  J.  &  L.  S.  Co.,  Art.  1,  Sec.  8,  p.  202.] 1 
[Officers  who  may  execute  bonds.     See  J.  &  L.  S.  Co.,  Art.  1, 
Sec.  4,  p.  200.] 

[Bonds  lost,  mutilated,  or  destroyed.  See  J.  &  L.  S.  Co.,  Art  1, 
Sec.  7,  p.  201.] 

ARTICLE  II 

[Covenants  of  Company: 

(1)  To  pay  principal  and  interest 

(2)  To  keep  an  office  or  agency  in  New  York  City.     See  J.  &  L. 

S.  Co.,  Art.  2,  Sec.  1,  pp.  202-3.] 

ARTICLE  III 

As  provided  in  the  option  warrants  above  referred  to  the  Company 
for  value  received  will  issue  on  or  before  August  1,  1921,  to  the  hold- 
ers thereof  full-paid  common  stock  of  the  Company  (or,  at  the  option 
of  the  Company,  will  deliver  voting  trust  certificates  therefor)  for  the 
number  of  shares  specified  in  such  warrants,  such  stock  to  be  delivered 
to  the  holders  of  option  warrants  upon  the  surrender  of  such  warrants 
and  upon  payment  of  the  sum  of  one  hundred  dollars  ($100)  for  each 
share  of  stock  so  delivered,  or,  in  lieu  of  said  cash  payment,  the 
delivery  of  notes  secured  hereby  (with  all  unmatured  coupons  at- 
tached) for  an  amount  of  principal  equal  to  the  aggregate  par  value 
of  such  shares.  Holders  of  notes  so  presented  shall  be  entitled  to 
receive  in  cash  the  amount  of  interest  accrued  on  such  notes  from  the 
last  coupon  date  to  date  of  such  presentation. 

The  Company  covenants  that  it  will  pay  or  cause  to  be  paid  to  the 
Trustee  hereunder  all  sums  of  money  received  by  it  from  time  to 
time  in  payment  for  common  stock  of  the  Company,  as  provided  in 
said  option  warrants.  Such  sums  of  money  shall  be  held  by  the 
Trustee,  such  interest  being  allowed  on  the  money  as  the  Trustee 
shall  allow  on  other  deposits  of  similar  character.  Such  sums  of 
money  shall  be  applied  as  rapidly  as  shall  -be  reasonably  practicable 
from  time  to  time  for  the  purchase  of  notes  issued  hereunder  and 
secured  hereby  at  not  more  than  accrued  interest  and  101  per  cent,  of 

i  Note — Statements  enclosed  in  brackets  []  nre  digests  of  parts  omitted.  These 
parts,  however,  have  been  abbreviated  because  they  are  practically  duplicated 
in  the  Corporate  Mortgage  of  the  Jones  &  Laughlm  Steel  Company  to  which 
reference  is  made  as  follows :  J.  &  L.  S.  Co.,  Art. ,  Sec. ,  p. . 


296         MATERIALS    OF   CORPORATION    FINANCE 

the  principal  thereof.  The  purchase  of  notes  as  aforesaid  may  be 
made  by  the  Trustee  without  notice,  provided  notes  shall  be  offered 
to  it  or  shall  be  purchasable  in  the  market  at  a  price  in  its  judgment 
fair  and  reasonable  within  the  above  limit.  The  Trustee  may  also  at 
any  time  call  for  offers  of  said  notes  within  said  limit  as  to  price  by 
advertisement  in  one  or  more  daily  newspapers  published  in  the  City 
of  New  York.  The  expense  of  such  advertisement  shall  be  paid  by 
the  Company.  The  Trustee  shall  be  under  no  duty  to  advertise  as 
aforesaid  unless  requested  so  to  do  by  holders  of  20%  of  the  notes 
issued  and  outstanding  hereunder,  and  unless  indemnified  to  its  satis- 
faction against  the  cost  of  such  advertising.  All  of  such  notes  pur- 
chased by  the  Trustee  shall  forthwith  be  canceled  and  the  Trustee 
shall  note  on  one  of  the  originals  hereof  the  fact  of  such  cancellation 
and  thereupon  deliver  the  notes  so  canceled  to  the  Company. 

Whenever  there  shall  have  remained  on  deposit  with  the  Trustee  as 
much  as  five  thousand  dollars  ($5,000  )  for  sixty  (60)  successive 
days,  notwithstanding  efforts  to  purchase  notes  therewith,  as  herein- 
before provided,  such  fund  shall  be  paid  out  by  the  Trustee  from  time 
to  time  upon  the  direction  of  the  Company  expressed  by  resolution  of 
its  Board  of  Directors  or  Executive  Committee  and  upon  delivery  to 
the  Trustee  of  (1)  a  copy  of  such  resolution  certified  by  the  Secretary 
or  Assistant  Secretary  of  the  Company  under  its  corporate  seal,  and 
(2)  a  certificate  signed  and  verified  by  the  President  or  Vice-Presi- 
dent and  the  Treasurer  or  Assistant  Treasurer  of  the  Company,  stat- 
ing in  substance : 

(a)  That  the  Company  has  acquired  stocks,  bonds,  notes  or  other 
securities  of  corporations,  at  least  fifty-one  per  cent,  of  whose  stock  is 
owned  by  the  Company,  describing  the  same  with  reasonable  detail 
and  stating  the  actual  cash  cost  of  each  item ;  and 

(&)  That  the  sum  directed  to  be  paid  out  does  not  exceed  the  fair 
value  and  does  not  exceed  the  actual  cash  cost  to  the  Company  of  said 
stocks,  bonds,  notes  or  other  securities.  Prior  to  any  payment  by  the 
Trustee,  there  shall  be  delivered  to  it  any  shares  of  stock  or  any  mort- 
gage bonds,  notes  or  other  securities  of  corporations  made  the  basis  of 
such  payment. 

The  certified  copy  of  resolution  and  the  certificate  above  provided 
for  shall  be  full  protection  to  the  Trustee  in  making  any  payment 
hereunder. 

[Such  stocks,  bonds,  notes,  or  other  securities  of  corporations  de- 
posited with  the  Trustee  hereunder  shall  be  held  by  it  as  further 
security  for  the  payment  of  the  notes  secured  hereby  and  so  long  as 
there  shall  be  no  default,  the  Company  shall  be  entitled  (1)  to  receive 


SHORT  TERM  NOTE  AGREEMENT      297 

all  interest  paid  or  dividends  declared  on  such  securities  and  (2)  to 
vote  upon  all  shares  of  stock  deposited  with  the  Trustee  hereunder. 
See  J.  &  L.  S.  Co.,  Art.  3,  Sec.  5,  p.  214.] 

[The  purchase  price  of  any  stocks,  bonds,  etc.,  delivered  by  the 
Trustee  to  the  Company  by  resolution  of  its  Board  of  Directors  or 
Executive  Committee  shall  be  paid  in  cash  to  the  Trustee.] 

[Trustee  entitled  to  expenses  and  reasonable  compensation.  See 
J.  &  L.  S.  Co.,  Art.  10,  Sec.  1,  pp.  241-2] 

ARTICLE  IV 

[All  notes,  but  not  less  than  all,  redeemable  at  102  and  accrued 
interest.  See  J.  &  L.  S.  Co.,  Art.  4,  Sec.  2,  p.  221.] 

ARTICLE  V 

SECTION  1.  [Principal  and  accrued  interest  due  on  default.  See 
J.  &  L.  S.  Co.,  Art.  5,  Sec.  4,  p.  227.] 

SECTION  2.  [In  case  of  default  in  interest  payment  for  90  days 
the  Trustee  may  demand  that  the  principal  then  due  and  any  accrued 
interest  be  paid  with  6%  interest;  also  expenses  of  collection  and 
reasonable  compensation.] 

In  case  the  Company  shall  fail  forthwith  to  pay  said  amounts  upon 
such  demand,  the  Trustee  may  sell  and  dispose  of  for  cash  either  all, 
or  from  time  to  time  any  part,  of  the  stocks,  bonds,  notes  or  other 
securities  of  other  corporations  held  in  pledge  hereunder,  if  any, 
which  sale  or  sales,  if  deemed  best  by  the  Trustee,  may  be  made  pri- 
vately, but  otherwise  shall  be  made  in  the  City  of  New  York,  State 
of  New  York,  either  at  the  New  York  Stock  Exchange,  according  to 
the  rules  and  customs  thereof,  or  at  public  auction  at  such  other  place 
or  places,  and  at  such  time  or  times,  and  upon  such  terms  as  the  Trus- 
tee may  fix,  and  notice  or  notices  of  the  time  and  place  of  sale  shall 
be  sufficient  if  given  by  publication  thereof  in  at  least  two  newspapers 
published  in  the  City  of  New  York,  for  five  days  in  the  week  next 
preceding  such  sale  or  sales. 

[If  proceeds  of  sale  are  insufficient,  then  proceedings  may  be  insti- 
tuted at  law  or  in  equity  to  secure  the  deficiency.  See  J.  &  L.  S.  Co., 
Art.  5,  Sec.  15,  p.  232.] 

[Rights  of  action  enforceable  by  Trustee  without  the  possession 
of  any  of  the  notes  or  coupons.] 

[No  noteholder  or  noteholders  shall  have  right,  of  action  until  writ- 
ten notice  of  default  of  Company  has  been  given  to  Trustee.  See  J. 
&  L.  S.  Co.,  Art  5,  Sec.  18,  p.  233.] 


298         MATERIALS   OF   CORPORATION    FINANCE 

SECTION  3. 

[Application  of  proceeds  of  sale: 

(1)  To  payment  of  expenses,  etc. 

(2)  Payment  of  principal  and  interest. 

(3)  Surplus  to  Company.     See  J.  &  L.  S.  Co.,  Art.  5,  Sec.  13, 

pp.  230-1.] 
SECTION  4. 

[Trustee  and  noteholder  may  bid.  Purchaser  permitted  to  apply 
notes  and  matured  coupons.  See  J.  &  L.  S.  Co.,  Art.  5,  Sec.  14,  p.  231.] 

ARTICLE  VI 

[Form  and  proof  of  execution  of  instruments  by  noteholders. 
Proof  of  ownership  of  notes  and  coupons.  See  J.  &  L.  S.  Co.,  Art.  7, 
pp.  235-6.] 

ARTICLE  VII 
[Waiver  of  personal  liability.    See  J.  &  L.  S.  Co.,  Art.  6,  p.  235.] 

ARTICLE  VIII 

[Trustee  may  assume  default  not  to  exist  until  notified,  Trustee 
not  required  to  incur  expense  without  indemnity,  Trustee  not  respon- 
sible for  validity  of  indenture  or  security,  Trustee  not  responsible  for 
recitals,  Trustee  may  employ  agents  or  lawyers,  Trustee  entitled  to 
compensation — same  to  constitute  a  lien,  Trustee  not  responsible  for 
recording,  etc.    See  J.  &  L.  S.  Co.,  Art.  10,  Sec.  1,  pp.  240-3.] 
[Testimonium.    See  J.  &  L.  S.  Co.,  Art.  12,  p.  251.] 
[Acknowledgments.    See  J.  &  L.  S.  Co.,  Art.  12,  pp.  252-4.] 


CONDITIONAL  SALE  AGREEMENT  299 


CONDITIONAL  SALE  AGREEMENT 

THIS  AGREEMENT,  made  at  the  City  of  New  York,  in  the  State 
of  New  York,  on  the  first  day  of  October,  1907,  by  and  between 
American  Car  and  Foundry  Company,  a  corporation  organized  under 
the  laws  of  the  State  of  New  Jersey,  hereinafter  called  the  Car  Com- 
pany, party  of  the  first  part;  Columbia  Trust  Company  as  Trustee, 
a  corporation  organized  under  the  laws  of  the  State  of  New  York, 
hereinafter  called  the  Trustee,  party  of  the  second  part;  and  Erie 
Eailroad  Company,  a  corporation  organized  under  the  laws  of  the 
State  of  New  York,  and  having  its  chief  office  and  place  of  business 
in  the  City  of  New  York,  State  of  New  York,  hereinafter  called  the 
Railroad,  party  of  the  third  part ;  Witnesseth : 

[Whereas  clause  stating  purpose  of  agreement  and  acceptance  of 
trust.]  l 

[Consideration  clause.] 

First. — The  Car  Company  agrees  to  manufacture  for  and  to  de- 
liver to  the  Trustee  during  the  months  of  October,  November  and 
December,  1907  (all  deliveries  to  be  completed  not  later  than  Jan- 
uary 31,  1908),  and  in  the  lots  hereinafter  specified,  three  thousand 
forty-ton,  steel-underframe  box  cars  lettered  "Erie"  and  numbered 
109500  to  112499  inclusive  (comprising  the  "trust  equipment"  in 
this  instrument  mentioned),  which  said  cars  are  to  be  built  in  accord- 
ance with  the  Car  Company's  specifications  No.  809  and  subject  to 
inspection  and  approval  by  the  representatives  of  the  Railroad.  Two 
thousand  of  said  cars  shall  be  delivered  on  tracks  at  the  Car  Com- 
pany's works  at  Berwick,  Pa.,  and  one  thousand  on  tracks  at  its 
works  at  Detroit,  Mich. 

The  Car  Company  agrees  to  accept  as  full  payment  for  said  cars 
the  principal  sum  of  Three  million,  four  hundred  and  eighty  thou- 
sand, seven  hundred  Dollars  ($3,480,700),  of  which  sum  Four  hun- 
dred and  forty  thousand,  seven  hundred  Dollars  ($440,700)  shall  be 
in  cash  or  in  materials  for  use  in  the  construction  of  said  trust 
equipment,  and  the  remaining  Three  million  and  forty  thousand 
Dollars  ($3,040,000)  of  said  principal  sum  shall  be  in  the  "equip- 
ment notes"  (hereinafter  described)  of  the  Railroad  to  be  issued  and 
delivered  as  hereinafter  provided  for. 

Second. — The  Trustee  agrees  to,  and  does  hereby,  lease  unto  the 
Railroad,  and  the  Railroad  does  hereby  hire  and  lease  from  the  Tnis- 

i  Note — Statements  enclosed  in  brackets  []  are  digests  of  parts  omitted.  These 
parts,  however,  have  been  abbreviated  because  they  are  practically  duplicated 
in  the  Corporate  Mortgage  of  the  Jones  ft  Laughlin  Steel  Company  to  which 

reference  is  made  as  follows:   J.  ft  L.  S.  Co.,  Art. ,  Sec. ,  p.          • 

11 


300         MATERIALS    OF   CORPORATION   FINANCE 

tee,  all  and  singular  the  said  trust  equipment  constructed  as  afore- 
said, from  the  dates  of  the  respective  deliveries  thereof  and  until 
October  1,  1917  (or  the  earlier  termination  of  this  lease  as  herein- 
after provided  for),  at  the  rental  and  upon  and  subject  to  the  terms 
and  conditions  hereinafter  stated,  which  said  cars  shall  be  delivered 
to  the  Railroad  as  they  shall  from  time  to  time  be  received  by  the 
Trustee  from  the  Car  Company. 

Third. — The  Railroad  agrees  to  receive  and  accept,  upon  and  sub- 
ject to  all  the  terms  and  conditions  of  this  agreement,  said  trust 
equipment,  built  as  herein  provided,  as  and  when  the  same  shall  be 
ready  for  delivery  at  the  places  and  within  the  times  herein  specified ; 
and  to  pay  as  rental  therefor  the  amount  in  the  manner  and  at  the 
times  as  hereinafter  set  forth. 

And  it  is  distinctly  and  specially  stipulated,  covenanted  and 
agreed  that  the  delivery  to  and  the  acceptance  of  the  trust  equip- 
ment, or  of  any  part  thereof,  by  the  Railroad  shall  not  vest  any  right 
or  interest  therein  or  title  thereto  in  the  Railroad  other  than  as  de- 
fined in  this  indenture;  and  that  until  payment  by  the  Railroad  of 
all  the  equipment  notes  by  this  agreement  provided  for  and  of  the 
coupons  belonging  thereto,  and  until  all  the  obligations  of  the  Rail- 
road hereunder  shall  have  been  fully  complied  with  and  performed, 
the  title  to  the  trust  equipment  or  to  any  part  thereof  shall  not  pass 
to  or  vest  in  the  Railroad,  but  shall  remain  in  the  Trustee  on  the 
Trust  to  perform  and  enforce  this  agreement  for  the  equal  benefit  of 
the  holders  of  the  equipment  notes  herein  mentioned,  notwithstand- 
ing the  delivery  of  the  trust  equipment  to  and  its  possession  and  use 
by  the  Railroad. 

And  it  is  further  covenanted  and  agreed  by  and  between  the  par- 
ties: 

I. — The  Railroad  agrees,  as  a  consideration  for  the  leasing  to  it 
of  the  trust  equipment,  to  faithfully  observe  and  comply  with  all  and 
every  the  terms,  provisions  and  conditions  of  this  agreement  by  it  to 
be  observed  and  complied  with ;  and  agrees  to  pay  the  Trustee,  to  and 
for  the  account  of  the  Car  Company,  as  part  payment  for  the  trust 
equipment  to  be  manufactured  by  the  Car  Company,  the  sum  of  Four 
Hundred  and  Forty  Thousand,  Seven  Hundred  Dollars  ($440,700), 
in  cash  or  in  materials  for  use  in  the  construction  of  said  trust  equip- 
ment. The  Railroad  agrees  also  to  pay  as  rental  for  said  trust  equip- 
ment: 

(a)  The  entire  principal  of  the  equipment  notes  issued  in  accord- 
ance with  fhe  provisions  hereof,  according  to  their  tenor,  as  the  same 


CONDITIONAL  SALE  AGREEMENT  301 

severally  mature,  together  with  interest  at  the  rate  of  five  per  cent 
per  annum  upon  the  principal  of  said  notes,  according  to  the  tenor  of 
the  coupons  thereto  attached — all  such  payments  both  of  principal 
and  interest  to  be  in  gold  coin  of  the  United  States  of  the  present 
standard  of  weight  and  fineness,  or  its  equivalent;  and 

(b)  Any  and  all  taxes  which  may  be  assessed  or  levied  upon  the 
trust  equipment,  or  any  part  thereof,  and  any  and  all  taxes  which 
may  be  assessed  or  levied  upon  the  equipment  notes  issued  hereunder 
and  the  interest  coupons  thereon,  and  which  the  Kailroad  may  be 
required  to  pay  thereon  or  deduct  therefrom. 

II. — The  Eailroad  agrees  to  forthwith  execute  and  deliver  to  the 
Trustee  its  notes  (herein  designated  "equipment  notes")  aggregating 
in  principal  amount  Three  Million  and  Forty  Thousand  Dollars 
($3,040,000).  Such  notes  shall  be  designated  as  "Erie  Railroad 
Equipment  Notes;  Series  N,"  shall  be  for  the  principal  sum  of  One 
Thousand  Dollars  each;  shall  be  dated  and  bear  interest  (to  be  evi- 
denced by  interest  coupons  attached)  from  October  1,  1907,  at  the 
rate  of  five  per  cent,  per  annum,  payable  semi-annually  on  the  first 
days  of  April  and  October  in  each  year;  shall  be  numbered  consecu- 
tively from  one  to  three  thousand  and  forty,  both  inclusive ;  shall  have 
endorsed  thereon  a  certificate  of  the  Trustee  as  hereinafter  specified ; 
and  shall  mature  at  the  rate  of  $152,000  face  amount  thereof  on  the 
first  day  of  April  and  the  first  day  of  October  in  each  year,  beginning 
April  1,  1908,  and  ending  October  1,  1917. 

Said  notes  shall  be  in  substantially  the  following  form : 

(Form  of  Note.) 

Number  $1,000. 

N. 

ERIE  RAILROAD  COMPANY 

EQUIPMENT  NOTE,  SERIES  N, 

Total  Issue  Limited  to  $3,040,000. 

For  value  received  ERIE  RAILROAD  COMPANY  promises  to  pay  to 
bearer  on  the  first  day  of  19  ,  without 

grace,  the  sum  of  One  Thousand  Dollars  ($1,000),  in  gold  coin  of  the 
United  States  of  America,  of  the  present  standard  of  weight  and 
fineness,  or  its  equivalent,  at  the  office  of  First  National  Bank  of  New 
York,  in  the  Borough  of  Manhattan,  City  of  New  York,  with  interest 
thereon  from  October  1,  1907,  until  paid,  at  the  rate  of  five  per  cent, 
per  annum,  payable  semi-annually  in  like  gold  coin  at  the  office  of 
said  First  National  Bank  of  New  York  on  the  first  days  of  April  and 


SANTA  BARBARA  STAT2  COLLEGE  LIBRAK 


302         MATEEIALS    OF   CORPOEATION    FINANCE 

October  in  each  year  on  the  presentation  and  surrender  of  the  respec- 
tive coupons  for  such  interest  (hereto  attached)  as  they  severally 
mature.  All  payments  upon  this  note,  both  of  principal  and  of  in- 
terest, shall  be  made  without  deduction  for  any  tax  or  taxes  which 
the  Eailroad  Company  may  be  required  to  pay  thereon  or  retain  there- 
from under  any  present  or  future  law  of  the  United  States  or  of  any 
State,  County  or  Municipality  thereof. 

This  note  is  one  of  a  series  of  notes  designated  as  "Erie  Eailroad 
Company  Equipment  Notes,  Series  N,"  numbered  consecutively  from 
Nl  to  N3,040  both  inclusive,  aggregating  in  par  value  the  principal 
sum  of  Three  Million  and  Forty  Thousand  Dollars  ($3,040,000),  all 
of  like  date,  amount  and  tenor  except  as  to  the  date  of  maturity,  of 
which  said  notes 


numbers  Nl    to  N152  inclusive  mature 

April 

1,  1908, 

"    N153   "  N304 

Oct. 

1,  1908, 

'    N305   "  N456 

Apr. 

1,  1909, 

'    N457   "  N608    " 

Oct. 

1,  1909, 

'    N609   "  N760    "      " 

Apr. 

1,  1910, 

'    N761   "  N912    "      " 

Oct. 

1,  1910, 

'    N913   "  N1064    "      " 

Apr. 

1,  1911, 

'    N1065  "  N1216    "      " 

Oct. 

1,  1911, 

1    N1217  "  N1368    "      " 

Apr. 

1,  1912, 

'    N1369  "  N1520    "      " 

Oct. 

1,  1912, 

'    N1521  "  N1672 

« 

Apr. 

1,  1913, 

'    N1673  "  N1824 

it 

Oct. 

1,  1913, 

f    N1825 

'  N1976 

ii 

Apr. 

1,  1914, 

«    N1977 

'  N2128 

it 

Oct. 

1,  1914, 

'    N2129 

'  N2280 

n 

Apr. 

1,  1915, 

'    N2281 

'  N2432 

ti 

Oct. 

1,  1915, 

N2433 

'  N2584 

(t 

Apr. 

1,  1916, 

'    N2585 

'  N2736 

ii 

Oct. 

1,  1916, 

N2737 

'  N2888 

tt 

Apr. 

1,  1917, 

N2889  '  N3040 

Oct. 

1,  1917. 

Said  notes  represent  the  obligation  of  Erie  Eailroad  Company  to 
pay  the  purchase  price  of  certain  equipment  and  are  issued  under 
and  all  equally  secured  by,  the  provisions  of  the  certain  indenture  of 
lease  and  conditional  sale  agreement  dated  First  day  of  October,  1907, 
made  between  Erie  Eailroad  Company,  Columbia  Trust  Company, 
as  Trustee,  and  American  Car  and  Foundry  Company,  in  which  said 
equipment  is  fully  described  and  by  the  terms  of  which  the  title  to  all 
of  said  equipment  is  retained  and  held  by  Columbia  Trust  Company 
as  Trustee  for  the  equal  benefit  of  the  holders  of  said  equipment  notes 
and  until  full  payment  of  all  thereof,  and  of  the  interest  thereon. 

For  the  further  terms  and  conditions  of  the  said  indenture  of  lease 
and  conditional  sale  agreement,  and  the  rights  and  obligations  of  the 


CONDITIONAL   SALE    AGREEMENT  303 

said  parties  thereto  and  the  rights  of  the  several  note  holders, 
reference  is  hereby  made  to  the  said  agreement. 

This  note  shall  not  become  or  be  valid  or  obligatory  for  any  pur- 
pose until  the  certificate  endorsed  hereon  has  been  duly  signed  by 
Columbia  Trust  Company,  Trustee  under  said  agreement. 

In  witness  whereof,  ERIE  RAILROAD  COMPANY  has  caused  its  cor- 
porate name  to  be  hereunto  subscribed  by  its  Vice-President  and  its 
corporate  seal  to  be  hereunto  affixed  and  attested  by  its  Secretary,  and 
coupons  for  interest,  bearing  the  engraved  or  lithographed  fac-simile 
of  the  signature  of  its  Treasurer,  to  be  hereto  attached,  as  of  the  first 
day  of  October,  1907. 

ERIE  RAILROAD  COMPANY 
By 


Vice-President. 
Attest: 


Secretary 

Each  of  the  said  coupons  appertaining  to  said  notes  shall  represent 
interest  for  a  period  of  six  months  and  shall  be  in  substantially  the 
following  form : 

No.  N                         (Form  of  Coupon.)                         $25.00 
On  the  first  day  of 

ERIE  RAILROAD  COMPANY 

Will  pay  to  bearer,  at  the  office  of  First  National  Bank  of  New 
York,  in  Manhattan  Borough,  New  York  City,  Twenty-five 
Dollars  in  gold  coin  of  the  United  States,  of  the  present  stand- 
ard of  weight  and  fineness,  or  its  equivalent — being  interest 
then  due  on  its  equipment  note,  Series  N,  No.  , 

subject  to  all  the  conditions  stated  in  the  said  note  and  in  the 
indenture  of  lease  and  conditional  sale  agreement  dated  Oc- 
tober 1,  1907,  therein  referred  to. 

TREASURER. 

The  Certificate  of  the  Trustee  to  be  endorsed  on  each  of  said  notes 
shall  be  in  substantially  the  following  form : 


304         MATERIALS   OF   CORPORATION   FINANCE 

(Form  of  Trustee's  Certificate.) 

This  note  is  one  of  the  series  of  notes  specified  in  and  issued 
under  the  provisions  of  the  indenture  of  lease  and  conditional 
sale  agreement  therein  referred  to,  bearing  date  October  1, 
1907. 

COLUMBIA  TRUST  COMPANY, 

Trustee. 

By ...., 

Trust  Officer. 

[Officers  who  may  execute  the  notes.  See  J.  &  L.  S.  Co.,  Art.  1; 
Sec.  4,  p.  200.] 

[Attached  coupons  must  contain  fac-simile  signature  of  present  or 
future  treasurer.  See  J.  &  L.  S.  Co.,  Art.  1,  Sec.  4,  p.  200.] 

All  interest  on  each  and  every  of  said  notes  shall  cease  after  the 
principal  thereof  shall  have  become  due  unless  the  Railroad  shall, 
after  demand,  fail  to  pay  the  principal  thereof,  together  with  interest 
in  full  to  date  of  maturity  of  principal. 

The  Railroad  shall  not  execute  nor  shall  the  Trustee  certify  and 
deliver  equipment  notes  issued  hereunder  in  excess  of  the  aggregate 
principal  sum  of  Three  Million  and  Forty  Thousand  Dollars  ($3,- 
040,000)  at  any  one  time  outstanding. 

Only  such  of  said  notes  as  shall  bear  thereon  a  certificate  sub- 
stantially in  the  form  hereinbefore  recited,  duly  executed  by  the  Trus- 
tee, shall  be  entitled  to  any  benefit  or  right  hereunder. 

[Temporary  bonds.    See  J.  &  L.  S.  Co.,  Art.  1,  Sec.  8,  p.  202.] 

[Bonds  lost,  mutilated,  or  destroyed.  See  J.  &  L.  S.  Co.,  Art.  1, 
Sec.  7,  p.  201.] 

III. — The  Car  Company  agrees  to  make  deliveries  of  the  trust 
equipment  in  lots  (as  near  as  may  be)  of  one  hundred  (100)  cars 
each,  beginning  in  October,  1907,  and  continuing  in  like  manner  until 
the  entire  trust  equipment  shall  have  been  delivered  (which  shall  not 
be  later  than  January  31,  1908) — the  Car  Company's  obligation  with 
respect  to  deliveries,  however,  being  made  expressly  subject  to  delays 
caused  by  accidents,  strikes,  fires  or  other  cause  or  causes  beyond  the 
control  of  itself  or  of  its  sub-contractors. 


CONDITIONAL   SALE   AGREEMENT  305 

The  Car  Company  agrees  also  that  from  October  1,  1907,  and  until 
the  dates  of  actual  deliveries  of  the  trust  equipment,  it  will  pay  to 
the  Railroad  a  sum  equivalent  to  the  interest  on  such  of  the  equip- 
ment notes  as  shall  represent  the  unpaid  part  of  the  purchase  price 
of  the  equipment  not  theretofore  delivered — such  payment  to  be  made 
on  the  adjustment  provided  for  in  paragraph  V  hereof. 

IV. — The  Railroad  agrees  that  it  will  keep  an  inspector  at  the  sev- 
eral works  of  the  Car  Company  in  which  the  trust  equipment  shall  be 
constructed,  for  the  purpose  of  inspecting  the  construction  thereof, 
which  said  inspector  shall,  as  and  when  the  cars  comprising  the  trust 
equipment  are  from  time  to  time  completed  in  accordance  with  the 
specifications  and  the  provisions  of  this  agreement,  sign  and  deliver  to 
the  Car  Company  a  certificate  that  the  same  have  been  inspected  and 
accepted  by  him — which  said  certificate  shall  be  taken  at  all  times 
and  in  all  places  as  final  and  conclusive  evidence  that  the  cars  covered 
by  the  said  certificates  are  constructed  in  accordance  with  the  pro- 
visions of  the  specifications  and  of  this  agreement  relating  thereto. 
And  no  cars  shall  be  accepted  by  the  Trustee  under  this  agreement 
until  such  cars  shall  have  been  so  inspected  and  accepted  by  the  in- 
spector of  the  Railroad. 

V. — The  Railroad  agrees  that  upon  delivery  of  each  one  hundred 
(100)  cars  of  the  trust  equipment,  and  from  time  to  time  as  the  same 
are  delivered,  it  will  execute  and  deliver  to  the  Car  Company  a  cer- 
tificate showing  the  number  (in  every  case  100  or  a  multiple  thereof) 
of  the  cars  so  delivered  and  the  road  numbers  thereof. 

Such  certificate  shall  be  taken  and  acted  on  by  the  Trustee  as  con- 
clusive evidence  of  its  right  to  certify  and  issue  the  equipment  notes 
of  the  Railroad  provided  for  by  this  agreement ;  and  upon  presentation 
of  any  such  certificate  or  certificates  to  the  Trustee,  it  shall  thereupon 
certify  and  deliver  to  the  Car  Company  in  respect  to  each  lot  of  one 
hundred  (100)  cars  the  equipment  notes  of  the  Railroad  of  the  face 
value  of  One  Hundred  and  One  Thousand  Dollars  ($101,000). 

Any  balance  of  the  equipment  notes  not  theretofore  paid  or  deliv- 
ered shall  be  adjusted  upon  the  delivery  to  the  Trustee  of  the  cer- 
tificate of  the  Railroad  respecting  the  last  lot  of  cars  delivered  here- 
under.  And  as  soon  as  may  be  after  such  last  delivery  the  Railroad 
and  the  Car  Company  shall  account  together  respecting  the  allowance 
of  interest  that  may  be  due  from  the  Car  Company  to  the  Railroad 
under  the  provisions  of  paragraph  III  hereof. 

VI. — [All  parties  agree  that  Railroad  is  entitled  to  use  and  pot- 
session  of  equipment.] 


306         MATEEIALS   OF   COEPOEATION   FINANCE 

Prior  to  or  upon  the  delivery  of  the  trust  equipment  to  the  Eailroad 
a  metal  plate  bearing  the  words  "Columbia  Trust  Company,  Trustee, 
owner,"  in  plain  letters  shall  be  permanently  and  securely  placed  and 
fastened  upon  each  side  of  every  of  the  cars  comprising  the  trust 
equipment,  in  such  manner  as  to  render  such  plates  readily  visible 
and  so  as  to  indicate  plainly  the  ownership  of  said  equipment.  In 
case  any  of  such  plates  shall  at  any  time  be  removed,  defaced  or  de- 
stroyed, the  Eailroad  shall  and  will  immediately  restore  and  replace 
the  same,  so  that  each  and  every  of  the  cars  comprising  the  trust 
equipment,  and  each  and  every  of  the  cars  replacing  the  same,  shall 
always  be  marked  as  above  provided  on  both  sides  thereof  with  the 
name  Columbia  Trust  Company,  Trustee,  owner;  and  the  Eailroad 
shall  and  will  do  all  such  other  things  as  shall  be  reasonably  necessary 
and  expedient  for  the  full  protection  of  the  Trustee  as  the  owner  of 
the  trust  equipment  and  for  the  full  and  complete  protection  of  the 
holders  of  the  equipment  notes. 

The  Eailroad  Company  shall  not  during  the  life  of  this  agreement 
allow  the  name  of  any  person,  association  or  corporation  to  be  placed 
upon  any  of  said  trust  equipment  as  a  designation  which  might  be 
interpreted  as  a  claim  of  ownership  by  the  Eailroad,  or  by  any  one 
other  than  the  Trustee,  provided,  however,  that  the  Bailroad  may 
cause  the  cars  comprising  the  trust  equipment  and  each  of  them  to  be 
lettered  "Erie/'  for  convenience  of  identification  of  its  lessee  interest 
therein  and  its  right  to  the  use  thereof. 

VII. — The  Eailroad  agrees  that  it  shall  and  will  at  all  times  keep 
all  of  said  trust  equipment,  and  any  equipment  that  may  be  used  to 
replace  any  part  thereof,  in  proper  order  and  complete  repair,  and  at 
all  times  in  good  working  condition;  all  repairs  and  maintenance  to 
be  done  to  the  satisfaction  of  the  Trustee  by  and  at  the  expense  of  the 
Eailroad.  The  Eailroad  shall  and  will  renew  and  replace  from  time 
to  time  such  of  the  trust  equipment  as  may  be  worn  out,  lost  or  de- 
stroyed, so  that  the  number,  character  and  capacity  thereof  shall 
always  be  maintained,  the  title  to  all  new  equipment  procured  for  such 
renewing  and  replacing  to  be  taken  in  the  name  of  the  Trustee — pro- 
vided, however,  that  the  Eailroad  may  at  its  option,  instead  of  re- 
placing any  of  said  cars  which  may  be  worn  out,  lost  or  destroyed,  pay 
to  the  Trustee  the  sum  of  One  Thousand  Thirteen  and  33/100  Dol- 
lars ($1,013.33)  for  each  car  so  worn  out,  lost  or  destroyed — all  such 
money  to  be  paid  within  a  reasonable  time  after  such  wearing  out, 
loss  or  destruction,  and  to  be  held  by  the  Trustee  until  all  the  pay- 
ments provided  for  hereunder  have  been  made  by  the  Eailroad  after 
default  or  otherwise.  Thereupon  all  such  money  and  the  interest 


CONDITIONAL   SALE   AGREEMENT  307 

thereon  shall  be  turned  over  to  the  Railroad  and  the  Trustee  agrees  to 
pay  the  Railroad  interest  thereon  at  a  reasonable  rate,  not  less  than 
the  highest  rate  paid  general  depositors  of  the  Trustee — said  interest 
to  be  retained  by  the  Trustee,  its  successors  or  assigns,  until  all  the 
payments  provided  for  herein  have  been  made  by  the  railroad.  All 
such  new  equipment  shall  be  immediately  subject  to  all  the  terms  and 
conditions  of  this  Indenture  in  all  respects  as  though  it  had  been 
part  of  the  original  equipment  hereby  leased,  so  that  the  equipment 
aforesaid  shall  at  all  times,  during  the  life  of  this  Indenture,  be 
undiminished  in  amount  and  value,  except  so  far  as  the  same  may  be 
affected  by  the  natural  use  and  wear  thereof.  All  new  equipment 
purchased  or  procured  to  replace  equipment  worn  out,  lost  or  de- 
stroyed, shall  be  of  substantially  the  same  quality  and  character  as  the 
original  trust  equipment,  or  of  such  quality  or  character  as  the  Trus- 
tee may  approve,  and  shall  bear  the  same  numbers  and  be  lettered 
as  the  equipment  thereby  replaced,  or  by  altered  lettering  and  num- 
bers if  consented  to  by  the  Car  Company  and  the  Trustee.  The  Rail- 
road shall,  if  required  by  the  Trustee,  once  in  every  year  during  the 
term  of  this  Indenture,  furnish  a  full  and  complete  statement  of  the 
trust  equipment  covered  hereby  and  its  whereabouts  as  near  as  may 
be,  and  of  the  number  and  description  of  the  cars  comprising  the 
trust  equipment  as  may  have  been  destroyed  and  replaced  by  others, 
the  number  of  those  repaired  during  the  preceding  year  and  the  num- 
ber of  those  at  the  date  of  such  statement  undergoing  repair  or  in  the 
shops  for  repair,  and  shall  annually,  if  requested  by  the  Trustee,  allow 
its  agents  to  make  full  inspection  of  the  same,  and  shall  furnish  all 
reasonable  facilities  to  the  agents  of  the  Trustee  for  making  such  in- 
spection. 

If  the  Railroad  shall  receive  from,  or  if  there  shall  be  paid  by, 
foreign  lines  of  railroad  or  other  persons  or  corporations  moneys  on 
account  of  the  loss  or  destruction  of,  or  damage  suffered  by,  any  of 
the  trust  equipment,  the  same  shall  be  forthwith  applied  by  the  Rail- 
road to  the  replacement  or  repair  of  the  trust  equipment  so  lost,  dam- 
aged or  destroyed. 

VIII. — The  Railroad  agrees  that  it  will  not  assign  or  transfer  this 
Indenture,  or  transfer  or  sublet  the  trust  equipment,  or  any  part  there- 
of, without  the  written  consent  of  the  Trustee  first  had  and  obtained, 
and  the  Railroad  shall  not  without  such  written  consent  part  with  the 
possession  of,  or  suffer  or  allow  any  of  such  trust  equipment  to  pass 
out  of  its  possession  or  control  except  in  the  ordinary  and  usual  in- 
terchange of  traffic.  In  the  event  of  the  appointment  of  a  Receiver 
of  the  property  of  the  Railroad,  and  provided  the  Railroad  shall  have 


308         MATERIALS    OF   CORPORATION   FINANCE 

fully  complied  with  and  observed  each  and  every  of  the  terms,  condi- 
tions and  provisions  of  this  agreement  by  it  to  be  complied  with  and 
observed  and  shall  not  be  in  default  in  the  performance  of  any  of  its 
obligations  hereunder,  such  Receiver  shall  have  the  right  to  retain' 
possession  of  the  trust  equipment  so  long  as  he  shall  comply  in 
the  place  and  stead  of  the  Railroad  with  the  provisions  of  this 
agreement,  and  he  shall  during  such  time  be  entitled  to  the  benefit 
thereof. 

The  Railroad  shall,  during  the  term  of  this  Indenture,  pay  prompt- 
ly as  and  when  due  all  taxes,  licenses,  assessments  and  charges  of  every 
kind  that  may  be  assessed,  rated,  levied,  charged  or  made  upon  any  of 
the  trust  equipment,  or  against  any  person,  as  owner  thereof,  while 
such  equipment  is  in  the  possession  and  control  of  the  Railroad,  pro- 
vided, however,  that  the  Railroad  shall  have  the  right  to  contest  by 
legal  proceedings  any  such  tax  assessment  or  charge,  and  pending  such 
contest  may  delay  payment  thereof  provided  it  shall,  if  requested,  in- 
demnify the  Trustee  to  its  (the  Trustee's)  satisfaction  with  respect 
thereto.  In  case  the  Railroad  shall  neglect  to  pay  such  licenses,  taxes, 
assessments  or  charges,  the  Trustee  may  pay  the  same,  but  shall  not 
be  required  to  do  so;  and  the  Trustee  shall,  upon  the  Railroad's  re- 
quest and  upon  being  indemnified  to  its  satisfaction  in  connection 
therewith,  refrain  from  making  any  such  payment.  In  the  event  and 
so  often  as  the  Trustee  shall  make  such  payments  the  Railroad  shall 
and  will  repay  any  and  all  amounts  so  paid,  with  interest  at  six  per 
cent,  per  annum  from  the  time  of  payment ;  and  until  such  repayment, 
which  is  hereby  expressly  made  one  of  the  obligations  to  be  performed 
before  title  to  the  trust  equipment  shall  vest  in  the  Railroad,  the  title 
to  the  trust  equipment  shall  remain  in  the  Trustee,  notwithstanding 
the  payment  of  all  the  equipment  notes  and  other  payments  to  be 
made  by  the  Railroad  hereunder. 

The  Trustee  shall,  in  addition  to  all  other  rights  hereunder,  have 
the  right  to  recover  from  the  Railroad,  with  interest  as  aforesaid,  any 
and  all  amounts  paid  by  the  Trustee  under  this  or  the  preceding  para- 
graph hereof. 

The  Railroad  shall  not  sell,  assign,  transfer,  sublet,  pledge  or 
encumber,  unless  subject  to  this  indenture,  the  trust  equipment  or  any 
part  thereof,  but  may  pledge  or  otherwise  dispose  of  its  equity  therein. 

IX. — The  Railroad  agrees  with  regard  to  the  trust  equipment  to 
comply  in  all  respects  with  all  Acts  of  Congress,  and  with  the  laws  of 
the  United  States  and  of  the  States  of  New  York,  Pennsylvania,  New 
Jersey,  Ohio,  Indiana  and  Illinois,  and  of  all  other  States  and  Terrir 
tories  in  which  the  trust  equipment  may  be  operated  in  the  ordinary 


CONDITIONAL   SALE   AGREEMENT  309 

course  of  business,  and  with  the  lawful  rules  of  the  Interstate  Com- 
merce Commission,  and  with  all  lawful  acts,  rules,  regulations  and  di- 
rections of  any  municipal  assembly,  council  or  other  legislative,  execu- 
tive, administrative  or  judicial  body  or  officer,  exercising  any  power, 
regulation  or  supervision  over  any  part  of  the  trust  equipment,  in- 
cluding all  laws  and  rules  relating  to  automatic  coupling  devices  or 
attachments,  air  brakes  and  other  appliances  as  may  be  provided  by 
Act  of  Congress  or  any  legal  body  or  officer  of  competent  jurisdiction 
in  the  premises ;  or  failing  such  compliance  shall  indemnify  the  trus- 
tee to  its  (the  trustee's)  satisfaction  and  save  it  (the  trustee)  harm- 
less from  any  and  all  damage  and  expense  that  may  accrue  to  or  be 
incurred  by  the  trustee  because  of  such  failure  of  compliance  by  the 
railroad.  The  Railroad  may,  in  good  faith,  contest  the  application  of 
any  such  law,  regulation  or  order  to  or  upon  the  trust  equipment  as 
aforesaid,  or  any  part  thereof,  in  any  reasonable  manner  which  shall 
not  affect  the  title  of  the  Trustee  in  and  to  said  equipment. 

X. — [The  Car  Company  agrees  to  protect  the  Trustee  against  all 
claims  for  infringement  of  patents.] 

XI. — [Notes  and  coupons  shall  be  paid  at  maturity  and  cancelled.] 

XII. — The  Railroad  covenants  and  agrees  to  make,  execute  and 
deliver  from  time  to  time  all  such  further  or  supplemental  agree- 
ments, deeds  or  other  instruments  as  may  by  the  Car  Company  or  the 
Trustee,  or  their  respective  counsel,  be  deemed  advisable,  necessary  or 
expedient,  to  effectually  protect  and  enforce  the  Trustee's  rights  here- 
under  and  to  protect  its  title  to  said  equipment  or  to  such  equipment 
as  may  be  at  any  time  hereafter  procured  to  replace  any  of  the  equip- 
ment which  may  become  worn  out,  lost  or  destroyed.  In  case  the 
Railroad  shall  wish  to  change  any  of  the  serial  numbers  of  the  cars 
composing  such  equipment,  or  in  case  the  Railroad  shall  wish  a 
change  in  the  quality,  quantity,  character  or  serial  numbers  of  any  of 
the  cars  used  to  replace  any  of  such  equipment  worn  out,  lost  or  de- 
stroyed, and  the  Car  Company  and  the  Trustee  shall  consent  thereto 
in  writing  as  hereinabove  provided  for,  the  Railroad,  if  requested 
thereunto  by  the  Car  Company  and  the  Trustee  (both  or  either),  and 
if  the  same  be  feasible,  will  at  its  own  expense  endorse  upon,  annex 
to  or  file  with  the  record,  counterpart  or  copy  of  this  Agreement  in 
every  place  or  office  in  which  the  same  has  been  recorded,  registered 
or  filed  pursuant  to  law,  a  statement  or  other  instrument  concerning 
such  change  in  form  satisfactory  to  the  Car  Company  and  the  Trus- 
tee. If  the  change  is  in  the  serial  numbers  of  the  cars  composing 
the  original  equipment  delivered  hereunder,  the  statement  or  other 


310         MATERIALS    OF   CORPORATION    FINANCE 

instrument  shall  set  forth  the  old  and  the  new  numbers  of  those 
whereof  a  change  in  serial  numbers  has  been  effected ;  or  if  the  change 
is  in  respect  of  equipment  procured  to  replace  any  of  the  original 
equipment  delivered  hereunder,  the  statement  or  other  instrument 
shall  describe  the  quality,  character  and  numbers  of  such  new  equip- 
ment, and  also  of  the  equipment  which  is  replaced  thereby,  and  shall 
set  forth  that  said  new  equipment  is  delivered,  and  that  title  thereto 
is  held  by  the  Trustee  in  all  respects  and  for  all  purposes,  as  if  said 
new  equipment  had  been  part  of  the  original  equipment  delivered 
hereunder;  and  the  Railroad  will  make,  execute  and  deliver  any  and 
all  other  instruments,  and  will  do  any  and  all  other  things  deemed 
necessary,  proper  or  expedient  by  the  Car  Company  and  the  Trustee 
in  respect  of  the  premises. 

And  it  is  further  covenanted  and  agreed  by  and  between  the  par- 
ties: 

XIII. — That  upon  payment  by  the  Railroad  of  all  of  the  equip- 
ment notes  in  full,  together  with  the  interest  thereon,  in  the  manner 
and  form  herein  and  therein  provided,  and  upon  performance  by  the 
Railroad  of  all  the  covenants,  obligations  and  agreements  herein  con- 
tained and  by  it  to  be  performed,  the  title  to  the  trust  equipment  shall 
pass  to  and  vest  in  the  Railroad;  and  the  Trustee  will  thereupon 
execute,  at  the  expense  of  the  Railroad,  any  bill  of  sale  or  other  in- 
strument which  may  be  reasonably  required  by  the  Railroad,  as  evi- 
dence of  its  title  to  said  equipment  and  of  its  compliance  with  the 
terms  of  this  agreement  and  as  evidence  that  the  absolute  ownership 
of  said  trust  equipment  is  vested  in  the  Railroad,  its  successors  and 
assigns.  Until  payment  in  full,  however,  of  all  said  equipment  notes 
and  interest  thereon,  and  the  performance  of  all  the  obligations  and 
covenants  on  the  part  of  the  Railroad  hereunder,  all  and  singular  the 
trust  equipment  shall  remain  the  absolute  property  of,  and  the  title 
thereto  shall  continue  to  be  vested  in,  the  Trustee,  as  owner  thereof, 
to  all  intents  and  purposes  whatsoever,  but  subject  to  the  Railroad's 
lessee  interest  therein  under  this  agreement. 

XIV. — The  Railroad  shall  be  entitled  to  the  possession  of  the  trust 
equipment  at  all  times  during  the  life  of  this  agreement  so  long  as  it 
shall  observe  the  conditions  and  obligations  hereof;  but  (1)  in  case 
default  shall  be  made  by  the  Railroad  in  the  payment  of  the  principal 
of  any  of  the  equipment  notes  issued  hereunder,  or  of  any  interest 
coupon,  as  and  when  the  same  may  be  due  and  payable,  and  upon  such 
default  continuing  for  a  period  of  thirty  days;  or  (2)  in  case  default 
shall  be  made  in  the  due  observance  or  performance  of 
any  other  of  the  terms,  provisions,  covenants,  conditions  or 


CONDITIONAL   SALE   AGREEMENT  311 

obligations  of  this  agreement,  and  upon  such  default  continu- 
ing for  thirty  days  after  notice  in  writing  by  the  Trustee  requiring  the 
Railroad  to  comply  therewith  (which  notice  the  Trustee  shall  serve 
at  the  request  of  the  holders  of  at  least  one-fourth  in  amount  of  the 
equipment  notes  outstanding),  the  Trustee  shall  be  entitled  to  and 
may,  at  its  option,  retake  the  trust  equipment  and  every  part  thereof, 
retaining  all  payments  which  up  to  that  time  may  have  been  made 
on  account  of  such  equipment  (principal  and  interest) ;  and  for  the 
purpose  of  taking  such  possession,  the  Trustee  shall  be  entitled  to 
enter  upon  and  take  and  remove  all  said  equipment  (including  all 
substitutions  therein  and  additions  thereto)  from  the  premises  of  the 
Railroad  or  wherever  the  same  may  be  found;  and  the  Railroad  will 
afford  the  Trustee  every  possible  facility  and  means  of  assistance  to 
such  end.  And  the  Railroad  agrees  that  in  the  event  of  any  default 
continuing  as  aforesaid,  it  will  upon  written  demand  by  the  Trustee 
and  as  promptly  as  possible,  deliver  to  the  Trustee,  without  cost  or 
charge,  each  and  every  piece  of  said  trust  equipment,  at  such  place  or 
places  upon  the  lines  of  the  Railroad  as  the  Trustee  shall  require. 
The  Trustee  shall,  upon  application  to  any  court  of  equity  having 
jurisdiction  in  the  premises,  be  entitled  to  a  decree  against  the  Rail- 
road, requiring  specific  performance  hereof. 

Upon  such  notice  by  the  Trustee  requiring  redelivery  to  it  of  the 
trust  equipment,  and  within  thirty  days  after  the  receipt  of  such 
notice,  the  Railroad  shall  have  the  right  (but  without  impairment  of, 
or  delay  to,  the  Trustee's  right  to  retake  possession  of  the  trust  equip- 
ment) upon  payment  by  it  of  all  outstanding  notes  and  of  the  accrued 
interest  thereon  to  date  of  such  payment,  and  of  all  other  sums  which 
it  is  obligated  to  pay  hereunder,  to  have  redelivered  to  it  (at  its  ex- 
pense) such  of  the  trust  equipment  as  may,  at  the  time  of  such  pay- 
ment, have  been  retaken  by  the  Trustee  under  the  preceding  pro- 
visions hereof;  and  thereupon  the  title  to  the  trust  equipment  shall 
pass  to  and  vest  in  the  Railroad ;  and  the  Trustee  will  thereupon  ex- 
ecute, at  the  Railroad's  expense,  any  bill  of  sale  or  other  instrument 
that  may  be  reasonably  required  by  the  Railroad  as  evidence  of 
its  title  to  such  trust  equipment,  and  shall  return  to  the  Railroad 
the  sum  deposited  by  the  Railroad  with  the  Trustee  on  account 
of  the  cars  lost,  worn  out  or  destroyed,  together  with  any  interest 
thereon. 

[Upon  such  election  by  the  Trustee  to  retake  the  trust  equipment, 
the  then  outstanding  notes  and  accrued  interest  may  by  the  Trustee 
be  declared  due  and  payable  upon  a  written  request  of  the  majority 
of  the  noteholders.] 


[Upon  such  election,  the  Trustee  may,  upon  ten  days'  notice  to  the 
Railroad,  sell  the  trust  equipment  and  use  the  proceeds  to  liquidate 
expenses,  notes  and  interest.  If  there  is  deficiency  the  Eailroad  agrees 
to  pay  it;  if  surplus  it  will  be  returned  to  the  Eailroad.] 

[Detached  coupons  deferred  in  payment.  See  J.  &  L.  S.  Co.,  Art. 
5,  Sec.  2,  p.  225.] 

[Trustee  may  institute  legal  proceedings.  See  J.  &  L.  S.  Co.,  Art. 
5,  Sec.  5,  p.  227.] 

[Remedies  cumulative.    See  J.  &  L.  S.  Co.,  Art.  5,  Sec.  19,  p.  234.] 

[Waiver  of  stay,  appraisement,  extension,  and  redemption  law. 
See  J.  &  L.  S.  Co.,  Art.  5,  Sec.  16,  p.  233.] 

[Seventy-five  per  cent,  of  noteholders  to  control  certain  proceedings. 
See  J.  &  L.  S.  Co.,  Art.  5,  Sec.  6,  p.  228.] 

[Trustee  and  noteholders  may  bid.  Purchaser  permitted  to  apply 
notes  and  matured  coupons.  See  J.  &  L.  S.  Co.,  Art.  5,  Sec.  14,  p. 
231.] 

[Principal  to  become  due  on  sale.  See  J.  &  L.  S.  Co.,  Art.  5,  Sec. 
12,  p.  230.] 

XV. — [Trustee  not  responsible  for  delay  in  delivery  of  equipment, 
not  responsible  for  any  defects  or  damage  to  equipment,  responsible 
only  for  its  own  negligence,  misconduct  or  bad  faith,  not  respon- 
sible for  recording,  filing,  etc.,  entitled  to  reasonable  expenses,  not 
responsible  for  recitals,  may  act  on  any  instrument  considered  genu- 
ine. See  J.  &  L.  S.  Co.,  Art.  10,  Sec.  1,  pp.  240-3.] 

XVI. — [Notices  must  be  made  to  the  Railroad  in  registered  let- 
ters.] 

XVII. — [Trustee  may  resign.  Appointment  of  new  trustee.  See 
J.  &  L.  S.  Co.,  Art.  10,  Sec.  2,  p.  245.] 

XVIII. — [Bearer  of  note  and  interest  coupon  treated  as  owner. 
See  J.  &  L.  S.  Co.,  Art.  1,  Sec.  6,  p.  201.] 

XIX. — [Definition  of  terms.  See  J.  &  L.  S.  Co.,  Art.  11,  Sec.  5, 
p.  250.] 

XX. — [The  agreement  shall  exist  until  all  obligations  thereunder 
are  fulfilled.] 

XXI. — [Execution  in  counterparts.  See  J.  &  L.  S.  Co.,  Art.  11, 
Sec.  7,  p.  250.] 

[Testimonium.    See  J.  &  L.  S.  Co.,  Art.  12,  p.  251.] 
[Acknowledgments.    See  J.  &  L.  S.  Co.,  Art.  12,  pp.  252-4.] 


EQUIPMENT   TRUST   AGEEEMENT  313 


AGREEMENT  BETWEEN  STANDARD  STEEL  CAR  COM- 
PANY AND  BANKERS  TRUST  COMPANY  AND  ERIE 
RAILROAD 

This  agreement,  made  in  triplicate  this  first  day  of  July,  One  Thou- 
sand Nine  Hundred  and  Seven,  between  the  Standard  Steel  Car  Com- 
pany, of  the  first  part,  Bankers  Trust  Company,  a  corporation  of  the 
State  of  New  York,  hereinafter  called  the  Trustee,  of  the  second  part, 
and  the  Erie  Railroad  Company,  hereinafter  called  the  Railroad  Com- 
pany, of  the  third  part. 

WlTNESSETH  : 

WHEREAS,  by  Indenture  of  Lease  x  bearing  date  the  first  day  of 
July,  1907,  the  said  Standard  Steel  Car  Company  did  lease  to  the 
Erie  Railroad  Company  certain  railroad  cars  therein  particularly  de- 
scribed for  a  certain  term  and  upon  rental  in  said  Indenture  of  Lease 
particularly  described,  and, 

WHEREAS,  the  Standard  Steel  Car  Company  has  secured  subscrip- 
tions to  the  amount  of  Two  Million  One  Hundred  and  Forty  Thou- 
sand Dollars  to  a  fund  to  be  known  as  the  "Erie  Railroad  Equipment 
Trust,  Series  "L,"  which  said  fund  is  to  be  applied  by  the  Standard 
Steel  Car  Company  to  the  payment  of  the  purchase  price  of  the  rail- 
road cars  particularly  mentioned  in  said  Indenture  of  Lease;  and 

WHEREAS,  the  said  Standard  Steel  Car  Company  proposes  to  secure 
to  the  parties  subscribing  to  said  fund  of  Two  Million  One  Hundred 
and  Forty  Thousand  Dollars  the  repayment  thereof  in  twenty  install' 
ments,  to  wit  :  In  twenty  semi-annual  payments  of  One  Hundred  and 
Seven  Thousand  Dollars  each,  beginning  January  first,  1908,  and  the 
final  payment  on  the  first  day  of  July,  1917,  with  interest  meanwhile 
at  the  rate  of  five  per  cent,  per  annum  from  July  first,  1907,  payable 
semi-annually  on  the  first  days  of  January  and  July  in  each  year,  pay- 
ments of  such  principal  and  interest  to  be  made  in  equal  half-yearly 
installments,  and  to  evidence  the  rights  of  the  subscribers  to  said  fund 
by  the  delivery  of  certificates  in  the  form  hereinafter  set  forth,  Now, 
THIS  AGREEMENT  WITNESSETH: 


*.—  That  the  said  Standard  Steel  Car  Company  hereby  assigns 
and  sets  over  to  the  Bankers  Trust  Company,  as  Trustee,  for  the  hold- 

»Thc  Lease  referred  to  is  almost  Identical  in  terms  with  the  Conditional 
Sale  Agreement  between  the  American  Car  and  Foundry  Company,  The 
Columbia  Trust  Comany  and  the  Erie  Railroad  (pp.  290-312),  and  for  that 


reason  is  not  annexe    hereto. 


314         MATERIALS    OF   CORPORATION    FINANCE 

ers  of  the  certificates  hereinafter  set  forth,  all  the  right,  title  and  in- 
terest of  the  said  Standard  Steel  Car  Company  in  and  to  said  railroad 
cars  leased,  as  aforesaid,  unto  the  said  Railroad  Company  and  as  well 
all  the  claims,  demands  and  remedies  of  the  said  Standard  Steel  Car 
Company  accruing  or  to  accrue  under  the  lease  aforesaid. 

The  Car  Company  also  hereby  assigns  and  sets  over  to  Bankers 
Trust  Company,  as  Trustee,  for  the  holders  of  the  bonds  hereinafter 
set  forth,  all  the  right,  title  and  interest  of  said  Car  Company  in  and 
to  the  above  described  lease  and  the  provision  thereof  with  respect : 

(a)  To  the  repayment  of  money  deposited  in  lieu  of  the  replace- 
ment of  cars  lost,  worn  out  or  destroyed,  and  payment  of  interest 
thereon;  and 

(b)  To  the  delivery  of  a  bill  of  sale  by  the  Lessor  on  the  termina- 
tion of  said  lease  and  on  the  delivery  to  the  Lessor  of  all  bonds  and 
coupons  issued  thereunder,  or  on  the  delivery  of  satisfactory  proof  that 
the  same  have  been  paid  and  cancelled,  the  Trustee  agrees  to  perform, 
it  being  understood  and  agreed,  however,  that  the  Trustee  neither 
incurs  nor  assumes  any  responsibility  for  the  delivery  of  railroad  cars 
by  the  Car  Company,  as  in  said  lease  provided. 

Second. — The  said  Trustee  covenants  and  agrees  that  it  will  certify 
and  deliver  to  the  Standard  Steel  Car  Company,  for  distribution  to 
the  several  subscribers  to  the  said  fund,  Two  Thousand  One  Hundred 
and  Forty  certificates,  to  be  furnished  to  said  Trustee  for  that  purpose, 
in  the  following  form,  and  in  the  amounts  of  One  Hundred  and  Seven 
Thousand  Dollars  ($107,000.00)  of  bonds  for  each  one  hundred  (100) 
cars  delivered,  at  the  times  corresponding  to  the  times  of  delivery  of 
the  various  lots  of  said  railroad  cars  by  the  said  Standard  Steel  Car 
Company  to  the  said  Erie  Railroad  Company;  such  delivery  of  cer- 
tificates to  be  made  by  the  Trustee  upon  the  delivery  by  the  Car  Com- 
pany of  certificate  signed  by  an  authorized  inspector  of  the  Erie  Rail- 
road Company  giving  the  numbers  of  the  cars  contained  in  that  de- 
livery and  certifying  to  the  inspection  and  acceptance  thereof,  and 
approved  by  the  President  or  a  Vice-President  of  the  Railroad  Com- 
pany and  accompanied  by  the  proper  bonds  or  certificates  to  be  certi- 
•fied  as  aforesaid,  and  also  a  bill  of  sale  to  the  Trustee  of  the  cars  so 
delivered,  said  bills  of  sale  to  be  subject,  however,  to  all  the  provisions 
of  this  agreement  and  the  Indenture  of  Lease  herein  referred  to;  and 
the  Standard  Steel  Car  Company  covenants  that  all  of  said  certificates 
when  and  as  issued  shall  be  entitled  to  the  security  of  all  such  railroad 
cars  previously  and  subsequently  delivered  by  said  Standard  Steel  Car 


EQUIPMENT   TRUST   AGREEMENT  315 

Company  to  the  said  Railroad  Company  under  the  terms  of  said  In- 
denture of  Lease  of  even  date  herewith;  and  said  certificates  and  cou- 
pons to  be  in  form  substantially  as  follows: 

UNITED    STATES   OF   AMERICA 

STATE  OF  NEW  YORK 
ERIE  RAILROAD  COMPANY. 

$1,000.  (No )  $1,000. 

Five  Per  Cent.  Gold  Car  Trust. 

Series  «L." 
Total  Issue  $2,140,000.00. 

The  Erie  Railroad  Company  hereby  acknowledges  itself  to  be  in- 
debted to  the  holder  hereof,  in  the  sum  of  One  Thousand  Dollars,  in 
gold  coin  of  the  United  States  of  America,  which  the  said  Railroad 
Company  promises  to  pay  to  the  holder  hereof,  at  the  office  of  the  said 
Railroad  Company,  in  the  City  of  New  York,  State  of  New  York,  on 

the  first  day  of ,  A.  D.  19. . . .,  with  interest 

thereon  at  the  rate  of  five  per  centum  per  annum,  payable  semi-an- 
nually  in  like  gold  coin,  on  the  first  days  of  January  and  of  July  in 
each  year,  as  the  same  shall  become  due  and  payable,  at  the  office  of 
the  said  Railroad  Company,  upon  delivery  of  the  proper  coupon  there- 
for. 

This  certificate  is  one  of  a  series  of  Two  Thousand  One  Hundred 
and  Forty  for  One  Thousand  Dollars  each,  numbered  from  1  to  2140, 
both  inclusive,  each  of  like  date,  tenor  and  effect,  except  as  to  the  due 
date  thereof,  issued  under  the  terms  of  a  lease  bearing  date  the  first 
day  of  July,  1907,  between  the  Standard  Steel  Car  Company  of  the 
one  part  and  the  Erie  Railroad  Company  of  the  other  part. 

The  obligation  hereof  shall  only  become  effective  when  the  certi- 
ficate of  the  Bankers  Trust  Company,  of  New  York,  Trustee,  is  hereon 
endorsed. 

IN  WITNESS  WHEREOF,  the  Erie  Railroad  Company  has  caused  its 
corporate  seal  to  be  hereunto  attached,  duly  attested,  this  first  day  of 
July,  1907. 

ERIE  RAILROAD  COMPANY, 

By 

Attest:  President. 

Secretary. 


316 


(TEUSTEE'S   CERTIFICATE.) 


Bankers  Trust  Company,  Trustee,  hereby  certifies  that  the  within 
certificate  is  one  of  an  issue  of  two  thousand  one  hundred  and  forty 
certificates  of  One  Thousand  Dollars  each,  known  as  the  Erie  Car 
Trust,  Series  "L,"  referred  to  in  the  within  mentioned  lease  bearing 
date  the  first  day  of  July,  1907,  made  by  Standard  Steel  Car  Com- 
pany to  the  Erie  Railroad  Company. 

BANKERS  TRUST  COMPANY,  Trustee, 

By 

Secretary. 

(FORM    OF    COUPON.) 

The  Erie  Railroad  Company  will  pay  to  the  bearer,  on  the  first  day 

of ,  at  its  office  in  the   City  of  New  York, 

twenty-five  dollars  in  gold  coin,  being  six  months  interest  on  Certi- 
ficate No of  the  Erie  Car  Trust,  Series  "L." 


Treasurer. 

The  signature  of  the  present  or  any  future  Treasurer  of  the  Erie 
Railroad  Company  lithographed  or  engraved  upon  said  coupons  shall 
be  regarded  and  treated  in  all  respects  as  equivalent  to  his  manual 
signature  thereon. 

The  said  certificate  shall  be  numbered  consecutively  from  No.  1  to 
No.  2140,  inclusive,  and  by  the  terms  thereof  the  principal  shall  be 
payable  as  follows : 

[The  numbers  of  the  certificates  and  their  dates  of  maturity  fol- 
lowed here.  See  Conditional  Sale  Agreement,  p.  302.] 

All  dividends  on  the  said  certificates  shall  cease  after  the  principal 
thereof  shall  have  become  due. 

Third. — As  all  of  the  bonds  to  be  executed  by  the  Railroad  Com- 
pany and  secured  by  said  Indenture  of  Lease  will  bear  date  the  first 
day  of  July,  1907,  and  the  interest  thereon,  represented  by  the  cou- 
pons attached  thereto,  will  date  from  the  first  day  of  July,  1907,  the 
Car  Company  agrees  to  pay  to  the  Railroad  Company,  in  cash,  such 
sums  as  may  represent  the  interest  which  may  accumulate  on  the  said 
bonds  from  July  1,  1907,  to  the  average  date  the  cars  referred  to  in 
the  Indenture  of  Lease  are  delivered ;  said  payment  of  interest  by  the 
Car  Company  to  the  Railroad  Company  to  become  due  and  payable 
immediately  following  the  delivery  of  the  last  of  the  said  cars. 


EQUIPMENT   TRUST   AGREEMENT  317 

Fourth. — The  Trustee,  as  assignee  of  the  said  Standard  Steel  Car 
Company,  Lessor,  further  covenants  to  perform  and,  so  far  as  pos- 
sible, to  enforce  the  performance  of  all  and  singular  the  terms,  con- 
ditions and  covenants  of  the  said  lease,  and  to  apply  and  distribute 
the  rentals  thereunder  when  and  as  the  same  shall  be  received,  for  the 
following  purposes,  to  wit : 

(a)  To  the  payment  of  any   taxes   upon   the    railroad  cars 
leased  which  it  may  be  required  to  pay. 

(b)  To  the  payment  of  the  dividend  warrants  attached  to  the 
said  certificates  when  and  as  the  same  shall  become  payable. 

(c)  To  the  payment  and  redemption  of  the  principal  of  the 
said  certificates  when  and  as  the  same  shall  become  payable.    The 

said  coupons  and  certificates  to  be  cancelled  upon  payment  thereof. 
Provided,  however,  that  the  Railroad  covenants  and  agrees  to  pay 
bonds  or  certificates  and  coupons  issued  under  said  lease  at  its  office 
in  accordance  with  the  terms  and  provisions  of  said  bonds  and  cou- 
pons and  of  this  instrument  and  of  said  lease,  and  such  payments 
shall  to  the  extent  thereof  be  satisfaction  of  the  rental  reserved  in 
said  lease  and  a  discharge  of  the  Trustee  from  all  obligation  to  re- 
quire the  payment  of  rentals  to  that  extent  and  to  apply  and  dis- 
tribute the  same. 

It  being  distinctly  understood  that  neither  the  said  Trustee  nor 
any  successor  in  the  trust  shall  be  liable  or  responsible  for  any  matter 
or  thing  connected  with  the  trust  intended  to  be  hereby  created  ex- 
cept for  its  own  or  their  own  willful  and  intentional  breach  thereof. 

Fifth. — The  Erie  Railroad  Company  becomes  a  party  hereto  in 
order  to  express  its  assent  to  the  assignment  of  the  said  lease  by 
the  said  Standard  Steel  Car  Company  to  the  said  Bankers  Trust 
Company,  as  Trustee,  for  the  benefit  of  the  subscribers  to  said  "Erie 
Railroad  Equipment  Trust,  Series  "L,"  and  does  hereby  accept  all 
the  terms  of  this  assignment,  including  the  obligation  to  make  pay- 
ment of  all  taxes  hereinabove  mentioned,  for  which  the  Trustee  may 
be  liable. 

Sixth. — It  is  further  herein  agreed  and  provided  that  in  case  the 
Railroad  Company  (a)  shall  at  any  time  make  default  in  the  pay- 
ment of  any  part  in  the  rental  in  said  lease  reserved  for  more  than 
thirty  days  after  the  same  shall  have  become  payable,  or  in  case 
(b)  the  Railroad  Company  shall  fail  to  keep  the  said  cars  in  good, 
and  serviceable  condition  or  to  perform  all  other  obligations  and 
covenants  in  said  lease  contained  to  be  performed,  on  its  part,  and 
such  last  mentioned  default  or  defaults  shall  have  continued  for  a 


318         MATERIALS    OF   CORPORATION   FINANCE 

period  of  thirty  days  after  written  notice  thereof  from  the  Trustee, 
then  and  in  each  and  every  case  of  default  as  aforesaid,  the  Trustee 
shall  have  the  right,  as  assignee  of  said  Car  Company,  to  enforce  all 
the  terms  and  stipulations  of  said  lease  subject  to  the  right  of  the 
Railroad  Company  to  exercise  its  option  of  purchase  as  therein  set 
out,  and  in  case  the  said  Trustee  shall  re-take  possession  of  the  said 
cars,  it  may  either  hold  or  lease,  or  dispose  of  said  cars  or  so  many 
thereof  as  it  may  deem  necessary  in  such  manner  at  public  or  private 
sale,  for  cash  or  upon  credit,  as  the  Trustee  may  deem  most  beneficial, 
and  the  proceeds  of  said  lease  or  sale,  together  with  all  moneys  in 
the  hands  of  the  Trustee  in  lieu  of  lost,  worn  out  or  destroyed  cars, 
and  any  unpaid  interest  thereon,  shall  be  applied  by  the  Trustee  to 
the  payment,  after  deducting  all  taxes  which  the  Trustee  may  by  law 
be  required  to  pay  in  respect  to  the  .railroad  cars  covered  by  the  said 
lease. 

(1)  of  the  dividend  warrants  then  due. 

(2)  of  the  principal  of  all  of  the  said  outstanding  certificates 
whether  the  same  shall  then  have  matured  by  their  terms  or  not,  in 
full,  if  such  proceeds  shall  be  sufficient,  and  if  not,  then  pro  rata. 

And  such  re-taking  possession  of  the  said  railroad  cars  by  the 
said  Trustee  shall  not  be  a  bar  to  the  recovery  by  the  Trustee  from 
the  Railroad  Company  for  future  accruing  rent  until  such  sum  is 
realized  as,  with  the  proceeds  of  the  sale  of  said  cars,  is  sufficient 
for  the  payment  in  full  of  all  taxes  aforesaid,  together  with  all  ac- 
crued interest  warrants  and  the  principal  of  all  of  the  said  certifi- 
cates. 

The  Trustee  assumes  no  liability,  however,  saving  for  its  own  will- 
ful or  gross  neglect ;  for  the  neglect  of  its  agents  it  assumes  no  such 
liability.  It  shall  undertake  no  active  duty,  however,  in  the  way  of 
taking  care  of,  or  taking  possession  of,  equipment,  until  fully  secured 
from  all  liability.  No  duty  of  insurance  or  of  recording  or  of  taking 
care  of  any  of  the  Trust  property  is  encumbent  upon  it. 

Seventh. — [Temporary  bonds.  See  Jones  and  Laughlin  Steel  Com- 
pany Corporate  Mortgage,  Art.  1,  Sec.  8,  p.  202 ;  this  mortgage  is  here- 
inafter referred  to  thus :  J.  &  L.  S.  Co.,  Art.  — ,  Sec.  —  p. — ] 

Eighth. — [Trustee  entitled  to  reasonable  compensation  and  pro- 
tection from  liability.  See  J.  &  L.  S.  Co.,  Art.  10,  Sec.  1,  pp.  240-3.] 

Ninth. — [The  Car  Company  agrees  to  protect  the  Trustee  against 
all  claims  for  infringement  of  patents.] 


EQUIPMENT  TRUST  AGREEMENT  319 

Tenth. — [Execution  in  counterparts.  See  J.  &  L.  S.  Co.,  Art.  11, 
Sec.  7,  p.  250.] 

The  parties  hereto  hereby  respectively  constitute  and  appoint  the 
person  set  opposite  their  names  to  be  their  respective  attorneys  for 
and  in  their  names  and  as  and  for  their  corporate  acts  and  deeds  to 
acknowledge  this  agreement  before  any  person  having  authority  by 
the  laws  of  the  Commonwealth  of  Pennsylvania  to  take  such  acknowl- 
edgments to  the  intent  that  the  same  may  be  duly  recorded,  to  wit: 

The  Car  Company  appoints  J.  M.  Hansen. 
The  Trustee  appoints  J.  F.  Thompson. 
The  Railroad  Company  appoints  G.  A.  Richardson. 
[Testimonium.    See  J.  &  L.  S.  Co.,  Art.  12,  p.  251.] 


320         MATERIALS    OF   CORPORATION   FINANCE 


ILLUSTRATION     OF     THE     METHOD     OF    REFUNDING 
WITH  THE  AID  OF  A  BANKER1 

TO    THE    HOLDERS    OF 

TOLEDO   TRACTION    COMPANY 
Consolidated  First  Mortgage  Bonds,  Due  January  1,  1912 

TOLEDO  CONSOLIDATED  STREET  RAILWAY  COMPANY 
Consolidated  First  Mortgage  Bonds,  Due  January  1,  1912 

TOLEDO  ELECTRIC  STREET  RAILWAY  COMPANY 
First  Mortgage  Bonds,  Due  February  1,  1912 

The  Toledo  Railways  and  Light  Company  has  arranged  with  Blair 
&  Co.  for  an  extension  of  the  time  of  payment  of  the  above  mentioned 
bonds  of  the  Toledo  Traction  Company  to  January  1,  1913,  with 
interest  at  the  rate  of  six  per  cent,  per  annum,  payable  semi-annually , 
subject  to  redemption  at  the  option  of  this  company  on  July  1,  1912, 
on  thirty  days'  notice.  Holders  of  the  said  bonds  desiring  to  avail 
themselves  of  the  privilege  of  so  extending  their  bonds,  must  present 
same  (ex-coupon  due  January  1,  1912),  at  the  office  of  Blair  &  Co. 
on  or  before  December  28,  1911,  for  the  purpose  of  having  affixed 
thereto  the  Extension  Certificate. 

The  Company  has  also  arranged  for  an  exchange  of  the  bonds 
of  the  Toledo  Consolidated  Street  Railway  Company  and  the  Toledo 
Electric  Street  Railway  Company  for  extended  bonds  of  the  Toledo 
Traction  Company.  Holders  of  bonds  of  the  Toledo  Consolidated 
Street  Railway  Company  desiring  to  avail  themselves  of  the  privilege 
of  exchanging  their  bonds  for  such  extended  bonds  of  the  Toledo 
Traction  Company  must  present  same  (ex-coupon  due  January  1, 
1912),  for  such  purpose  at  the  office  of  Blair  &  Co.  on  or  before 
December  28,  1911.  Holders  of  the  said  bonds  of  the  Toledo  Electric 
Street  Railway,  desiring  to  avail  themselves  of  the  privilege  of  ex- 
changing their  bonds  for  such  extended  bonds  of  the  Toledo  Trac- 
tion Company,  must  present  the  same  (with  coupon  due  February  1, 
1912),  for  such  purpose  at  the  office  of  Blair  &  Co.  on  or  before 
January  28,  1912,  interest  to  be  adjusted  to  date  of  exchange. 

Holders  of  the  said  bonds  of  the  Toledo  Consolidated  Street  Rail- 
way Company  and  of  the  Toledo  Traction  Company  who  do  not  de- 
sire to  avail  themselves  of  the  above  privileges  will  receive  par  for 
their  bonds  upon  delivery  of  the  same  on  or  after  January  1,  1912,  to 
said  Blair  &  Co. 

1  Advertisement  in  New  York  Times. 


REFUNDING   WITH   AID   OF   BANKER  321 

Holders  of  the  said  bonds  of  the  Toledo  Electric  Street  Railway 
Company  who  do  not  desire  to  avail  themselves  of  the  above  privileges 
will  receive  par  for  their  bonds  upon  delivery  of  the  same  on  or  after 
February  1,  1912,  to  said  Blair  &  Co. 

Copies  of  the  Extension  Agreement,  stating  the  terms  of  the  ex- 
tension and  other  details,  may  be  obtained  at  the  Company's  office 
or  from  Blair  &  Co. 

Dated  Toledo,  Ohio,  December  15,  1911. 

THE  TOLEDO  RAILWAYS  AND  LIGHT  COMPANY, 

By  Frank  R.  Coats,  President 


Referring  to  the  foregoing  Notice,  we  are  now  prepared  to  receive 
deposits  of  the  aforesaid  bonds  for  exchange  and  extension.  Holders 
of  such  bonds  desiring  to  avail  themselves  of  the  privilege  should 
deposit  the  same  promptly  at  our  office.  Depositing  Bondholders  will 
receive  receipts,  exchangeable  for  extended  bonds,  as  soon  as  the 
Extension  Certificate  and  Coupons  can  be  attached  thereto.  The 
privileges  as  to  the  bonds  of  the  Toledo  Consolidated  Street  Railway 
Company  and  the  Toledo  Traction  Company  will  terminate  on  De- 
cember 28,  1911.  The  privileges  as  to  the  bonds  of  the  Toledo  Elec- 
tric Street  Railway  Company  will  terminate  on  January  28,  1912. 
All  bonds  of  the  Toledo  Consolidated  Street  Railway  Company  and 
all  bonds  of  the  Toledo  Traction  Company,  the  holders  of  which  do 
not  wish  to  avail  themselves  of  the  above-mentioned  privileges,  will 
be  purchased  by  us  at  par,  on  or  after  January  1,  1912.  All  bonds 
of  the  Toledo  Electric  Street  Railway  Company,  the  holders  of  which 
do  not  wish  to  avail  themselves  of  the  above-mentioned  privileges,  will 
be  purchased  by  us,  at  par,  on  or  after  February  1,  1912. 

BLAIR  &  CO., 
24  Broad  Street,  New  York 


322         MATERIALS    OF   CORPORATION    FINANCE 


CONVERSION    OF   BONDS   INTO    STOCK1 

SECTION  1.  Any  of  the  bonds  issued  hereunder  may  be  converted 
at  the  option  of  the  bearer  or  registered  holder  thereof  at  any  time 
after  the  first  day  of  November,  1913,  until,  but  not  including,  the 
date  of  maturity  of  such  bond,  or  if  such  bond  is  called  for  redemp- 
tion, until,  but  not  including  the  date  fixed  for  redemption,  into 
shares  of  the  par  value  of  $100  each  of  the  full-paid  common  capital 
stock  of  the  Company  as  its  authorized  capital  stock  shall  be  con- 
stituted at  the  time  of  such  conversion  at  the  rate  of  $100  principal 
amount  of  bonds  for  one  share  of  stock;  and  on  presentation  and 
surrender  to  it  at  its  office  or  agency  in  the  City  of  New  York,  of 
such  bond  with  all  unmatured  coupons  thereto  appertaining  for 
conversion,  the  Company  will  deliver  in  exchange  therefor  certificates 
for  said  shares  of  the  common  capital  stock  of  the  Company  at  the 
rate  aforesaid. 

The  Company  shall  not  be  required  to  convert  any  bonds  into 
stock  while  its  stock  transfer  books  are  closed  for  any  meeting  of 
stockholders,  or  for  the  payment  of  dividends,  or  for  any  other  pur- 
pose, and  the  right  of  conversion  shall  be  suspended  during  such 
periods,  provided,  however,  that  the  right  of  conversion  shall  not  at 
any  one  time  be  so  suspended  for  a  longer  period  than  twenty  days. 

All  bonds  surrendered  for  conversion  as  aforesaid,  and  all  unma- 
tured coupons  appertaining  to  any  of  said  bonds,  shall  at  once  be- 
come null  and  void  and  shall  be  cancelled  and  deposited  with  the 
Trustee. 

SEC.  2.  The  Company  covenants  and  agrees  that  at  all  times 
there  shall  be  reserved  unissued,  exclusively  for  the  conversion  of  said 
bonds,  Five  Million  Dollars  ($5,000,000)  par  value  of  the  common 
capital  stock  of  the  Company  or  such  part  thereof  as  may  be  neces- 
sary for  the  conversion  of  all  said  bonds  as  herein  provided,  which 
are  then  outstanding,  or  may  thereafter  be  issued  hereunder,  and  that 
said  stock  shall  not  be  issued  or  used  for  any  other  purpose. 

SEC.  3.  Nothing  herein  contained  shall  prevent  the  Company 
from  increasing  from  time  to  time  its  present  authorized  or  out- 
standing stock  or  from  issuing  preferred  stock  or  different  classes  of 
stock. 

*  From  Mortgage  of  Atlantic  Fruit  and  Steamship  Company  to  Knicker- 
bocker Trust  Company,  Trustee.  Dated  November  1,  1911. 


CONVERSION    OF   BONDS   INTO    STOCK  323 

SEC.  4.  In  case  any  corporation  duly  becomes  the  sole  successor 
of  the  Company,  in  accordance  with  the  provisions  of  Article  Four- 
teen of  this  indenture,  all  references  contained  in  this  Article  to  the 
common  capital  stock  of  the  Company  shall  be  deemed  to  refer  to  the 
common  capital  stock  of  such  successor  corporation,  and  every  other 
reference  contained  in  this  Article  to  the  Company  shall  be  deemed 
to  refer  to  such  successor  corporation.  This  provision  shall  not  be 
construed  to  limit  in  any  manner  the  application  of  Section  3  of  Ar- 
ticle Fourteen  to  all  of  the  provisions  of  this  indenture. 


324         MATERIALS    OF   CORPORATION    FINANCE 


SPENCER  TRASK  &  Co.  CABLE  ADDRESS,  "TBASr" 

Banker,  CONVERTIBLE  BONDS 

William  and  Pine  Sts.  (FOURTH  EDITION) 

New  York  JUNE  11,  1907 

Convertible  bonds  are  usually  secured  by  a  direct  lien,  at  a  fixed  rate 
of  interest,  upon  the  property  of  the  issuing  company,  and  in  addition, 
holders  of  such  bonds  have  the  right  to  convert  them  into  stock,  in 
accordance  with  the  terms  of  conversion,  at  such  time  as  they  may 
elect.  When  it  is  considered  that  the  prices  for  stocks  reflect  to  a 
greater  extent  than  other  security  issues  the  increase  and  growth  of 
the  business  of  corporations,  the  strong  probability  of  holders  of  con- 
vertible bonds  realizing  substantial  profits  becomes  readily  apparent. 

The  very  heavy  declines  which  have  taken  place  in  the  security 
markets  are  largely  responsible  for  the  study  being  given  properly 
selected  convertible  bonds  by  well-informed  investors.  In  order  to  aid 
in  selecting  such  investments,  we  describe  herein  practically  all  of  the 
convertible  bonds  now  upon  the  market,  although,  of  course,  we  do  not 
recommend  the  purchase  of  all  of  the  issues  as  suitable  for  conserva- 
tive buyers. 

One  of  the  strongest  features  in  connection  with  convertible  bonds 
is  aptly  illustrated  by  existing  conditions  in  the  stock  market ;  that  is, 
when,  as  now,  stocks  have  declined  considerably  below  the  conversion 
figures,  convertible  bonds,  other  things  being  equal,  decline  only  to 
approximately  the  same  level  as  other  junior  fixed  liens  of  the  issuing 
company.  The  reason  for  this  is  that  convertible  bonds,  viewed  from 
the  standpoint  of  security,  are  usually  just  as  valuable  as  any  of  the 
other  junior  liens  of  the  issuing  company.  Therefore,  at  the  present 
time,  convertible  bonds  are  being  purchased  upon  the  basis  of  their 
security  value,  the  conversion  privilege  being  ignored  as  of  remote  ad- 
vantage. There  may,  therefore,  be  considered  a  certain  level  below 
which  convertible  bonds  will  not  decline.  When,  however,  the  market 
for  stocks  begins  to  advance,  convertible  bonds  advance  also.  If  the 
right  to  convert  actually  exists,  it  is  obvious  that  the  prices  of  con- 
vertible bonds  will  practically  coincide  with  the  quotation  for  the 
stock  of  the  same  issuing  company.  But,  even  if  the  date  of  conver- 
sion is  not  immediately  at  hand,  when  the  stock  advances  to  figures 
above  the  conversion  prices,  it  is  usually  the  case  that  convertible 
bonds  also  move  with  the  stock,  and  sell  at  considerably  higher  prices 
than  the  junior  liens  or  the  prior  liens  of  the  same  company,  there 
being  practically  no  limit  to  the  figures  to  which  they  may  advance. 

A  study  of  the  history  of  convertible  bonds  will  show  that  investors 
have  often  made  as  large  a  profit  at  50%  or  more.  Therefore,  during 


CIRCULAR    ON   CONVERTIBLE    BONDS  325 

such  abnormal  times  as  these,  when  prices  are  BO  low,  it  seems  rea- 
sonable to  believe  that  in  some  cases  the  extraordinary  results  may  be 
repeated.  In  our  judgment,  where  the  management,  general  conditions 
and  prospects  of  a  corporation  are  good,  its  convertible  bonds  may  be 
bought  with  safety,  and  also  with  the  probability  of  greater  profits  being 
realized  than  from  any  other  form  of  corporate  obligations. 

(1)  THE  ATCHISON,  TOPEKA  &  SANTA  FE  RAILWAY  COMPANY. 
Fifty  Tear  Four  Per  Cent.  Convertible  Bonds. 

Dated  February  9,  1905.  Due  June  1,  1955.  Interest  payable  June  and 
December  1st.  In  coupon  form,  $1,000  each.  In  registered  form  $1,000, 
$5,000,  or  any  multiple  thereof.  The  Morton  Trust  Company,  New  York, 
Trustee.  Authorized  issue,  $50,000,000.  Outstanding,  $48,952,000.  Con- 
vertible after  June  1,  1906,  but  prior  to  June  1,  1918,  into  common 
stock  at  (par  value,  $100)  and  subject  to  redemption  at  110  and  in- 
terest, but  if  called  for  payment  prior  to  June  1,  1918,  may  be  con- 
verted into  stock. 

The  proceeds  from  sale  of  these  bonds  are  to  be  used  to  complete 
lines  under  construction,  build  additional  branches,  second  tracks,  re- 
duction of  grades  on  main  line,  additional  equipment,  etc.  The  inden- 
ture stipulates  that  no  new  mortgage  on  lines  owned  January  1,  1905, 
shall  be  made  without  securing  the  convertible  bonds  thereunder. 

For  the  fiscal  year  ending  June  30,  1906,  the  Company  reports  a  total 
net  income  of  $28,335,393,  out  of  which  there  was  paid  for  fixed  charges, 
including  interest  on  adjustment  bonds,  $10,622,184,  leaving  a  surplus 
of  $17,733,209.  The  $114,173,730  5%  preferred  stock  receives  regular 
dividends.  The  $102,759,000  common  stock  outstanding  receives  div- 
idends at  the  rate  of  6%  per  annum.  On  January  30,  1907,  the  stock- 
holders approved  the  proposition  to  increase  the  authorized  common 
stock  from  $152,000,000  to  $200,000,000;  also  to  authorize  an  issue,  in 
lieu  of  common  stock,  of  bonds  convertible  into  common  stock  at  the 
option  of  the  holder  during  a  term  of  ten  years. 

(2)  THE  ATCHISON,  TOPEKA  &  SANTA  FE  RAILWAY  COMPANY. 
Ten  Tear  Five  Per  Cent.  Convertible  Gold  Bonds. 

Dated  May  9,  1907.  Due  June  1,  1917.  Interest  payable  June  and 
December  1st.  In  coupon  form  $1,000  each.  In  registered  form  $1,000, 
$5,000,  or  any  multiple  thereof.  Coupon  bonds  may  be  exchanged  for 
registered  bonds  and  registered  bonds  for  coupon  bonds.  Redeemable 
on  any  interest  date  at  110  and  interest.  Convertible  into  common  stock 
prior  to  June  1,  1913,  at  the  option  of  the  holder,  on  the  basis  of  ten 
shares  of  common  stock  (par  value  $100)  for  each  $1,000  bond.  // 
called  for.  redemption  prior  to  expiration  of  conversion  period,  holders 
may  convert  in  lieu  of  taking  cash.  Authorized  issue,  $35,000,000. 
Present  issue,  about  $26,000,000.  (See  earnings  given  above.) 

(3)  THE  BROOKLYN  RAPID  TRANSIT  SYSTEM. 

First  Refunding  Mortgage  Four  Per  Cent.  Convertible  Gold  Bonds. 

Dated  July  1,  1902.  Due  July  1,  2002.  Interest  payable  January  and 
July  1st.  Redeemable  at  110  and  interest  before  July  1,  2000.  In 


326         MATERIALS    OF   CORPORATION    FINANCE 

coupon  form,  $1,000  each,  with  privilege  of  registration.  Authorized 
issue,  $150,000,000.  Outstanding,  $25,835,000.  Convertible  into  capital 
stock  at  any  time  after  July  1,  1904,  and  before  July  1,  1915,  on  the 
basis  of  ten  shares  (par  value  $100)  for  each  $1,000  bond. 

These  bonds  will  retire  all  of  the  existing  bonds  of  the  system,  and 
provide  for  improvements,  additions,  etc.,  as  needed  from  time  to  time. 
For  the  fiscal  year  ending  June  30,  1906,  the  net  earnings  of  the  system 
are  reported  as  $7,473,024,  with  fixed  charges  (net)  $4,730,072,  special 
appropriation  and  miscellaneous  items  $580,343,  balance  $2,162,609. 
The  outstanding  capital  stock  is  $45,000,000,  all  common. 

(4)  THE  DELAWARE  AND  HUDSON  COMPANY. 

Ten  Year  Debenture  Four  Per  Cent.  Convertible  Gold  Bonds. 

Dated  June  15,  1906.  Due  June  15,  1916.  Interest  payable  June  and 
December  15th.  In  coupon  form,  $1,000  each,  with  privilege  of  registra- 
tion. Issue,  $14,000,000.  Convertible  into  the  capital  stock  of  the  Com- 
pany from  June  15,  1907,  to  June  15,  1912,  on  the  basis  of  five  shares  of 
stock  (par  value  $100)  for  each  $1,000  bond. 

On  February  19,  1906,  the  stockholders  of  the  Company  were  given 
the  right  to  take  at  par  $1,000  debenture  bond  for  every  30  shares  of 
stock.  The  proceeds  enabled  the  Company  to  pay  for  additional  equip- 
ment, the  cost  of  electric  railway  lines  in  Albany,  Schenectady,  Rens- 
selaer  and  Saratoga  Counties,  and  of  making  certain  extensions  thereof, 
and  of  providing  the  means  for  making  needed  improvements  upon  the 
railways  operated  by  it  in  Pennsylvania. 

The  outstanding  stock  of  the  Delaware  and  Hudson  Company  is  $41,- 
493,500,  and  the  dividend  record  since  1883  is  as  follows:  1884,  7%; 
1885,  6%;  1886  and  1887,  5%;  1888,  6%;  1889  to  1896,  inclusive, 
7%;  1897  to  1900,  inclusive,  5%;  1901  to  1906,  inclusive,  7%;  dividends 
for  1907  are  fixed  at  9%,  payable  quarterly  March  15th. 

(5)  THE  ALBANY  AND  SUSQUEHANNA  RAILROAD  COMPANY. 
Forty  Tear  Convertible  Three  and  One-Half  Per  Cent.  Gold  Bonds. 

Dated  April  1,  1906.  Due  April  1,  1946.  Guaranteed  both  as  to  prin- 
cipal and  interest  by  the  Delaware  and  Hudson  Company  by  endorse- 
ment. Interest  payable  April  and  October  1st.  In  coupon  form,  $1,000 
each,  with  privilege  of  registration.  Issue,  $10,000,000.  Convertible 
into  the  capital  stock  of  thf  Delaware  and  Hudson  Company  at  any 
time  prior  to  April  1,  1916,  on  the  basis  of  five  shares  of  stock  (par 
value  $100)  for  each  $1,000  bond. 

On  May  29,  1905,  the  stockholders  of  the  Delaware  and  Hudson  Com- 
pany were  given  the  right  to  take  at  par  $1,000  forty  year  convertible 
3y2%  bond  for  every  45  shares  of  stock.  The  proceeds  retired  $10,000,- 
000  consolidated  mortgage  7%  and  6%  bonds  of  the  Albany  and  Sus- 
quehanna  Railroad  Company,  due  April  1,  1906.  The  road  extends 
from  Binghamton  to  Albany,  N.  Y.,  about  142  miles,  and  the  Company 
operates  the  line  from  Cobleskill  to  Cherry  Valley,  about  21  miles.  The 
Delaware  and  Hudson  Company  owns  $450,000  of  the  $3,500,000  stock, 
and  guarantees  dividends  at  the  rate  of  9%  per  annum  upon  the  entire 
$3,500,000  stock. 

(See  dividend  record  of  D.  &  H.,  given  above.) 


CIRCULAR    ON   CONVERTIBLE    BONDS  327 

(6)  THE  ERIE  RAILROAD  COMPANY. 

Four  Per  Cent.  Convertible  Fifty  Year  Gold  Bonds. 

Series  A,  $10,000,000  dated  April  1,  1903.  Series  B,  $12,000,000  dated 
April  1,  1905.  Due  April  1,  1953.  Interest  payable  April  and  October 
1st.  In  coupon  form,  $1,000  each.  In  registered  form,  $500,  $1,000  or 
multiples  thereof.  The  Standard  Trust  Company,  of  New  York,  Trustee. 
Authorized  issue,  $50,000,000.  Series  A  convertible  at  par  into  common 
stock  at  $50  per  share  from  April  1,  1905,  to  April  1,  1915.  Series  B 
convertible  at  par  into  common  stock  at  $60  per  share  from  October  1, 
1907,  to  October  1,  1917. 

These  bonds  are  secured  by  a  mortgage  upon  all  of  the  property  of 
the  Company,  subject  to  underlying  liens.  The  $22,000,000  bonds  out- 
standing were  issued  to  provide  funds  for  improvements  and  new  equip- 
ment. 

For  the  fiscal  year  ending  June  30,  1906,  the  Company  reports  a  total 
net  income  of  $14,667,098,  out  of  which  there  was  paid  for  interest, 
rentals,  etc.,  $9,650,454,  and  for  additions  and  improvements  $1,915,696, 
leaving  a  surplus  of  $3,100,948.  Dividends  at  rate  of  4%  per  annum 
are  paid  upon  $47,892,400  first  preferred  and  $16,000,000  second  pre- 
ferred stock.  The  amount  of  common  stock  outstanding  is  $112,378,900. 

(7)  THE  NEW  YORK,  NEW  HAVEN  AND  HARTFORD  RAILROAD  COM- 

PANY. 

Convertible  Three  and  One-Half  Per  Cent.  Gold  Bonds. 

Dated  January  1,  1906.  Due  January  1,  1956.  Interest  payable  Jan- 
uary and  July  1st.  In  coupon  form,  $100,  $500  and  $1,000  each,  with 
privilege  of  registration.  Issue,  $30,000,000.  Convertible  into  the  cap- 
ital stock  of  the  Company  between  January  1,  1911,  and  January  1, 
1916,  or  within  thirty  days  thereafter  on  the  basis  of  one  share  (par 
value  $100)  for  each  $150  in  bonds. 

The  Company  has  an  authorized  issue  of  $100,000,000  stock,  of 
which  $80,000,000  is  outstanding.  From  1873  to  1893  the  dividend 
rate  was  10%  per  annum,  9%  in  1894,  and  from  1895  to  1906,  inclusive, 
8%  per  annum. 

(8)  THE  NORTHWESTERN  ELEVATED  RAILROAD  COMPANY. 
First  and  Refunding  Mortgage  Four  Per  Cent.  Convertible  Gold  Bonds. 

Dated  1901.  Due  September  1,  1911.  Interest  payable  March  and  Sep- 
tember 1st.  In  coupon  form,  $1,000  each,  with  privilege  of  registration 
as  to  principal  and  interest.  Redeemable  at  the  option  of  the  Company 
at  102'/2  and  interest  on  or  after  September  1,  1906.  Authorised  issue, 
$25,000,000.  Outstanding,  $18,000,000.  Convertible  at  the  option  of 
the  holder  into  5%  preferred  stock  on  the  basis  of  ten  shares  (par  value 
$100)  for  each  $1,000  bond.  If  called  for  redemption  the  holders  will 
have  the  right  to  take  preferred  stock  in  lieu  of  cash.  Authorised  issue 
of  5%  non-cumulative  preferred  stock,  $25,000,000;  outstanding,  $5,- 
000,000. 

The  Northwestern  Elevated  extends  through  the  "North  Side"  of  the 
City  of  Chicago,  which  has  a  population  of  about  600,000.  The  above 
bonds  are  secured  by  a  first  mortgage  on  the  Northwestern  Elevated 


328         MATERIALS   OF   CORPORATION   FINANCE 

Railroad  and  are  a  lien  also  on  the  "Union  Loop,"  now  owned  by  the 
Northwestern  Elevated  Railroad  Company.  By  virtue  of  its  owner- 
ship of  the  "Union  Loop"  the  Northwestern  shares  the  increased  earn- 
ings of  all  other  elevated  roads  in  Chicago.  The  company  is  operating 
under  a  fifty-year  franchise,  granted  in  1894,  and,  with  the  exception 
of  about  one  mile,  the  entire  right  of  way  is  owned  in  fee.  Total  net 
income  for  fiscal  year  ending  June  30,  1906,  $1,243,154;  fixed  charges, 
$962,656;  surplus,  $280,498. 

(9)  THE  PENNSYLVANIA  RAILROAD  COMPANY. 

Three  and  One-Half  Per  Cent.  Ten  Tear  Convertible  Gold  Bonds. 

Dated  November  1,  1902.  Due  November  1,  1912.  Interest  payable  May 
and  November  1st.  In  coupon  form,  $500  and  $1,000  each.  In  regis- 
tered form,  $500,  $1,000,  $10,000  or  multiples  thereof.  The  Girard 
Trust  Company,  of  Philadelphia,  Pa.,  Trustee.  Authorized  issue,  $50,- 
000,000.  Outstanding,  $20,000,500.  Redeemable  after  May  1,  1904,  at 
102%  and  accrued  interest.  Convertible  on  May  1,  1904,  or  any  half- 
yearly  interest  date  thereafter  prior  to  maturity  on  thirty  days'  notice, 
into  stock  of  the  Railroad  Company  at  rate  of  $70  per  share  (par  value 
$50),  but  may  be  converted  if  called  for  payment. 

These  bonds  were  issued  for  corporate  purposes,  and  of  the  authorized 
issue  $29,999,500  were  converted  into  stock  up  to  December  31,  1906.  For 
the  year  ending  December  31,  1906,  the  Railroad  Company  reports  a 
total  net  income  of  $51,917,601,  out  of  which  there  was  paid  for  in- 
terest, taxes,  rentals,  etc.,  $16,243,300,  for  sinking  funds  and  miscel- 
laneous items  $357,126,  for  payments  on  account  of  principal  of  car 
trusts  $4,246,039,  for  extraordinary  expenditures  $8,701,475,  transferred 
to  extraordinary  expenditure  fund  $2,500,000,  and  for  dividends  upon 
capital  stock  $19,869,660.  The  outstanding  capital  stock  is  $305,951,350, 
upon  which  dividends  at  the  rate  of  7%  per  annum  are  paid. 

(10)  THE'  PENNSYLVANIA  RAILROAD  COMPANY. 

Ten  Tear  Three  and  One-Half  Per  Cent.  Convertible  Gold  Bonds. 

Dated  October  2,  1905.  Due  October  1,  1915.  Interest  payable  June  and 
December  1st,  except  that  two  months'  interest  to  December  1st,  1905, 
shall  be  payable  on  that  date  and  four  months'  interest  from  June  1st 
to  October  1st,  1915,  shall  be  payable  on  the  latter  date.  In  coupon 
form,  $500  and  $1,000  each.  In  registered  form,  $1,000  and  $5,000  each, 
with  such  larger  denominations  as  may  be  authorized.  The  Girard  Trust 
Company,  of  Philadelphia,  Pa.,  Trustee.  Authorized  issue,  $100,000,000. 
Outstanding,  $99,624,500.  Redeemable  at  the  option  of  the  Company  on 
and  after  December  1,  1910,  on  90  days'  notice,  at  par  and  accrued  in- 
terest. Convertible  after  December  1,  1905,  and  prior  to  maturity,  into 
capital  stock  of  the  Railroad  Company,  at  the  rate  of  $75  per  share 
(par  value  $50).  If  the  bonds  are  called  for  redemption  the  right  to 
convert  into  stock  will  be  had  up  to  thirty  days  prior  to  the  date  named 
for  redemption. 

These  bonds  were  issued  for  corporate  purposes.  A  part  of  the  pro- 
ceeds was  used  to  retire  $27,480,000  6%  bonds  maturing  in  June  and 
July,  1905,  and  the  balance  for  improvements.  (See  earnings  given 
above. ) 


CIRCULAR   ON   CONVERTIBLE    BONDS  329 

(11)  THE  UNION  PACIFIC  RAILROAD  COMPANY. 

Twenty  Tear  Four  Per  Cent.  Convertible  Gold  Bonds. 

Dated  July  1,  1907.  Due  July  1,  1927.  Interest  payable  January  and 
July  1st.  In  coupon  form  $500  and  $1,000  each,  with  privilege  of  regis- 
tration as  to  principal  and  exchangeable  for  registered  bonds  without 
coupons.  Registered  bonds  exchangeable  for  coupon  bonds.  Entire 
issue,  but  not  any  part  thereof,  redeemable  on  and  after  July  I,  1912, 
on  ninety  days'  notice,  at  102%  and  interest.  Convertible  at  the  option 
of  the  holder  at  any  time  prior  to  July  1,  1917,  into  common  stock  on 
the  basis  of  $175  per  share.  If  called  for  payment  during  the  conver- 
sion period,  bonds  may  be  converted  up  to  30  days  prior  to  the  date 
named  in  the  redemption  notice.  Issue,  $75,000,000. 

The  Union  Pacific  Railroad  pays  regular  4%  dividends  upon  $99,- 
544,100  preferred  stock,  and  dividends  at  the  rate  of  10%  per  annum 
upon  $195,446,900  common  stock. 

(12)  WESTERN  MARYLAND  RAILROAD  COMPANY. 
General  Lien  and  Convertible  Four  Per  Cent.  Gold  Bonds. 

Dated  October  1,  1902.  Due  October  1,  1952.  Interest  payable  April 
and  October  1st.  In  coupon  form,  $1,000  each.  Principal  may  be  regis- 
tered. The  Bowling  Green  Trust  Company,  of  New  York,  Trustee. 
Authorized  and  outstanding,  $10,000,000.  Convertible  at  the  option  of 
the  holder  at  any  time  into  common  stock  at  par  (par  value  $50)  at  the 
rate  of  20  shares  for  each  $1,000  bond. 

The  Western  Maryland  Railroad  Company  comprises  about  534  miles 
of  road  extending  from  extensive  terminals  in  the  city  of  Baltimore 
and  on  Baltimore  Harbor  to  Elkins  and  Durbin,  W.  Va.,  at  which  latter 
point  connection  is  had  with  the  Chesapeake  and  Ohio  Railway  Com- 
pany. These  bonds  are  a  mortgage  (either  directly  or  through  the  own- 
ership of  practically  all  of  the  capital  stocks  of  various  proprietary 
Companies)  upon  about  515  miles,  subject  to  underlying  liens,  includ- 
ing an  authorized  issue  of  $50,000,000  first  mortgage  4s,  due  1950,  of 
which  $39,576,000  are  outstanding.  For  the  year  ending  December  31, 
1906,  the  total  net  income  is  reported  as  $2,498,527 ;  fixed  charges,  $2,- 
247,018;  surplus,  $251,509.  The  outstanding  common  stock  is  $15,- 
685,400. 

(13)  AMERICAN  TELEPHONE  AND  TELEGRAPH  COMPANY. 
Convertible  Four  Per  Cent.  Gold  Bonds. 

k  Dated  March  1,  1906.  Due  March  1,  1936.  Interest  oayable  March  and 
September  1st.  Redeemable  on  and  after  March  1,  1914,  at  105  and 
accrued  interest,  on  twelve  weeks'  notice.  In  coupon  form,  $1,000  each, 
with  privilege  of  registration.  Authorized  issue,  $150,000,000.  Out- 
standing, $40,000,000.  Convertible  at  par  into  capital  stock  at  $140 
per  share  (unless  additional  stock  be  issued  or  sold  at  less  than  $140 
per  share,  in  which,  case  bondholders  will  have  the  benefit  of  a  reduced 
conversion  price)  after  March  1,  1909,  and  before  March  1,  1918,  and 
in  the  meantime  up  to  thirty  days  prior  to  date  of  redemption,  if  called 
for  payment. 

The  Company  also  has  outstanding  $53,000,000  collateral  trust  4% 
bonds,  due  1929,  $20,000,000  collateral  trust  5%  notes,  due  May  1,  1907 


330         MATERIALS    OF   CORPORATION   FINANCE 

(secured  by  deposit  of  $25,000,000  collateral  trust  mortgage  4%  bonds) 
and  $25,000,000  5%  notes,  due  January  1,  1910.  The  authorized  amount 
of  capital  stock  is  $250,000,000,  all  common,  of  which  $131,551,400  is 
outstanding,  excluding  $27,110,400  held  by  the  American  Bell  Telephone 
Co.  and  virtually  unissued.  The  stock  has  received  dividends  from 
April,  1900,  to  April,  1906,  at  the  rate  of  7y2%  per  annum,  since  which 
time  the  distribution  has  been  at  the  rate  of  8%  per  annum.  Its  prede- 
cessor, the  American  Bell  Telephone  Company,  has  paid  dividends  at  an 
equivalent  of  7]/2%  or  more  each  year  from  1884  to  1900. 

(14)   THE  BROOKLYN  UNION  GAS  COMPANY. 
Convertible  Debenture  Six  Per  Cent.  Gold  Bonds. 

Dated  1904.  Due  March  1,  1909.  Interest  payable  March  and  Septem- 
ber 1st.  In  coupon  form,  $500  and  $1,000  each.  Issue,  $3,000,000. 
Convertible  at  the  option  of  the  holder  on  and  after  March  1,  1907,  on 
any  interest  date,  into  capital  stock,  on  the  basis  of  ten  shares  (par 
value  $100)  for  each  $1,000  bond. 

The  Company  has  outstanding  $14,647,000  first  consolidated  mort- 
gage 5%  bonds,  and  an  authorized  capital  stock  issue  of  $20,000,000,  of 
which  there  is  outstanding  $15,000,000.  Following  is  the  annual  divi- 
dend record:  1896  to  1900,  6%;  1901  to  1903,  8%;  1904,  9y2%;  1905, 
;  1906,  3%.  On  July,  1906,  dividend  payments  were  discontinued. 


(15)  THE'  CONSOLIDATED  GAS  COMPANY  OF  NEW  YORK. 

Six  Per  Cent.  Convertible  Debenture  Gold  Bonds. 

Dated  July  1,  1904.  Due  July  1,  1909.  Interest  payable  January  and 
July  1st.  In  coupon  form,  $1,000  each,  with  privilege  of  registration. 
Authorized  and  outstanding,  $20,000,000.  Convertible  into  capital  stock 
on  and  after  July  1,  1907,  and  on  any  subsequent  interest  date  prior  to 
July  1,  1909,  on  the  basis  of  10  shares  (par  value  $100)  for  each  $1,000 
bond. 

The  Company  controls  the  gas  and  electric  lighting  business  in  the 
Boroughs  of  Manhattan  and  the  Bronx  of  Greater  New  York.  The 
authorized  capital  stock  of  the  Company  is  $100,000,000,  of  which  $80,- 
000,000  is  outstanding.  The  dividend  record  is  as  follows:  1892,  6%; 
1893,  7%;  1894  to  1898,  inclusive,  8%;  1899,  5y2%;  1900,  6%;  1901 
to  1903,  inclusive,  8%;  1904  and  1905,  8%%;  1906,  5%.  Present 
dividends  are  at  the  rate  of  4%  per  annum. 

(16)  THE  DETROIT  EDISON  COMPANY. 

Five  Year  Six  Per  Cent.  Convertible  Gold  Debenture  Bonds. 

Dated  September  1,  1906.  Due  September  1,  1911.  In  coupon  form, 
$1,000  each.  Interest  payable  March  and  September  1st.  Subject  to 
redemption  at  the  option  of  the  Company  after  September  1,  1910,  at 
par  and  accrued  interest.  Convertible  after  September  1,  1908,  into  full 
paid  stock  of  the  Company  at  par  at  option  of  the  holder.  Authorized 
issue,  $1,000,000.  Outstanding,  $660,000. 

There  are  also  outstanding  $6,600,000  (authorized  issue  $10,000,000) 
first  mortgage  5%  bonds,  due  January  1,  1933,  secured  upon  the  entire 
property  and  franchise  of  the  Company.  The  Company  does  all  of  the 


CIRCULAR   ON    CONVERTIBLE    BONDS  331 

commercial  lighting  and  industrial  power  business  in  the  city  of  De- 
troit, with  a  population  in  excess  of  300,000.  A  new  central  steam 
turbine  station — one  of  the  most  highly  equipped  and  efficient  ever  con- 
structed, with  an  immediate  installation  of  machinery  of  20,000  rated 
horse-power  capacity — is  now  in  operation  and  produces  the  company's 
entire  output  of  current,  which  is  distributed  economically  through 
nine  modern  substations.  This  station  is  favorably  situated  on  a  large 
tract  of  land  on  the  Detroit  River,  and  is  accessible  to  four  railroads 
and  to  the  river  channel.  The  property  on  which  it  is  built  is  suffi- 
ciently large  to  admit  of  the  construction  of  additional  stations  from 
time  to  time,  as  required  to  meet  the  growing  demands  of  the  company. 
A  well-developed  system  of  underground  distribution  is  in  use  in  the 
commercial  district,  and  owing  to  the  rapid  growth  of  the  city  a  large 
amount  of  new  business  is  being  connected  to  the  company's  circuits. 

For  the  year  ending  December  31,  1906,  the  Company  reports  gross 
income,  $1,126,316,  operating  expenses,  taxes,  etc.,  $655,688,  bond  in- 
terest, $299,857,  surplus,  $170,771.  The  authorized  capital  stock  is 
$6,000,000,  of  which  $5,000,000  is  outstanding. 

(17)   THE  DISTILLERS'  SECURITIES  CORPORATION. 
First  Mortgage  Five  Per  Cent.  Convertible  Gold  Bonds. 

Dated  April  1,  1902.  Due  April  1,  1927.  Interest  payable  April  and 
October  1st.  In  coupon  form,  $1,000  each,  with  privilege  of  registra- 
tion. Redeemable  on  any  interest  day  on  and  after  October  1,  1908, 
at  105  and  interest.  The  Mercantile  Trust  Company,  New  York  City, 
Trustee.  Convertible  into  the  capital  stock  of  the  Corporation,  on  any 
interest  date  on  or  at  any  time  prior  to  October  1,  1912,  at  the  rate  of 
ten  shares  of  stock  (par  value  $100)  for  each  $1,000  bond.  Authorized 
issue,  $16,000,000.  Outstanding  $13,763,998. 

These  bonds  are  secured  by  pledge  with  the  Trustee  of  $28,860,000, 
par  value,  of  the  preferred  stock  (over  90%  of  the  total  issue),  and 
$44,125,000,  par  value,  of  the  common  stock  (over  92%  of  total  issue) 
of  the  Distilling  Company  of  America;  also  by  pledge  of  $11,000  first 
mortgage  6%  bonds  of  the  American  Spirits  Manufacturing  Company. 

Of  the  unissued  balance  of  the  first  mortgage  5%  bonds  of  the  Dis- 
tillers Securities  Corporation,  $1,510,000  are  reserved  to  retire  a  like 
amount  of  first  mortgage  6%  bonds  of  the  American  Spirits  Manufac- 
turing Company,  due  September  1,  1915,  and  a  sufficient  amount  is  also 
reserved  to  retire  about  $637,299  unassented  stock  of  the  Distilling 
Company  of  America. 

The  companies  controlled  by  the  Distilling  Company  of  America 
manufacture,  distribute  and  sell  spirits,  alcohol,  Kentucky  or  Bourbon 
whiskey,  rye  whiskey,  and  compound  and  blend  the  same.  The  operating 
companies  are  the  American  Spirits  Manufacturing  Company,  the 
Kentucky  Distilleries  and  Warehouse  Company  and  the  Hannis  Dis- 
tilling Company.  The  Standard  Distilling  and  Distributing  Company 
was  dissolved  in  1905,  resulting,  it  is  officially  stated,  in  a  material 
saving  in  taxes,  office  expenses,  etc. 

For  the  fiscal  year  ending  June  30,  1000,  the  Distillers  Securitiet 
Corporation  reports  total  net  profits  of  $2,847,070,  out  of  which  there 
was  paid  for  interest  $750,000  and  4%  dividends  upon  the  capital  stock 


332         MATERIALS  OF   CORPORATION   FINANCE 

$1,327,036,  leaving  a  surplus  of  $797,028.  The  corporation  has  out- 
standing $30,435,943  capital  stock,  all  one  class. 

(18)  THE  INTERNATIONAL  PAPER  COMPANY. 

First  Consolidated  Mortgage  Six  Per  Cent.  Sinking  Fund  Convertible  Gold 
Bonds. 

Dated  1898.  Due  February  1,  1918.  Interest  payable  February  and 
August  1st.  In  coupon  form,  $1,000  each,  with  privilege  of  registration. 
Redeemable  on  and  after  February  1,  1908,  at  105  and  interest,  and  an 
annual  sinking  fund  of  $150,000  became  operative  February  1,  1905. 
Bonds  may  be  drawn  by  lot  at  105  and  interest  for  the  account  of  sink- 
ing fund,  if  not  offered  by  holders.  Authorized  issue,  $10,000,000.  Out- 
standing, $9,771,000.  Convertible  on  any  interest  day  on  or  before  Au- 
gust 1,  1910,  into  preferred  stock,  on  the  basis  of  10  shares  (par  value 
$100)  for  each  $1,000  bond. 

The  Company  has  an  authorized  issue  of  $25,000,000  6%  cumulative 
preferred  stock,  of  which  $22,406,700  is  outstanding.  The  authorized 
amount  of  common  stock  is  $20,000,000,  of  which  $17,442,800  is  out- 
standing. Dividends  at  the  rate  of  6%  per  annum  have  been  paid  upon 
the  preferred  stock  since  July,  1898.  On  December  31,  1898,  1%  was 
paid  on  the  common  stock,  and  2%  on  December  31,  1899.  For  the 
fiscal  year  ending  June  30,  1906,  the  Company  reports  net  earnings  of 
$3,158,519,  taxes,  insurance  and  interest,  $1,172,978,  dividends  on  pre- 
ferred stock,  $1,344,402,  surplus,  $641,139. 

(19)  THE  INTERNATIONAL  PAPER  COMPANY. 

Consolidated  Mortgage  Five  Per   Cent.  Sinking  Fund  Convertible   Gold 

Bonds. 

Dated  January  3,  1905.  Due  January  1,  1935.  Interest  payable 
January  and  July  1st.  In  coupon  form,  $1,000  each,  with  privilege 
of  registration.  A  sinking  fund  of  2%  of  all  bonds  ever  issued  is  pay- 
able yearly,  beginning  with  January  1,  1908,  for  which  bonds  are  sub- 
ject to  call  at  105  and  interest  beginning  with  January  1,  1910.  Bonds 
may  be  drawn  by  lot  at  105  and  interest  for  the  account  of  sinking 
fund,  if  not  offered  by  holders.  Authorized  issue,  $10,000,000.  Out- 
standing, $6,000,000.  Convertible  into  preferred  stock  on  any  interest 
day  beginning  July  1,  1907,  and  before  1917,  on  the  basis  of  10  shares 
(par  value  $100)  for  each  $1,000  bond. 

The  outstanding  bonds  were  sold  to  reimburse  the  treasury  for  sur- 
plus earnings  used  for  improvements,  and  to  provide  working  capital. 
The  remaining  $4,000,000  bonds  are  reserved  for  the  future  uses  of  the 
Company.  (See  earnings  and  dividend  record  given  above.) 

(20)  THE  INTERNATIONAL  STEAM  PUMP  COMPANY. 
8iie  Per  Cent.  Convertible  Debenture  Gold  Bonds. 

Dated  January  1,  1903.  Due  January  1,  1913.  Interest  payable 
January  and  July  1st.  In  coupon  form,  $1,000  each,  with  privilege 
of  registration.  The  Colonial  Trust  Company,  of  New  York  City,  Trus- 
tee. Authorized  and  issued,  $3,500,000.  Redeemable  on  or  after  Jan- 


CIRCULAR   ON   CONVERTIBLE   BONDS  333 

wary  1,  1908,  at  105  and  accrued  interest.  Convertible  into  common 
stock  at  any  time  before  redemption  or  maturity  on  the  basis  of  ten 
shares  (par  value  $100)  for  each,  $1,000  bond. 

The  indenture  stipulates  that  the  Company  will  not  mortgage  any  of 
its  property,  so  long  as  any  of  the  debenture  bonds  are  outstanding, 
without  including  in  such  mortgage  and  subjecting  to  the  lien  thereof, 
all  the  debentures  of  this  issue  then  outstanding,  nor  without  securing 
said  debentures  pari  passu  with  all  other  debts  and  obligations  that 
may  be  secured  by  such  mortgage. 

The  Company  is  estimated  to  do  90%  of  the  steam  pump  business  of 
the  country,  exclusive  of  high  duty  engines. 

For  the  fiscal  year  ending  March  31,  1906,  the  Company  reports  net 
profits  of  $1,849,744,  with  interest  charges  of  $392,149.  There  is  out- 
standing $17,262,500  preferred  stock  and  $11,250,000  common  stock. 
Dividends  at  rate  of  6%  per  annum  have  been  paid  on  the  preferred 
stock  since  1899.  From  July,  1901,  to  1904,  inclusive,  the  common 
stock  received  1%  quarterly;  October,  1904,  %%;  January  and  April, 
1905,  %%. 

(21)  THE  LACKA WANNA  STEEL  COMPANY. 

First  Mortgage  Convertible  Five  Per  Cent.  Gold  Bonds. 

Dated  April  1,  1903.  Due  April  1,  1923.  Interest  payable  April  and 
October  1st.  In  coupon  form,  $1,000  each,  with  privilege  of  registra- 
tion. The  Farmers'  Loan  and  Trust  Company,  of  New  York  City,  Trus- 
tee. Issue  limited  to  $15,000,000,  all  outstanding.  Redeemable  at  the 
option  of  the  Company  at  107%  and  interest  to  April  1,  1906,  on  60 
days'  notice.  Convertible  into  common  stock,  after  April  1,  1906,  and 
up  to  April  1,  1915,  on  the  basis  of  ten  shares  (par  value  $100)  for  each 
$1,000  bond,  if  not  redeemed  April  1,  1906. 

These  bonds  are  a  first  mortgage  upon  the  manufacturing  plant  and 
appurtenances  of  the  Company  in  Hamburg  and  West  Seneca,  N.  Y., 
and  also  upon  the  stocks  of  other  corporations  owned.  In  addition,  the 
Company  owns  ore  properties  in  Michigan,  Minnesota,  Wisconsin,  and 
New  York;  coal  lands  and  rights  in  Pennsylvania,  and  blast  furnaces 
and  coke  ovens  at  and  near  Lebanon,  Pa.  The  cost  of  the  property  as 
of  December  31,  1903,  was  stated  as  $34,319,071. 

The  Company  also  has  an  authorized  issue  of  $30,000,000  first  con- 
solidated 5s,  due  March  1,  1935,  of  which  $15,000,000  are  reserved  for 
the  redemption  of  the  first  mortgage  5s,  $12,500,000  being  the  col- 
lateral to  secure  $10,000,000  5%  notes,  due  March  1,  1910  (all  of  the 
notes  are  outstanding)  and  $2,500,000  being  available  for  the  proper 
corporate  purposes  of  the  Company.  There  are  also  outstanding  $1,775,- 
000  first  mortgage  5s  of  the  Lackawanna  Iron  and  Steel  Company,  due 
February  1,  1926.  The  authorized  issue  of  capital  stock  is  $60,000,000, 
all  common,  of  which  there  is  outstanding  $34,971,400. 

(22)  THE  UNITED  FRUIT  COMPANY. 

Ten  Year  Debenture  Five  Per  Cent.  Gold  Bonds. 

Due  September  1,  1911.  Interest  payable  March  and  September  1st 
In  coupon  form,  $1,000  each.  Redeemable  at  110  and  interest.  Out- 


334         MATERIALS    OF    CORPORATION"   FINANCE 

standing,  $1,820,000.  Convertible  into  capital  stock  at  the  option  of 
the  holder  on  the  basis  of  ten  shares  (par  value  $100)  for  each  $1,000 
bond. 

The  Company  has  an  authorized  stock  issue  of  $20,000,000,  of  which 
there  is  outstanding  $17,961,000.  Following  is  the  annual  dividend 
record:  October,  1899,  2%%;  1900,  10%;  1901,  8%;  1902  to  1906, 
inclusive,  7%.  For  the  fiscal  year  ending  September  30,  1906,  the 
Company  reports  a  total  net  income  of  $3,900,887,  interest  on  bonds, 
$114,354,  dividends  on  preferred  stock,  $1,235,745,  surplus,  $2,550,788. 

(23)  THE  UNITED  STATES  REALTY  AND  IMPROVEMENT  COMPANY. 
Convertible  Debenture  Five  Per  Cent.  Gold  Bonds. 

Dated  July  1,  1904.  Due  July  1,  1924.  Interest  payable  January  and 
July  1st.  Redeemable  at  105  and  interest.  In  coupon  form,  $1,000 
each,  with  privilege  of  registration.  Authorized  issue,  $13,506,000. 
Outstanding,  $13,284,000.  Convertible  into  capital  stock  up  to  July  1, 
19Q8,  on  90  days'  prior  notice  in  writing,  on  the  basis  of  ten  shares 
(par  value  $100)  for  each  $1,000  bond.  At  the  time  of  giving  notice 
of  conversion  bondholders  must  deposit  bonds  with  the  New  York  Trust 
Company. 

Capital  stock  authorized,  $30,000,000;  outstanding,  $16,162,800.  There 
is  also  outstanding  $876,900  stock  of  subsidiary  companies.  For  the 
fiscal  year  ending  April  30,  1906,  the  Company  reports  net  income, 
$1,445,935,  interest  and  dividends  on  stock  of  subsidiary  companies, 
$680,789,  surplus,  $765,146. 

(24)  THE  WESTERN  UNION  TELEGRAPH  COMPANY. 
Convertible  Four  per  Cent.  Gold  Bonds. 

Dated  January  2,  1907.  Due  November  1,  1936.  Interest  payable  May 
and  November  1st,  but  the  first  payment  for  interest  will  be  for  four 
months  only,  from  January  2,  1907,  to  May  1,  1907.  Redeemable  at 
105  and  interest  on  and  after  May  1,  1912.  In  coupon  form,  $1,000 
each.  Registered  bonds  without  coupons,  $1,000,  $5,000  and  $10,000 
each.  Authorized  issue.  $25,000,000.  Outstanding,  $10,000,000.  Con- 
vertible at  the  option  of  holders,  or  registered  owners,  into  the  capital 
stock  of  the  Company  after  January  2,  1909,  and  before  January  2,  1919, 
on  the  basis  of  ten  shares  of  stock  (par  value  $100)  for  each  $1,000 
bond.  If  called  for  payment,  bonds  may  be  converted  within  said 
period  up  to  thirty  days  prior  to  redemption  date. 

These  bonds  are  secured  by  pledge  of  collateral,  the  total  bonds  out- 
standing at  any  time  not  to  exceed  85%  of  the  appraised  value  of  the 
collateral.  The  authorized  capital  stock  of  the  Company  has  been  in- 
creased from  $100,000,000  to  $125,000,000  to  provide  for  conversion 
of  the  bonds.  The  outstanding  bonds  provide  for  construction  of  new 
lines  and  wires  and  purchase  of  new  property. 

For  the  fiscal  year  ending  June  30,  1906,  the  Company  reports  net 
revenue  $7,070,582,  interest  $1,327,975,  dividends  on  outstanding  stock 
$4,868,088,  surplus  $874,519.  Following  is  the  dividend  record  since 
1886:  1887,  2%;  1888  and  1889,  5%;  1890,  53^0;  1891,  5%;  1892, 
5%  and  10%  in  stock ;  since  which  date  the  distribution  has  been  at 
the  rate  of  5%  per  annum. 


CIRCULAR    ON    CONVERTIBLE   BONDS  335 

(25)  THE  WESTINGHOUSE  ELECTRIC  AND  MANUFACTURING  COM- 
PANY. 

Convertible  Five  Per  Cent.  Sinking  Fund  Gold  Bonds. 
Dated  January  1,  1906.  Due  January  1,  1931.  Interest  payable 
January  and  July  1st.  In  coupon  form,  $1,000  each,  with  privilege  of 
registration.  Beginning  with  December  31,  1907,  an  annual  sinking 
fund  of  $500,000  must  be  made  for  the  purchase  of  bonds  at  not  to 
exceed  105  and  interest,  or  on  and  after  January  1,  1912,  for  the  re- 
demption thereof.  Authorized  issue,  $20,000,000.  Outstanding,  $15,000,- 
080.  Convertible  into  "assenting"  stock  after  January  1,  1910,  and  up 
to  30  days  prior  to  any  date  of  redemption,  on  the  basis  of  $500  par 
value  "assenting"  stock  for  each  $1,000  bond.  (The  term  "assenting" 
means  that  all  but  $3,650  of  the  common  stock  agreed  to  participate 
in  the  plan  for  reorganizing  the  Company.)  There  is  $20,966,350 
"assenting"  stock  outstanding.  There  is  also  $3,998,700  7%  cumulative 
preferred  stock  outstanding,  which  has  preference  as  to  assets  and 
dividends.  The  preferred  stock  has  the  right  to  share  equally  vrith 
the  "assenting"  stock  after  the  latter  receives  7%. 

The  outstanding  bonds  will  provide  for  all  the  indebtedness  of  the 
Company,  except  $2,500,000  5%  gold  debenture  certificates  and  $6,000,- 
000  collateral  notes,  due  August  1,  1907.  The  5%  gold  debentures  will 
be  provided  for  at  maturity  by  reservation  of  $2,500,000  convertible  5s ; 
while  it  is  expected  that  the  5%  notes  will  be  paid  from  a  part  of 
the  collateral  pledged  as  security. 

The  indenture  stipulates  that  the  properties  securing  these  bonds  are 
free  from  mortgage,  that  no  mortgage  shall  be  placed  thereon  and  that 
no  additional  notes  or  other  bills  payable  shall  be  issued  at  any  time, 
unless  the  average  of  the  annual  net  earnings  for  the  three  calendar 
years  next  preceding  shall  be  at  least  double  the  amount  of  the  annual 
interest  upon  the  entire  indebtedness  of  the  Company  at  the  date  of 
such  issue,  including  the  bonds,  collateral  notes  or  other  bills  payable 
so  to  be  issued;  also  that  the  Company  will  not  issue  any  stock  entitled 
to  preference  or  priority  over  the  "assenting"  stock,  and  that  none  of 
its  capital  stock  shall  be  distributed  by  way  of  stock  dividends  or  issued 
at  a  price  more  than  ten  per  cent,  .below  the  market  price  of  the 
"assenting"  stock  at  the  time  such  stock  is  offered  for  subscription  or 
sale. 

Dividends  at  the  rate  of  10%  per  annum  are  paid  upon  $3,998,700 
preferred  stock  and  $20,996,350  assenting  stock.  For  the  five  months 
ending  August  31,  1906,  net  earnings,  $2,002,258,  interest,  adjustment, 
depreciation,  etc.,  $576,265,  dividends  $1,041,494,  surplus,  $384,499. 

All  statements  made  in  this  circular  are  obtained  from  reliable 
sources,  and  although  we  cannot  guarantee  their  accuracy,  we  believe 
them  to  be  correct. 

SPENCER  TRASK  &  CO., 

State  and  James  Streets,  William  and  Pine  Streets, 

Albany,  N.  Y.  New  York. 


336         MATERIALS   OF   CORPORATION   FINANCE 

SPECIMEN  OF  OFFER  TO  PURCHASE  BONDS  WHERE  THE 
MORTGAGE  GIVES  TRUSTEES  THE  RIGHT  TO  IN- 
VEST SINKING  FUNDS  IN  BONDS.  BONDS  ARE  NOT 
REDEEMABLE. 

PENNSYLVANIA  COAL  &  COKE  COMPANY.1 

First  Mortgage  5%  Bonds,  Series  "A"  Sinking  Fund. 

Notice  is  hereby  given  that  pursuant  to  the  Sinking  Fund  provision 
of  the  above  mortgage,  dated  July  1,  1902,  proposals  will  be  received 
at  the  office  of  the  Commercial  Trust  Company,  Trustee,  20  South 
Broad  Street,  Philadelphia,  for  the  sale  to  the  Trustee,  of  a  sufficient 
number  of  bonds  to  consume  the  sum  of  $28,851.45  now  in  the  Sink- 
ing Fund,  at  a  price  not  to  exceed  105  per  cent,  and  accrued  interest. 
The  right  is  reserved  to  reject  any  or  all  proposals  in  whole  or  in  part. 

Proposals  should  be  sealed  and  marked  "Proposals  for  the  Sale  of 
Pennsylvania  Coal  and  Coke  Company  Series  'A'  Bonds,"  and  be  pre- 
sented to  the  undersigned  before  12  o'clock  noon  on  Tuesday,  the  19th 
of  December,  1911. 

COMMERCIAL  TRUST  COMPANY,  Trustee, 
W.  A.  OBDYKE,  Treasurer. 

Philadelphia,  December  1,  1911. 

LOUISVILLE  &  NASHVILLE  RAILROAD  COMPANY.* 
71  Broadway,  New  York. 

November  27th,  1911. 

Pensacola  &  Atlantic  R.  R.  Company  6%  Mortgage. 
In  accordance  with  the  terms  of  the  mortgage  of  the  Pensacola  & 
Atlantic  Railroad  Company,  the  following  eighty-seven  (87)  bonds 
have  this  day  been  drawn  by  the  Trustees  for  the  Sinking  Fund,  viz. : 


26 

280 

540 

885 

1177 

1408 

1945 

2236 

107 

292 

544 

886 

1190 

1435 

1960 

2245 

157 

332 

557 

904 

1203 

1469 

1975 

2264 

177 

338 

566 

923 

1232 

1640 

1990 

2304 

213 

357 

579 

935 

1245 

1672 

1995 

2308 

227 

363 

664 

965 

1248 

1695 

2077 

2332 

230 

432 

671 

982 

1297 

1799 

2159 

2334 

232 

434 

675 

1033 

1312 

1816 

2197 

2399 

238 

464 

726 

1052 

1322 

1822 

2220 

2436 

240 

487 

787 

1058 

1329 

1852 

2222 

2465 

263 

496 

863 

1151 

1342 

1912 

2226 

The  interest  on  the  same  will  cease  February  1,  1912,  and  the  prin- 
cipal of  the  bonds,  plus  ten  per  cent,  premium,  will  be  redeemed  at 
this  office  on  and  after  that  date. 

E.  L.  SMITHERS,  Assistant  Treasurer. 

1  Notice  advertised  in  New  York  Times  of  December  1,  1911. 

2  Notice  advertised  in  New  York  Times  of  December  11,  1912. 


NEW  JERSEY   PUBLIC   UTILITIES   ACT         337 


PUBLIC  UTILITIES  COMMISSION  ACT  OF  NEW  JERSEY. 

AN  ACT  concerning  public  utilities;  to  create  a  Board  of  Public 
Utility  Commissioners  and  to  prescribe  its  duties  and  powers. 

BE  IT  ENACTED  by  the  Senate  and  General  Assembly  of  the  State  of 
New  Jersey: 

I 

1.  There  shall  be  a  commission  vested  with  the  powers  and  duties1 
hereinafter  specified,  which  shall  consist  of  three  persons,  citizens  of 
this  State,  not  under  thirty  years  of  age,,  who  shall  be  appointed  by 
the  Governor,  by  and  with  the  advice  and  consent  of  the  Senate,  and 
who  shall  constitute  and  be  designated  and  known  as  the  Board  of 
Public  Utility  Commissioners. 

2.  The  Board  of  Public  Utility  Commissioners,  as  heretofore  con- 
stituted, shall  be  the  Board  of  Public  Utility  Commissioners  under 
this  act  until  the  expiration  of  the  term  of  office  of  each  of  said  com- 
missioners respectively,  and  at  the  expiration  of  their  respective  terms 
a  successor  shall  be  appointed  for  the  term  of  six  years  from  the  date 
of  such  expiration.     All  vacancies,  except  through  expiration  of  term, 
shall  be  filled  for  the  uriexpired  term  only.     The  Governor  may  re- 
move any  commissioner  for  neglect  of  duty  or  misconduct  in  office, 
giving  to  him  a  copy  of  the  charges  against  him  and  an  opportunity 
of  being  publicly  heard  in  person  or  by  counsel  in  his  own  defense 
upon  not  less  than  ten  days'  notice. 

3.  The  members  of  said  board  shall  each  receive  an  annual  com- 
pensation of  seven  thousand  five  hundred  dollars,  to  be  paid  in  equal 
monthly  payments  by  the  Treasurer  or  the  State. 

4.  The  commissioners  and  secretary  and  other  employes  of  said 
board  shall  be  entitled  to  receive  from  the  State  of  New  Jersey  their 
necessary  traveling  expenses  while  traveling  on  the  business  of  said 
board,  which  shall  be  paid  on  proper  voucher  therefor,  approved  by 
the  president  of  said  board. 

5.  The  board  shall  organize  annually  by  the  election  of  a  president ; 
it  shall  appoint  a  secretary,  counsel  and  such  other  employes  as  it 
may  deem  necessary,  fix  their  duties,  compensation  and  terms  of 
service. 

6.  The  secretary  shall  keep  full  and  correct  minutes  of  all  of  the 
transactions  and  proceedings  of  the  board ;  perform  such  other  duties 
as  may  be  required  of  him,  and  shall  be  the  official  reporter  of  the 
proceedings  of  the  board. 

7.  The  board  shall  furnish  its  secretary  such  of  its  findings  and 


338         MATERIALS    OF    CORPORATION    FINANCE 

decisions  as,  in  its  judgment,  may  be  of  general  public  interest;  the 
secretary  shall  compile  the  same  for  the  purpose  of  publication  in  a 
series  of  volumes  to  be  designated  "Reports  of  the  Board  of  Public 
Utility  Commissioners  of  the  State  of  New  Jersey,"  which  shall  be 
published  in  such  form  and  manner  as  may  be  best  adapted  for  public 
information  and  use,  and  such  authorized  publications  shall  be  com- 
petent evidence  of  the  reports  and  decisions  of  the  commission  therein 
contained  without  any  further  proof  or  authentication  thereof.  The 
contents  of  said  reports  shall  not  be  under  the  supervision  or  control 
of  the  official  State  editor. 

8.  The  board  shall  purchase  such  materials,  apparatus  and  standard 
measuring  instruments  as  it  may  deem  necessary. 

9.  No  member  or  employe  of  said  board  shall  have  any  official  or 
professional  relation  or  connection  with,  or  hold  any  stock  or  securi- 
ties in,  any  public  utility  as  herein  defined,  operating  within  the  State 
of  New  Jersey,  nor  hold  any  other  office  of  profit  or  trust  under  the 
government  of  this  State  or  of  the  United  States. 

10.  The  board  shall  have  an  office  in  the  State  House,  and  in  such 
other  place  or  places  as  it  may  designate,  and  shall  meet  at  such  times 
and  places  within  this  State  as  it  may  provide  by  rule  or  otherwise, 
and  shall  be  provided  with  all  necessary  furniture,  stationery,  maps, 
supplies  and  office  appliances. 

11.  The  board  shall  have  the  power  to  make  all  needful  rules  for 
its  government  and  other  proceedings  not  inconsistent  with  this  act, 
and  shall  have  and  adopt  a  common  seal. 

12.  The  total  expenses  of  the  board,  including  salaries,  shall  not 
exceed  one  hundred  thousand  dollars  per  annum. 

13.  The  members  of  the  board  are  hereby  empowered  to  sit  singly 
for  the  purpose  of  taking  testimony  in  any  proceeding.     A  majority 
vote  of  the  board  shall  be  necessary  to  the  making  of  any  order. 

14.  The  board  shall  report  annually,  on  or  before  the  first  day  of 
January,  to  the  Governor,  making  such  recommendations  as  it  may 
deem  proper,  which  report  shall  be  laid  before  the  next  succeeding 
Legislature. 

15.  The  board  shall  have  general  supervision  and  regulation  of, 
jurisdiction  and  control  over,  all  public  utilities,  and  also  over  their 
property,  property  rights,  equipment,  facilities  and  franchises  so  far 
as  may  be  necessary  for  the  purpose  of  carrying  out  the  provisions  of 
this  act.     The  term  "public  utility"  is  hereby  defined  to  include  every 
individual,  co-partnership,  association,  corporation  or  joint  stock  com- 
pany, their  lessees,  trustees  or  receivers  appointed  by  any  court  what- 
soever, that  now  or  hereafter  may  own,  operate,  manage  or  control 
within  the  State  of  New  Jersey  any  steam  railroad,  street  railway,  trac- 


NEW   JERSEY   PUBLIC   UTILITIES   ACT         339 

tion  railway,  canal,  express,  subway,  pipe  line,  gas,  electric  light,  heat, 
power,  water,  oil,  sewer,  telephone,  telegraph  system  plant  or  equip- 
ment for  public  use,  under  privileges  granted  or  hereafter  to  be 
granted  by  the  State  of  New  Jersey  or  by  any  political  subdivision 
thereof. 

II 
16.  The  board  shall  have  power: 

(a)  To  investigate,  upon  its  own  initiative,  or  upon  complaint  in 
writing,  any  matter  concerning  any  public  utility  as  herein  defined. 

(b)  From  time  to  time  to  appraise  and  value  the  property  of  any 
public  utility  as  herein  defined,  whenever  in  the  judgment  of  said 
board  it  shall  be  necessary  so  to  do,  for  the  purpose  of  carrying  out 
any  of  the  provisions  of  this  act,  and  in  making  such  valuation  the 
board  may  have  access  to  and  use  any  books,  documents  or  records  in 
the  possession  of  any  department  or.  board  of  the  State  or  any  political 
subdivision  thereof. 

(c)  After  hearing,  upon  notice,  by  order  in  writing,  to  fix  just  and 
reasonable  individual  rates,  joint  rates,  tolls,  charges  or  schedules 
thereof,  as  well  as  commutation,  mileage  and  other  special  rates  which 
shall  be  imposed,  observed  and  followed  thereafter  by  any  public 
utility  as  herein  defined,  whenever  the  board  shall  determine  any  ex- 
isting individual  rate,  joint  rate,  toll,  charge  or  schedule  thereof  or 
commutation,  mileage,  or  other  special  rate  to  be  unjust,  unreasonable, 
insufficient  or  unjustly  discriminatory  or  preferential. 

(d)  To  require  every  public  utility  as  herein  defined  to  file  with  it 
complete  schedules  of  every  classification  employed  and  of  every  indi- 
vidual or  joint  rate,  toll,  fare  or  charge  made,  charged  or  exacted  by  it 
for  any  product  supplied  or  service  rendered  within  this  State,  as 
specified  in  such  requirement. 

(e)  After  hearing,  by  order  in  writing,  to  fix  just  and  reasonable 
standards,    classifications,    regulations,    practices,    measurements    or 
service  to  be  furnished,  imposed,  observed,  and  followed  thereafter  by 
any  public  utility  as  herein  defined. 

(f)  After  hearing,  by  order  in  writing,  to  ascertain  and  fix  ade- 
quate and  serviceable  standards  for  the  measurement  of  quantity, 
quality,  pressure,  initial  voltage  or  other  condition  pertaining  to  the 
supply  of  the  product  or  service  rendered  by  any  public  utility  as 
herein  defined,  and  to  prescribe  reasonable  regulations  for  examina- 
tion and  test  of  such  product*  or  service  and  for  the  measurement 
thereof. 

(g)  After  hearing,  by  order  in  writing,  to  establish  reasonable 
rules,  regulations,  specifications  and  standards,  to  secure  the  accuracy 
of  all  meters  and  appliances  for  measurements. 


340         MATERIALS   OF   CORPORATION   FINANCE 

(h)  To  provide  for  the  examination  any  test  of  any  and  all  appli- 
ances used  for  the  measuring  of  any  product  or  service  of  a  public 
utility  as  herein  defined. 

(i)  By  its  agents,  experts  or  examiners,  to  enter  upon  any  premises 
occupied  by  any  public  utility  as  herein  defined,  for  the  purpose  of 
making  the  examinations  and  tests  provided  for  in  this  act  and  to 
set  up  and  use  on  such  premises  any  apparatus  and  appliances  neces- 
sary therefor. 

(j)  To  fix  the  fees  to  be  paid  by  any  consumer  or  user  of  any 
product  or  service  of  a  public  utility  as  herein  defined,  who  may  apply 
to  said  board  for  such  examination  or  test  to  be  made,  and  any  con- 
sumer or  user  may  have  any  such  appliance  tested  upon  the  payment 
of  the  fees  fixed  by  the  board,  which  fees  shall  be  repaid  to  the  con- 
sumer or  user  if  the  appliance  be  found  defective  or  incorrect  to  the 
disadvantage  of  the  consumer  or  user,  and  in  that  event,  paid  by  the 
public  utility. 

(k)  After  hearing,  upon  notice,  by  order  in  writing,  to  direct  any 
railroad  or  street  railway  company  to  establish  and  maintain  at  any 
junction  or  point  of  connection  or  intersection  with  any  other  line  of 
said  road,  or  with  any  line  or  any  other  railroad,  street  railway,  or 
traction  company,  such  just  and  reasonable  connections  as  shall  be 
necessary  to  promote  the  convenience  of  shippers  of  property,  or  of 
passengers  and  in  like  manner  to  direct  any  railroad,  street  railway 
or  traction  company  engaged  in  carrying  merchandise  to  construct, 
maintain  and  operate,  upon  reasonable  terms,  a  switch  connection 
with  any  private  side-track,  which  may  be  constructed  by  any  shipper 
to  connect  with  the  railroad  or  street  railway  where,  in  the  judgment 
of  the  board,  such  connection  is  reasonable  and  practicable,  and  can 
be  put  in  with  safety,  and  will  furnish  sufficient  business  to  justify  the 
construction  and  maintenance  of  the  same. 

(1)  To  permit  any  street  railway  or  traction  company  to  change  its 
existing  gauge  to  standard  steam  railroad  gauge,  upon  such  terms  and 
conditions  as  said  board  shall  prescribe. 

17.  The  board  shall  have  power,  after  hearing,  upon  notice,  by  order 
in  writing,  to  require  every  public  utility  as  herein  defined: 

(a)  To  comply  with  the  laws  of  this  State  and  any  municipal  ordi- 
nance relating  thereto  and  to  conform  to  the  duties  imposed  upon  it 
thereby  or  by  the  provisions  of  its  own  charter,  whether  obtained  under 
any  general  or  special  law  of  this  State. 

(b)  To  furnish  safe,  adequate  and  proper  service  and  to  keep  and 
maintain  its  property  and  equipment  in  such  condition  as  to  enable  it 
to  do  so. 


NEW  JERSEY   PUBLIC   UTILITIES   ACT         341 

(c)  To  establish,  construct,  maintain  and  operate  any  reasonable 
extension  of  its  existing  facilities,  where,  in  the  judgment  of  said 
board  such  extension  is  reasonable  and  practicable  and  will  furnish 
sufficient  business  to  justify  the  construction  and  maintenance  of  the 
same,  and  when  the  financial  condition  of  the  said  public  utility  rea- 
sonably warrants  the  original  expenditure  required  in  making  and 
operating  such  extension. 

(d)  To  keep  its  books,  records  and  accounts  so  as  to  afford  an  intelli- 
gent understanding  of  the  conduct  of  its  business  and  to  that  end  to 
require  every  such  public  utility  of  the  same  class  to  adopt  a  uniform 
system  of  accounting.     Such  system  shall  conform,  in  so  far  as  in  the 
judgment  of  the  board  is  practicable,  to  any  system  adopted  or  ap- 
proved by  the  inter-state  commerce  commission  of  the  United  States 
of  America. 

(e)  To  furnish  annually  a  detailed  report  of  finances  and  opera- 
tions, in  such  form  and  containing  such  matters  as  the  board  may 
from  time  to  time  by  order  prescribe. 

(f)  To  carry,  whenever  in  the  judgment  of  the  board  it  may  rea- 
sonably be  required,  for  the  protection  of  stockholders,  bondholders  or 
creditors,  a  proper  and  adequate  depreciation  account  in  accordance 
with  such  rules,  regulations  and  forms  of  account  as  the  board  may 
prescribe.     The  board  shall  from  time  to  time  ascertain  and  deter- 
mine, and  by  order  in  writing  after  hearing  fix  proper  and  adequate 
rates  of  depreciation  of  the  property  of  each  public  utility,  in  accord- 
ance with  such  regulations  or  classifications,  which  rates  shall  be  suffi- 
cient to  provide  the  amounts  required  over  and  above  the  expense  of 
maintenance  to  keep  such  property  in  a  state  of  efficiency  correspond- 
ing to  the  progress  of  the  industry.     Each  public  utility  shall  conform 
its  depreciation  accounts  to  the  rates  so  ascertained,  determined  and 
fixed,  and  shall  set  aside  the  moneys  so  provided  for  out  of  earnings 
and  carry  the  same  in  a  depreciation  fund.     The  income  from  invest- 
ments of  moneys  in  such  fund  shall  likewise  be  carried  in  such  fund. 
This  fund  shall  not  be  extended  otherwise  than  for  depreciation,  im- 
provements, new  constructions,  extensions  or  additions  to  the  property 
of  such  public  utility. 

(g)  To  give  such  notice  to  the  board  as  the  board  may  by  rule  re- 
quire of  any  and  all  accidents  which  may  occur  within  this  State  upon 
the  property  of  any  public  utility  as  herein  defined  or  directly  or  in- 
directly arising  from  or  connected  with  its  maintenance  or  operation, 
and  to  investigate  any  such  accident  and  to  make  such  order  or  recom- 
mendation with  respect  thereto  as  in  its  judgment  may  be  just  and 
reasonable. 


342         MATERIALS    OF   CORPORATION    FINANCE 

(h)  When  any  public  utility  as  herein  defined  shall  increase  any 
existing  individual  rates,  joint  rates,  tolls,  charges  or  schedules  there- 
of, as  well  as  commutation,  mileage  and  other  special  rates,  or  change 
or  alter  any  existing  classification,  the  board  shall  have  power  either 
upon  written  complaint  or  upon  its  own  initiative  to  hear  and  deter- 
mine whether  the  said  increase,  change  or  alteration  is  just  and  rea- 
sonable. The  burden  of  proof  to  show  that  the  said  increase,  change 
or  alteration  is  just  and  reasonable  shall  be  upon  the  public  utility 
making  the  same.  The  board  shall  have  power  pending  such  hearing 
and  determination  to  order  the  suspension  of  the  said  increase,  change 
or  alteration  until  the  said  board  shall  have  approved  said  increase, 
change  or  alteration,  not  exceeding  three  months.  It  shall  be  the 
duty  of  the  said  board  to  approve  any  such  increase,  change  or  altera- 
tion upon  being  satisfied  that  the  same  is  just  and  reasonable. 

Ill 

18.  No  public  utility  as  herein  defined  shall : 

(a)  Make,  impose  or  exact  any  unjust  or  unreasonable,  unjustly 
discriminatory  or  unduly  preferential  individual  or  joint  rate,  com- 
mutation rate,  mileage  and  other  special  rate,  toll,  fare,  charge  or 
schedule  for  any  product  or  service  supplied  or  rendered  by  it  within 
this  State. 

(b)  Adopt  or  impose  any  unjust  or  unreasonable  classification  in 
the  making  or  as  the  basis  of  any  individual  or  joint  rate,  toll,  fare, 
charge  or  schedule  for  any  product  or  service  rendered  by  it  within 
this  State. 

(c)  Adopt,  maintain  or  enforce  any  regulation,  practice  or  meas- 
urement which  shall  be  unjust,  unreasonable,  unduly  preferential, 
arbitrarily  or  unjustly  discriminatory  or  otherwise  in  violation  of 
law ;  nor  shall  any  public  utility  as  herein  defined  provide  or  maintain 
any  service  that  is  unsafe,  improper  or  inadequate,  or  withhold  or  re- 
fuse any  service  which  can  reasonably  be  demanded  and  furnished 
when  ordered  by  said  board. 

(d)  Make  or  give,  directly  or  indirectly,  any  undue  or  unreasonable 
preference  or  advantage  to  any  person  or  corporation  or  to  any  locality 
or  to  any  particular  description  of  traffic  in  any  respect  whatsoever, 
or  subject  any  particular  person  or  corporation  or  locality  or  any  par- 
ticular description  of  traffic  to  any  prejudice  or  disadvantage  in  any 
respect  whatsoever. 

(e)  Hereafter  issue  any  stocks,  stock  certificates,  bonds  or  other 
evidences  of  indebtedness  payable  in  more  than  one  year  from  the  date 
thereof  until  it  shall  have  first  obtained  authority  from  the  board  for 


NEW  JERSEY   PUBLIC   UTILITIES   ACT          343 

such  proposed  issue.  It  shall  be  the  duty  of  the  board,  after  hearing, 
to  approve  of  any  such  proposed  issue  maturing  in  more  than  one 
year  from  the  date  thereof,  when  satisfied  that  the  same  is  to  be  made 
in  accordance  with  law  and  the  purpose  of  such  issue  be  approved  by 
said  board. 

(f)  Capitalize  any  franchise  to  be  a  corporation;  capitalize  any 
franchise  in  excess  of  the  amount  (exclusive  of  any  tax  or  annual 
charge)  actually  paid  to  the  State  or  any  political  subdivision  thereof 
as  the  consideration  of  such  franchise;  capitalize  any  contract  for 
consolidation,  merger  or  lease;  issue  any  bonds  or  other  evidence  of 
indebtedness  against  or  as  a  lien  upon  any  contract  for  consolidation, 
merger  or  lease;  provided,  however,  that  the  provisions  of  this  section 
shall  not  prevent  the  issuance  of  stock,  bonds  or  other  evidence  of 
indebtedness  subject  to  the  approval  of  said  board  by  any  lawfully 
merged  or  consolidated  public  utilities  not  in  contravention  of  the 
provisions  of  this  section. 

(g)  Hereafter  give,  grant  or  bestow  upon  any  local,  municipal  or 
county  official  any  discrimination,  gratuity  or  free  service  whatsoever, 
but  nothing  herein  contained  shall  prevent  the  entry  into  any  public 
conveyance  or  in  or  upon  the  property  of  any  such  public  utility  as 
herein  defined  of  any  such  official  in  the  pursuit  of  his  public  duties 
in  connection  with  the  particular  conveyance  or  property  so  entered 
by  him,  upon  exhibiting  his  authority  so  to  do. 

(h)  Without  the  approval  of  the  board  sell,  lease,  mortgage,  or 
otherwise  dispose  of  or  encumber  its  property,  franchises,  privileges 
or  rights,  or  any  part  thereof;  nor  merge  or  consolidate  its  property, 
franchises,  privileges  or  rights,  or  an  part  thereof,  with  that  of  any 
other  public  utility  as  herein  defined.  Every  sale,  lease,  mortgage, 
disposition,  encumbrance,  merger  or  consolidation  made  in  violation 
of  any  of  the  provisions  hereof  shall  be  void  and  of  no  effect.  Noth- 
ing herein  contained  shall  be  construed  in  any  wise  to  prevent  the  sale, 
lease  or  other  disposition  by  any  public  utility  as  herein  defined  of  any 
of  its  property  in  the  ordinary  course  of  its  business. 

19.  No  public  utility  as  herein  defined  incorporated  under  the  laws 
of  this  State  shall  sell,  nor  shall  any  such  public  utility  make  or  per- 
mit to  be  made  upon  its  books  any  transfer  of  any  share  or  shares  of 
its  capital  stock,  to  any  other  public  utility  as  herein  defined,  unless 
authorized  to  do  so  by  the  board.  Nor  shall  any  public  utility  as 
herein  defined  incorporated  under  the  laws  of  this  State  sell  any  share 
or  shares  of  its  capital  stock  or  make  or  permit  any  transfer  thereof 
to  be  made  upon  its  books,  to  any  corporation,  domestic  or  foreign, 
result  of  which  sale  or  transfer  in  itself  or  in  connection  with  other 
previous  sales  or  transfers  shall  be  to  vest  in  such  corporation  a  ma- 


344 

jority  in  interest  of  the  outstanding  capital  stock  of  such  public  utility 
corporation  unless  authorized  to  do  so  by  the  board.  Every  assign- 
ment, transfer,  contract  or  agreement  for  assignment  or  transfer  by  or 
through  any  person  or  corporation  to  any  corporation  in  violation  of 
any  of  the  provisions  hereof  shall  be  void  and  of  no  effect,  and  no  such 
transfer  shall  be  made  on  the  books  of  any  public  utility  corporation. 
Nothing  herein  contained  shall  be  construed  to  prevent  the  holding 
of  stock  heretofore  lawfully  acquired. 

20.  No  railroad  company  shall,  without  first  obtaining  the  approval 
of  the  board,  abandon  any  railroad  station  or  stop  the  sale  of  passen- 
ger tickets,  or  cease  to  maintain  an  agent  to  receive  and  discharge 
freight  at  any  station  now  or  hereafter  established  in  this  State,  at 
which  passenger  tickets  are  now  or  may  hereafter  be  regularly  sold, 
or  at  which  such  agent  is  now  or  may  hereafter  be  maintained. 

21.  No  highway  shall  be  constructed  across  the  tracks  of  any  rail- 
road company  at  grade,  nor  shall  the  tracks  of  any  railroad  company, 
street  railway  or  traction  company  be  laid  across  any  highway,  so  as 
to  make  a  new  crossing  at  grade,  nor  shall  the  tracks  of  any  -railroad 
or  street  railway  or  traction  company  be  laid  across  the  tracks  of  any 
other  railroad  or  street  railway  or  traction  company  without  first  ob- 
taining therefor  permission  from  the  board;  provided,  however,  that 
this  section  shall  not  apply  to  the  replacement  of  lawfully  existing 
tracks. 

22.  Whenever  it  appears  to  the  board  that  a  public  highway  and  a 
railroad  cross  one  another,  or  that  a  public  highway  and  a  street  rail- 
way cross  one  another,  or  that  a  railroad  and  a  street  railway  cross 
one  another  at  the  same  level,  and  that  conditions  at  such  grade  cross- 
ing make  it  necessary  for  the  protection  of  the  traveling  public  at 
such  grade  crossing  that  gates  be  erected  or  that  some  other  reasonable 
provision  for  the  protection  of  the  traveling  public  at  such  grade 
crossing  should  be  adopted,  the  board  may  order  and  direct  such  rail- 
road company  or  such  street  railway  company,  or  either  or  both  of 
them,  to  install  such  protective  device  or  devices  or  adopt  such  other 
reasonable  provision  for  the  protection  of  the  traveling  public  at  such 
crossing  as  in  the  discretion  of  the  board  shall  be  necessary. 

23.  Said  board  shall  have  power  to  require  every  public  utility  as 
herein  defined  to  file  with  the  board  a  statement  in  writing,  verified 
by  the  oaths  of  the  president  and  secretary  thereof,  respectively,  set- 
ting forth  the  name,  title  of  office  or  position  and  post-office  address, 
and  the  authority,  power  and  duties  of  every  officer,  member  of  the 
board  of  directors,  trustees,  executive  committee,  superintendent,  chief 
or  head  of  construction  and  operation,  or  department,  division  or  line 
of  construction  and  operation  thereof,  in  such  form  as  to  disclose  the 


NEW  JERSEY   PUBLIC   UTILITIES   ACT         345 

source  and  origin  of  each  administrative  act,  rule,  decision,  order  or 
other  action  of  the  corporation,  and  shall,  within  ten  days  after  any 
change  is  made  in  the  title  of,  or  authority,  powers  or  duties  apper- 
taining to  any  such  office  or  position,  or  the  person  holding  the  same, 
file  with  the  board  a  like  statement,  verified  in  like  manner,  setting 
forth  such  change. 

24.  No  privilege  or  franchise  hereafter  granted  to  any  public  utility 
as  herein  defined,  by  any  political  sub-division  of  this  State,  shall  be 
valid  until  approved'  by  said  board,  such  approval  to  be  given  when, 
after  hearing,  said  board  determines  that  such  privilege  or  franchise 
is  necessary  and  proper  for  the  public  convenience  and  properly  con- 
serves the  public  interests,  and  the  board  shall  have  power  in  so  ap- 
proving to  impose  such  conditions  as  to  construction,   equipment, 
maintenance,  service  or  operation  as  the  public  convenience  and  inter- 
ests may  reasonably  require. 

25.  Every  municipality  operating  any  form  of  public  utility  service 
shall  keep  the  accounts  thereof  in  the  manner  prescribed  by  the  board 
for  the  accounting  of  similar  public  utilities,  and  shall  file  with  said 
board  such  statements  thereof  as  it  may  be  directed  so  to  do  by  said 
board. 

IV 

26.  All  hearings  and  investigations  before  the  board  or  any  member 
thereof  shall  be  governed  by  rules  adopted  by  the  board,  and  in  the 
conduct  thereof  neither  the  board  nor  such  member  shall  be  bound  by 
the  technical  rules  of  legal  evidence. 

27.  The  board  shall  have  power  to  compel  the  attendance  of.  wit- 
nesses and  the  production  of  tariffs,  contracts,  papers,  books,  accounts 
and  all  other  documents,  and  any  member  of  the  board  shall  have 
power  to  administer  oaths  to  all  witnesses  who  may  be  called  before 
the  board  or  any  member  thereof.     Subpoenas  issued  by  the  board 
shall  be  signed  by  one  of  the  members  thereof  and  by  the  secretary 
and  may  be  served  by  any  person  of  full  age.    The  fees  of  witnesses  re- 
quired to  attend  before  the  board  shall  be  one  dollar  for  each  day's 
attendance  and  three  cents  for  every  mile  of  travel,  by  the  nearest 
generally  traveled  route,  in  going  to  and  from  the  place  where  the 
attendance  of  the  witness  is  required,  such  fees  to  be  paid  when  the 
witness  is  excused  from  further  attendance,  and  the  disbursements 
made  in  payment  of  such  fees  shall  be  audited  and  paid  in  the  same 
manner  provided  for  the  payment  of  expenses  of 'the  board ;  provided, 
however,  that  no  witness  subpoenaed  at  the  instance  of  parties  other 
than  the  board  shall  be  entitled  to  compensation  from  the  State  for 
attendance  or  travel,  unless  the  board  shall  certify  that  his  testimony 
was  material  to  the  matter  investigated.    If  a  person  subpoenaed  to 


346         MATERIALS    OF   CORPORATION   FINANCE 

attend  before  the  board,  or  a  member  thereof,  fails  to  obey  the  com- 
mand of  such  subpoena  without  reasonable  cause,  or  if  a  person  in 
attendance  before  the  board,  or  a  member  thereof,  refuses,  without 
lawful  cause,  to  be  examined  or  to  answer  a  legal  or  pertinent  ques- 
tion, or  to  produce  a  book  or  paper,  when  ordered  so  to  do  by  the 
board,  or  any  member  thereof,  the  board  or  such  member  thereof  may 
apply  to  the  Supreme  Court  or  any  justice  thereof,  who  shall  have  the 
power  of  the  court  for  that  purpose,  upon  proof,  by  affidavit  of  the. 
facts,  for  an  order  returnable  in  not  less  than  two  nor  more  than  ten 
days,  directing  such  persons  to  show  cause  before  the  court,  or  the 
justice  thereof  who  made  the  order,  or  to  any  other  justice,  why  he 
should  not  comply  with  the  subpoena  or  order  of  the  board ;  upon  the 
return  of  such  order  the  court  or  justice  before  whom  the  matter  shall 
come  on  for  hearing,  shall  examine  under  oath  such  person  whose 
testimony  may  be  relevant,  and  such  person  shall  be  given  an  oppor- 
tunity to  be  heard,  and  if  the  court  or  justice  shall  determine  that 
such  person  refused  without  legal  excuse  to  obey  the  command  of  such 
subpoena,  or  to  be  examined,  or  to  answer  a  legal  or  pertinent  ques- 
tion, or  to  produce  a  book  or  a  paper  which  he  was  ordered  to  produce, 
said  court  or  justice  may  order  said  person  to  comply  forthwith  with 
the  subpoena  or  order  of  the  board,  and  any  failure  to  obey  such  order 
of  the  court  or  justice  may  be  punished  by  said  court  or  justice  as  a 
contempt  of  said  Supreme  Court. 

28.  The  board  may,  in  any  investigation  or  hearing,  by  its  order 
in  writing,  cause  the  depositions  of  witnesses  residing  within  or  with- 
out the  State  to  be  taken  in  such  manner  as  it  may,  by  rule,  prescribe. 

29.  No  person  shall  be  excused  from  testifying  or  from  producing 
any  book,  document  or  paper  in  any  investigation  or  inquiry  by  or 
upon  the  hearing  before  said  board  or  any  member  thereof,  when 
ordered  so  to  do  by  the  board  or  any  member  thereof,  upon  the  ground 
that  the  testimony  or  evidence,  book,  document  or  paper  required  of 
him  may  tend  to  incriminate  him  or  subject  him  to  penalty  or  for- 
feiture, but  no  person  shall  be  prosecuted,  punished  or  subjected  to 
any  penalty  or  forfeiture  for  or  on  account  of  any  act,  transaction, 
matter  or  thing  concerning  which  he  shall,  under  oath,  have  testified 
or  produced  documentary  evidence ;  provided,  however,  that  no  person 
so  testifying  shall  be  exempt  from  prosecution  or  punishment  for  any 
perjury  committed  by  him  in  his  testimony.     Nothing  herein  con- 
tained is  intended  t<3  give,  or  shall  be  construed  in  any  manner  giv- 
ing, to  any  corporation  immunity  of  any  kind.     No  member  or  em- 
ploye of  the  board  shall  be  required  to  give  testimony  in  any  civil  suit 
to  which  the  board  is  not  a  party,  with  regard  to  information  obtained 
by  him  in  the  discharge  of  his  official  duty. 


NEW   JERSEY   PUBLIC   UTILITIES   ACT         347 

30.  Copies  of  all  official  documents  and  orders  filed  or  deposited  in 
the  office  of  the  board,  certified  by  a  member  of  the  board,  or  by  the 
secretary  to  be  true  copies  of  the  originals,  under  the  official  seal  of 
the  board,  shall  be  evidence  in  like  manner  as  the  originals  in  all 
courts  of  this  State,  and  the  board  may  charge  and  collect  for  such 
copies  ten  cents  for  each  folio ;  the  fees  so  collected  shall  be  paid  into 
the  treasury  of  the  State. 

31.  The  board,  at  any  time,  may  order  a  re-hearing  and  extend, 
revoke  or  modify  any  order  made  by  it. 

32.  Every  order  made  by  the  board  shall  be  served  upon  the  person 
or  public  utility,  as  herein  defined,  affected  thereby,  within  ten  days 
from  the  time  said  order  is  filed,  by  personally  delivering  or  by  mail- 
ing a  certified  copy  thereof,  in  a  sealed  package,  with  postage  prepaid, 
to  the  person  to  be  affected  thereby,  or  in  case  of  a  public  utility,  to 
any  officer  or  agent  thereof,  upon  whom  a  summons  may  be  served  in 
accordance  with  the  provisions  of  the  law  of  this  State.     All  orders  of 
the  board  to  continue  service  or  rates  in  effect  at  the  time  said  order 
is  made  shall  be  immediately  operative;  all  other  orders  shall  become 
effective  upon  the  date  specified  therein,  which  shall  be  at  least  twenty 
days  after  the  date  of  said  order. 

33.  In  default  of  compliance  with  any  order  of  the  board  when  the 
same  shall  become  effective  the  person  or  public  utility  affected  thereby 
shall  be  subject  to  a  penalty  of  one  hundred  dollars  per  day  for  every 
day  during  which  such  default  continues,  to  be  recovered  in  an  action 
of  debt  in  the  name  04  the  State,  and  observance  of  the  orders  of  the 
board  may  be  enforced  by  mandamus  or  injunction  in  appropriate 
cases,  or  by  suit  in  equity  to  compel  the  specific  performance  of  the 
order  or  orders  so  made,  or  of  the  duties  imposed  by  law  upon  such 
public  utility. 

34.  Any  person  who  shall  knowingly  and  willfully  perform,  com- 
mit or  do,  or  participate  in  performing,  committing  or  doing,  or  who 
shall  knowingly  and  willfully  cause,  participate  or  join  with  others  in 
causing  any  public  utility  corporation  or  company  to  do,  perform  or 
commit,  or  who  shall  advise,  solicit,  persuade,  or  knowingly  and  will- 
fully instruct,  direct  or  order  any  officer,  agent  or  employe  of  any 
public  utility  corporation  or  company  to  perform,  commit  or  do  any 
act  or  thing  forbidden  or  prohibited  by  this  act,  shall  be  guilty  of  a 
misdemeanor. 

35.  Any  person  who  shall  knowingly  and  willfully  neglect,  fail  or 
omit  to  do  or  perform,  or  who  shall  knowingly  and  willfully  cause  or 
join  or  participate  with  others  in  causing  any  public  utility  corpora- 
tion or  company  to  neglect,  fail  or  omit  to  do  or  perform,  or  who  shall 
advise,  solicit  or  persuade,  or  knowingly  and  willfully  instruct,  direct 


348         MATERIALS    OF   CORPORATION   FINANCE 

or  order  any  officer,  agent  or  employe  of  any  public  utility  corporation- 
or  company  to  neglect,  fail  or  omit  to  do  any  act  or  thing  required  to 
be  done  by  this  act  shall  be  guilty  of  a  misdemeanor. 

36.  Any  public  utility  corporation  which  shall  perform,  commit  or 
do  any  act  or  thing  hereby  prohibited  or  forbidden,  or  which  shall 
neglect,  fail  or  omit  to  do  or  perform  any  act  or  thing  hereby  required 
to  be  done  or  performed  by  it,  shall  be  guilty  of  a  misdemeanor. 

37.  This  act  shall  not  have  the  effect  to  release  or  waive  any  right 
of  action  by  the  board  or  by  any  person  for  any  right,  penalty  or  for- 
feiture which  may  have  arisen  or  which  may  arise,  under  any  of  the 
laws  of  this  State,  and  any  penalty  or  forfeiture  enforceable  under  this 
act  shall  not  be  a  bar  to  or  effect  a  recovery  for  a  right,  or  affect  or 
bar  any  indictment  against  any  public  utility  as  herein  defined,  or 
person  or  persons  operating  such  public  utility,  its  officers,  directors, 
agents  or  employes. 

38.  Any  order  made  by  the  board  may  be  reviewed  on  the  applica- 
tion of  any  person  or  public  utility  affected  thereby,  by  certiorari  in 
appropriate  cases,  or  by  petition,  to  the  Supreme  Court  of  the  State  of 
New  Jersey,  within  thirty  days  from  the  date  upon  which  such  order 
becomes  effective,  as  herein  provided;  said  petition  shall  be  filed  with 
the  clerk  of  the  Supreme  Court  and  a  copy  thereof  served  upon  the 
secretary  of  the  board  either  personally  or  by  leaving  same  at  the 
office  of  said  board  in  the  city  of  Trenton.     The  Supreme  Court  is 
hereby  given  jurisdiction  to  review  said  order  of  the  board,  and  to  set 
aside  such  order  when  it  clearly  appears  that  there  was  no  evidence 
before  the  board  to  support  reasonably  such  order,  or  that  the  same 
was  without  the  jurisdiction  of  the  board.     The  evidence  presented  to 
the  board,  together  with  the  finding  of  the  board  and  any  order  issued 
thereon  shall  be  certified  by  the  board  to  the  Supreme  Court.     The 
procedure  for  review,  except  as  herein  provided,  shall  be  prescribed  by 
rules  of  the  Supreme  Court. 

39.  The  allowance  of  a  writ  of  certiorari  or  the  institution  of  any 
proceeding  to  review  any  order  of  the  board  by  the  Supreme  Court  as 
aforesaid,  shall  in  no  case  supersede  or  stay  the  order  of  the  board, 
unless  the  Supreme  Court,  or  a  justice  thereof,  shall  so  direct,  and 
the  appellant  may  be  required  by  the  Supreme  Court  or  a  justice 
thereof,  to  give  bond  in  such  form  and  of  such  amount  as  the  Supreme 
Court,  or  the  justice  thereof  allowing  the  stay,  shall  require. 

40.  Any  proceeding  in  any  court  of  this  State  directly  affecting  an 
order  of  the  board  or  to  which  the  board  is  a  party,  shall  have  prefer- 
ence over  all  other  civil  proceedings  pending  in  such  court. 

41.  Nothing  in  this  act  shall  be  construed  to  prevent  the  issue  by 
any  steam  railroad,  street  railway,  traction,  canal,  express,  telephone 


NEW  JERSEY   PUBLIC   UTILITIES   ACT         349 

or  telegraph  companies  or  other  common  carriers,  of  free  passes  or 
franks  to  their  employes,  officers,  agents,  surgeons,  physicians,  attor- 
neys at  law,  and  their  families,  and  the  interchange  between  said  pub- 
lic utilities  and  common  carriers,  of  passes  or  franks  for  their  em- 
ployes, officers,  agents,  surgeons,  physicians,  attorneys  at  law,  and 
their  families. 

42.  If,  for  any  reason,  any  section  or  provision  of  this  act  shall  be 
questioned  in  any  court,  and  shall  be  held  to  be  unconstitutional  or 
invalid,  no  other  section  or  provision  of  this  act  shall  be  affected 
thereby. 

43.  All  acts  or  parts  of  acts  inconsistent  herewith  are  hereby  re- 
pealed, and  this  act  shall  take  effect  on  the  first  day  of  May,  Anno 
Domini  one  thousand  nine  hundred  and  eleven. 

Approved  April  21,  1911. 


350         MATERIALS    OF   CORPORATION    FINANCE 


APPROVAL  OF  ISSUES  OF  STOCKS,  BONDS  AND  OTHER 
FORMS   OF  INDEBTEDNESS.1 

A  common  carrier,  railroad  corporation  or  street  railroad  cor- 
poration organized  or  existing,  or  hereafter  incorporated,  under  or 
by  virtue  of  the  laws  of  the  State  of  New  York,  may  issue  stocks, 
bonds,  notes  or  other  evidence  of  indebtedness  payable  at  periods 
of  more  than  twelve  months  after  the  date  thereof,  when  neces- 
sary for  the  acquisition  of  property,  the  construction,  completion, 
extension  or  improvement  of  its  facilities,  or  for  the  improve- 
ment or  maintenance  of  its  service  or  for  the  discharge  of  lawful 
refunding  of  its  obligations  or  for  the  reimbursement  of  moneys 
actually  expended  from  income,  or  from  any  other  moneys  in  the 
treasury  of  the  corporation  not  secured  by  or  obtained  from  the  issue 
of  stocks,  bonds,  notes  or  'other  evidence  of  indebtedness  of  such  cor- 
poration, within  five  years  next  prior  to  the  filing  of  an  application 
with  the  proper  commission  for  the  required  authorization,  for  any 
of  the  aforesaid  purposes  except  maintenance  of  service  and  except 
replacements  in  cases  where  the  applicant  shall  have  kept  its  accounts 
and  vouchers  of  such  expenditure  in  such  manner  as  to  enable  the 
commission  to  ascertain  the  amount  of  moneys  so  expended  and  the 
purposes  for  which  such  expenditure  was  made;  provided  and  not 
otherwise  that  there  shall  have  been  secured  from  the  proper  commis- 
sion an  order  authorizing  such  issue,  and  the  amount  thereof  and 
stating  the  purposes  to  which  the  issue  or  proceeds  thereof  are  to  be 
applied,  and  that,  in  the  opinion  of  the  commission,  the  money,  prop- 
erty or  labor  to  be  procured  or  paid  for  by  the  issue  of  such  stock, 
bonds,  notes  or  other  evidence  of  indebtedness  is  or  has  been  reason- 
ably required  for  the  purposes  specified  in  the  order,  and  that  except 
as  otherwise  permitted  in  the  order  in  the  case  of  bonds,  notes,  and 
other  evidence  of  indebtedness,  such  purposes  are  not,  in  whole  or  in 
part,  reasonably  chargeable  to  operating  expenses  or  to  income. 

i  The  Public  Service  Commissions  Law  of  New  York,  Section  55. 


GENERAL  ORDERS  ON  ISSUE  OF  SECURITIES    351 


INTERPRETATION  OF  SECURITY  RESTRICTIONS. 

General  Principles  Regulating  Action  by  the  Board  of  Public  Utility 
Commissioners  Upon  Petitions  Asking  Approval  of  Proposed 
Issues  of  Securities.1 

The  law  at  present  casts  upon  this  board  the  responsibility  of  de- 
termining what  security  issues  may  be  made  by  public  utilities  in 
New  Jersey  (Chapter  195,  III,  18 (e),  Laws  of  1911).  The  board 
after  due  hearing  is  required  to  approve  proposed  security  issues, 
provided  the  board  approve  the  purpose  of  said  proposed  issues. 

Conspicuous  among  the  legal  requirements  to  be  met  by  proposed 
issues  are  those  embodied  in  Chapter  331  of  the  Laws  of  1906.  This 
Act,  inter  alia,  forbids  the  issue,  sale  or  delivery  of  bonds,  notes  or 
obligations  of  any  character  by  public  untilities,  except  for  cash 
or  property  of  an  actual  cash  value  of  at  least  80  per  cent,  of  the 
face  value  of  the  securities.  The  Act  also  forbids  the  issue,  sale  or 
delivery  of  public  untilities  of  capital  stock  except  for  cash  or  prop- 
erty of  actual  cash  value  at  least  equal  to  the  par  value  of  the  stock. 

So  far.  as  the  board's  approval  of  the  purpose  of  a  proposed  security 
issue  is  concerned,  the  board  is  already  on  record  to  the  following 
effect : 

"The  term  'purpose,'  in  the  opinion  of  the  Board,  cannot  and  ought 
not  narrowly  to  be  confined  merely  to  the  corporation's  intention  to 
procure  or  pay  for  property,  materials  and  services  with  the  pro- 
ceeds of  the  securities  intended  to  be  issued.  The  powers  and  re- 
sponsibilities of  the  Board  in  this  respect  are  no  less  ample  than 
may  fairly  be  inferred  from  the  spacious  term  'purpose'  advisedly 
incorporated  in  the  statute."  (Memorandum  dated  July  7,  1911. 
In  the  Matter  of  the  Application  of  the  Riverside  Traction  Company 
for  Leave  to  Issue,  Sell  and  Deliver  Bonds,  etc.) 

Various  cases  involving  the  approval  of  proposed  security  issues 
have  been  acted  upon  by  the  board  under  the  law.  An  analysis  of 
many  of  these  cases  discloses  certain  general  principles  upon  which 
these  applications  should  be  determined.  These  general  principles 
will  control  unless  and  until  good  reason  can  be  shown  for  departing 
therefrom.  For  the  information  of  public  utilities  petitioning  or 
intending  to  petition  for  the  approval  of  security  issues,  certain  of 
these  general  principles  are  set  forth  as  follows: 

1.  The  two  conditions  first  named  above  must,  in  all  cases,  be 
met.  These  are  that  a  proposed  issue  must  be  in  accordance  with 

i  Conference  Order  No.  7  and  Conference  Ruling  No.  13  of  the  New  JerMj 
Board. 


352         MATERIALS    OF   CORPORATION   FINANCE 

the  law,  and  that  the  purpose  of  a  proposed  issue  must  be  approved 
by  the  board. 

2.  The  purpose  of  a  proposed  issue  is  not  commendable  and  will 
not  carry  the  board's  approval  where  the  issue,  if  approved,  would 
result  in  an  invasion  of  mandatory  statutory  provisions  governing 
the  issue,  sale  and  delivery  of  securities.     Thus,  where  bonds  have 
been  used  by  the  issuing  public  utility  as  collateral  security  for  loans 
to  an  amount  of  less  than  80  per  cent,  of  the  face  value  of  the  bonds, 
and  where  such  a  condition  still  holds,  the  board  has  decided  ad' 
versely  to  subsequent  security  issues  prayed  for  by  such  public  utili- 
ties.    Such  refusal  is  based  on  the  ground  that  such  subsequent 
approval  would  be  to  connive  at  an  attempt  to  circumvent  the  pro- 
vision and  intent  of  Chapter  331  of  the  Laws  of  1906.     (See  memo- 
randum dated  July  7,  1911.     In  the  Matter  of  the  Application  of  the 
Riverside  Traction  Company  for  Leave  to  Issue,  Sell  and  Deliver 
Bonds,  etc.) 

The  "purpose"  of  an  intended  security  issue  is  held  to  be  vitiated, 
if  a  result  of  said  issue,  if  approved,  would  enable  the  company  to 
evade  mandatory  legal  provisions.  Thus,  in  the  case  of  the  River- 
side Traction  Company  cited  immediately  supra,  the  purpose  of  a 
proposed  bond  issue  was  held  vitiated  by  the  fact  that  said  bond 
issue,  if  approved,  would  defer  for  a  time,  or  indefinitely  postpone, 
an  assessment  for  an  unpaid  percentage  of  the  face  value  of  the  stock 
issued  and  outstanding. 

3.  Where  approval  of  security  issues  is  asked,  and  statement  is 
made  of  the  use  to  which  proposed  securities  are  to  be  put,  the  board 
endeavors  through  its  inspectors  to  determine  that  the  proceeds  of 
the  securities  whose  issue  is  asked  shall  be  reasonably  commensurate 
with  the  property  or  services  to  be   purchased   therewith.     Where 
the  property  whose   acquisition  is  sought   can  be  inventoried   and 
appraised,  such  a  course  is  followed  with  as  much  care  and  in  such 
detail  as  under  all  the  circumstances  is  possible.     Where  the  prop- 
erty or  services  to  be  acquired  cannot  be  physically  inventoried,  be- 
cause not  yet  existent,  such  estimate  is  made  on  the  basis  of  unit 
prices  and  otherwise,  with  such  care  and  in  such  detail  as  is  possible 
under  all  the  circumstances. 

The  board  has  already  called  public  attention  to  what  is  implied  by 
its  approval  of  proposed  security'  issues.  This  it  did  by  a  statement 
dated  May  26,  1911,  entitled  "In  the  Matter  of  Certain  Published 
Statements  Made  in  Connection  with  the  Offering  for  Sale  of  Public 
Utility  Securities  Issued  Under  the  Laws  of  This  State."  In  this 
statement  it  is  said :  "Nor  does  such  approval  by  this  board  of  such 
proposed  issue  of  securities  carry  or  imply  any  confirmation  of  the 


GENERAL   ORDERS   ON"   ISSUE   OF   SECURITIES    353 

business  or  financial  standing  of  the  issuing  corporation  as  a  whole." 
It  must  be  recognized  that  no  care  exercised  in  the  way  of  approval 
by  the  board  at  the  time  securities  are  issued  can  preclude  the  sub- 
sequent chance  of  poor  management,  dishonesty  or  ill-fortune,  by 
which  the  assets  of  a  public  utility  may  be  lessened  or  impaired. 
The  intent  of  the  statute  and  the  board's  action  thereunder  seek  to 
preclude  reckless  and  irresponsible  promotion  or  subsequent  inflated 
issues.  No  statute  and  no  administrative  process,  however,  can  re- 
lieve the  investor  of  the  obligations  of  prudence  and  vigilance.  At 
best  they  can  but  aid  him  in  furnishing  some  grounds  for  the  ex- 
ercise of  intelligent  judgment. 

4.  Where  petition  is  made  for  the  approval  of  the  issue  of  bonds 
or  notes,  where  said  bonds  or  notes  are  to  be  sold  at  a  discount,  the 
board  has  adopted  the  general  policy  of  approving  such  issues  only 
upon  the  companies  undertaking  to  authorize  the  bond  discount  in 
accordance  with  certain  stipulations  inserted  in  the  board's  certifi- 
cate of  approval.  Where,  for  example,  a  5  per  cent,  bond  is  sold 
at  80  per  cent,  of  its  face  value,  the  result  of  the  sale  of  a  thousand- 
dollar  bond  is  as  follows:  First,  an  increase  of  the  company's  lia- 
bilities to  the  amount  of  $1,000;  second,  an  increase  of  the  com- 
pany's assets  to  the  amount  of  cash  realized  of  $800.  The  difference 
is  commonly  entered  as  an  asset  of  $200  termed  bond  discount.  This 
asset  is  practically  a  dummy  asset.  If  the  company  is  to  make  its 
real  assets  equal  to  its  added  liabilities,  it  must  add  to  its  property 
an  amount  equal  to  $200.  The  most  effectual  way  would  seem  to 
be  to  lay  aside  from  earnings  a  small  amount  annually.  The  set- 
ting aside  of  this  amount  annually  must  be  done  before  the  com- 
pany is  entitled  to  declare  or  make  any  dividend.  It  is  true  that 
the  process  implies  that  the  consumer  must  contribute  in  rates  more 
than  he  would  be  required  to  pay  if  no  amount  were  needed  annu- 
ally for  this  amortization.  On  the  other  hand,  if  the  bond  has  been 
sold  at  par,  a  higher  rate  than  the  assumed  5  per  cent,  would  have 
been  exacted  by  the  lender  to  the  company,  and  this  higher  rate  of 
interest  would  have  been  included  in  the  annual  fixed  charges.  The 
higher  fixed  charges  would  have  imposed  a  greater  annual  payment 
upon  consumers.  Practically,  therefore  the  burden  which  amortiza- 
tion imposes  on  the  consumer  is  simply  the  necessary  outcome  of  the 
process  of  issuing  bonds  at  less  than  par.  It  would  not  disappear,  but 
only  change  its  form,  if  the  bond  were  sold  at  par,  and  the  real  rate  of 
interest  thereon  were  not  disguised. 

It  has  been  progressively  acknowledged  that  bond  discount  is  not 
properly  chargeable  to  capital  account,  but  should  be  amortized  with- 
in the  life  of  the  obligation.  In  certain  authorizations  of  bond  issues 


354         MATERIALS   OF   CORPORATION   FINANCE 

by  this  board,  request  has  been  made  by  the  issuing  corporation  that 
a  specific  sum  shall  be  named  by  the  board,  to  be  set  aside  annually 
for  this  purpose.  It  may  be  taken,  therefore,  as  the  rule  that  the 
board's  approval  of  bond  issues  will  be  contingent  upon  the  peti- 
tioner's acceptance  of  a  proper  amortization  provision  where  neces- 
sary. But  the  provision  may  vary  in  different  cases,  according  ta 
the  life  of  the  bond,  the  desire  of  the  company  to  expedite  the  process 
and  the  varying  of  different  utilities  to  provide  expeditiously  for 
proper  amortization. 

5.  Where  a  petition  for  the  board's  approval  of  a  bond  issue  con- 
tains a  clause  providing  for  calling  the  bonds  at  a  premium  before 
maturity,  the  board  has  commonly  insisted  that  such  clause  be  elim- 
inated.    This  has  been  insisted  upon  to  avoid  the  possibility  of  an 
indirect  evasion  of  Chapter  331  of  the  Laws  of  1906.     If,  for  ex- 
ample, a  bond  has  been  isued  at  80  per  cent,  of  its  face  value,  and 
thereafter  a  petition  is  made  to  authorize  a  new  issue  of  bonds  (also 
at  80)  to  refund  the  first  issued  bonds,  dollar  for  dollar,  the  follow- 
ing might  result.     For  the  original  bond  issue  of  the  face  value  of 
$100,000,  the  company  secured  real  assets  worth  $80,000.     If  the 
bonds  are  redeemable  at  110  before  maturity,  and  a  new  issue  ia 
made  also  at  80,  $137,500  in  bonds  of  the  refunding  issue  would 
be  required  to  take  up  the  earlier  issue.     But  as  against  the  issue 
of  $137,500  there  would  be  real  assets  of  only  $80,000  as  against 
$110,000  in  real  assets  required  if  $137,500  of  bonds  were  originally 
issued. 

On  the  other  hand,  it  is  realized  that  in  certain  instances,  re- 
funding of  bonds  at  a  premium  before  maturity  might  effect  such 
a  reduction  of  fixed  charges  as  to  be  advantageous  both  to  the  com- 
pany and  the  consumers.  Accordingly,  the  board  in  approving  bond 
issues  will  not  sanction  bond  redemption  before  maturity  at  a  pre- 
mium at  the  company's  sole  option;  should  the  issuing  company, 
however,  reserve  such  right  of  redemption  at  a  fixed  premium  before 
maturity  subject  to  future  approval  by  this  board  after  due  hear- 
ing, the  board  will  consider  in  any  case  the  inclusion  of  such  pro- 
vision in  its  formal  certificate  of  approval. 

6.  In  acting  upon  petitions  for  the  approval  of  proposed  issues 
of  bonds  or  notes,  the  board  will  insist  on  adequate  evidence  of  the 
probability  that  the  fixed  charges  can  be  regularly  met,  and  that  the 
principal  sum  can  be  repaid  at  maturity.     Where  such  securities  are 
to  be  issued  by  a  public  utility  now  operating,  the  past  and  current 
earnings  of  the  public  utility  will  be  a  relevant  consideration.     Also 
worthy  of  consideration  will  be  such  probable  changes  in  earnings 
as  properly  may  be  expected  to  result  from  the  property  to  be  ac- 
quired by  the  proposed  issue. 


GENERAL   ORDERS  ON  ISSUE  OF  SECURITIES    355 

Where  the  company  is  newly  projected  and  where  past  experience 
is  not  available  to  indicate  the  probable  return  in  revenue  to  the  com- 
pany, bond  issues  or  note  issues,  if  they  are  to  be  approved,  must 
carry  a  reasonable  probability  that,  with  average  good  management, 
fixed  charges  may  be  regularly  met,  and  ultimate  payment  of  the 
principal  sum  may  be  provided. 

Where  approval  of  proposed  stock  issues  is  requested,  the  board 
will  endeavor  to  be  assured  that  the  stock  issues  will  secure  for  the 
public  utility  additional  property  commensurate  with  the  par  value 
of  the  stock  issue  proposed.  The  investor  in  stock  knowingly  takes 
a  chance  of  return,  however,  which  the  investor  in  bonds  commutes 
for  a  specified  return  of  fixed  amount.  For  this  reason  the  board 
does  not  feel  obliged  to  be  assured  of  the  probability  of  returns  upon 
stock  as  it  does  in  the  case  of  proposed  bond  issues. 

7.  Certain  special  cases  of  proposed  security  issues  may  arise 
under  certain  circumstances,  some  of  which  are  set  forth  hereafter. 
In  these  special  cases  the  general  principles  outlined  above  will  be 
applied  so  far  as  seems  equitable,  and  exceptions  made  only  where 
the  general  principles  enunciated  supra  would  work  inequitably. 
Among  the  special  cases  may  be  mentioned  the  following:  First, 
where  a  bond  issue  has  previously  been  sanctioned,  under  a  mortgage 
or  deed  of  trust  providing  that  all  bonds  issued  thereunder  shall  be 
identical  in  tenor,  and  where  some  part  of  the  authorized  bonds  has 
not  been  actually  issued,  in  such  cases  the  board  does  not  feel  that 
it  can  impose  as  a  condition  of  authorizing  a  remaining  and  un- 
issued part  of  the  total  issue  authorized,  requirements  against  re- 
demption at  a  premium  prior  to  maturity.  Second,  where  peti- 
tions are  made  for  authority  to  make  security  issues  for  refunding 
outstanding  securities,  the  new  securities  to  issue  must  conform  to 
such  requirements  as  would  be  imposed,  if  the  refunding  securities 
were  an  original  issue.  The  refunding  bonds  and  stock  must  be  backed 
respectively  by  such  proportionate  amounts  of  cash  or  property  of  ac- 
tual cash  value  as  is  required  under  Chapter  331  of  the  Laws  of  1906. 
The  refunding  bonds  must  afford  the  same  likelihood  of  meeting 
their  fixed  charges  and  payment  of  the  principal  sum  at  maturity 
as  is  indicated  in  the  sixth  paragraph  supra.  Nor  will  agreements 
or  contracts  providing  for  refunding  of  security  issues  where  such 
agreements  or  contracts  were  made  prior  to  the  enactment  of  Chap- 
ter 195  of  the  Laws  of  1911  be  regarded  by  this  board  as  invalidating 
or  overriding  the  authority  over  security  issues  vested  in  this  board 
by  said  Act.  The  power  conferred  upon  this  board  to  disapprove 
security  issues  not  in  accordance  with  law  or  whose  purpose  is  not 
approved  by  the  board  is  expressly  conferred  by  the  Act  of  April 


356         MATERIALS   OF   COEPOKATION   FINANCE 

21,  1911  (Chapter  195,  Laws  of  1911),  and  this  power  is  not  re- 
stricted by  any  other  provision  of  the  law  governing  public  utilities, 
or  corporations  generally.  All  such  agreements  or  contracts,  how- 
ever binding  upon  the  individual  parties  thereto  they  might  have 
been,  in  default  of  the  Legislature's  subsequently  vesting  power  over 
proposed  security  issues  in  this  board,  are  not  controlling  so  as  to 
delimit  the  board's  action  upon  proposed  security  issues.  For  such 
outstanding  securities  as  may  legally  have  come  into  existence  prior 
to  the  passage  of  the  Act  of  April  21,  1911,  this  board  has  no  re- 
sponsibility. But  its  authority  is  not  delimited  by  expectations  or 
contracts  between  private  parties  made  prior  to  the  enactment  of  the 
statute  in  question.  Where  the  provisions  of  such  agreements  can 
be  carried  out  comformably  to  the  general  principles  regulating  the 
approval  of  proposed  security  issues  by  this  board,  no  obstacle  will 
be  interposed  by  the  board  to  such  authorization.  But  the  carrying 
out  of  such  provisions  of  agreements  or  contracts  as  involve  issue 
of  new  securities  must  be  submitted  to  the  board. 

8.  The  declaration  of  stock  dividends  by  public  utilities  is  per- 
missible only  in  such  cases  as  this  board  after  hearing  may  authorize. 
To  declare  such  a  stock  dividend  without  first  obtaining  the  approval 
of  the  board  is  a  misdemeanor,  and  all  such  securities  issued  without 
the  board's  approval  are  illegal. 

In  general,  the  board  will  approve  of  the  issue  of  stock  dividends 
by  public  untilities  only  after  hearing  and  investigation  and  after 
being  satisfied  that  as  the  outcome  of  such  issues  the  net  assets  and 
property  of  the  company  over  and  above  other  liabilities  resting  there- 
on shall  be  equal  to  the  par  value  of  the  total  stock  outstanding  after 
such  stock  dividends  have  been  made.  Adequate  depreciation  reserves 
and  surplus  must  also  be  provided  by  a  public  utility  petitioning  to 
issue  a  stock  dividend,  and  a  careful  inquiry  will  be  made  by  the  board 
into  the  methods  by  which  the  additional  stock  dividend  is  to  be 
justified.  Full  publicity  of  approval  of  all  petitions  for  stock  divi- 
dends will  be  deemed  essential. 

9.  For  the  information  of  all  public  utilities  intending  to  peti- 
tion this  board  for  the  approval  of  proposed  security  issues,  refer- 
ence should  be  made  to  Conference  Order  No.   7  and  Conference 
Euling  No.  13  of  the  board.     The  requirements  of  this  order  and 
ruling  as  to  the  form  and  content  of  petitions  should  be  carefully 
observed.     Petitions  should  be  filed  sufficiently  in  advance  of  the 
time  at  which  approval  of  securities  is  desired  to  insure  the  board 
reasonable  time  to  make  the  inquiries  relevant.     The  larger  the  pro- 
posed issue,  and  the  more  complex  the  conditions  surrounding  it,  the 
earlier  should  the  application  be  filed  with  the  secretary  of  the  board. 


GENERAL  ORDERS  ON  ISSUE  OF  SECURITIES    357 

The  petitions  will  be  acted  upon  hereafter  in  order  of  their  filing 
as  indicated  by  the  dating  stamp  of  the  secretary's  office.  Applica- 
tions essentially  defective  in  form  or  content  will  not  be  listed  for 
consideration  until  properly  amended.  Where  such  applications  in- 
volve the  necessity  of  inventoring  property  or  checking  accounts,  the 
public  utility  applying  for  such  authorization  is  requested  to  give 
such  assistance  as  is  within  its  power  by  putting  its  engineers,  mana- 
gers and  accountants  in  touch  with  the  board's  inspector. 

Where  the  annual  reports  required  of  public  utilities  have  not  been 
promptly  filed  as  required  by  the  rules  of  this  board,  or  where  such 
accounts  when  filed,  disclose  failure  upon  the  part  of  the  public  utility 
to  comply  with  the  requirements  of  law  or  with  the  terms  upon  which 
previous  security  issue  of  said  utilities  has  been  approved  by  this 
board,  any  subsequent  petition  for  the  approval  of  securities  by  a 
public  utility  shown  to  be  in  default  may  be  postponed  until  the 
requisite  and  legal  compliance  with  the  law  and  the  lawful  rules  of 
this  board  has  been  made  by  said  public  utility. 

Adopted  July  8,  1912. 


358         MATERIALS   OF   CORPORATION    FINANCE 


STOCKHOLDERS'  RIGHTS 

THE  NEW  YOKK,  NEW  HAVEN  AND  HARTFOBD  RAILEOAD  COMPANY  * 

NEW  HAVEN,  CONN.,  October  15,  1913. 

To  the  stockholders  of  The  New  York,  New  Haven  and  Hartford 
Railroad  Company,  and  to  holders  of  its  3%%  Convertible  De- 
benture Certificates  convertible  between  January  1,  1911,  and 
January  1,  1916,  and  to  holders  of  its  6%  Convertible  Debentures 
convertible  between  January  15,  1923,  and  January  15,  1948: 

Pursuant  to  resolutions  of  this  Company's  stockholders  and  direc- 
tors, this  Company  hereby  offers  for  subscription  its  Convertible 
Debentures  of  1913,  of  the  aggregate  principal  amount  of  Sixty-seven 
Million  Five  Hundred  and  Fifty-two  Thousand  Dollars  ($67,552,- 
000),  all  to  be  dated  October  1,  1913,  to  be  payable  October  1,  1933, 
to  bear  interest  at  the  rate  of  six  per  cent,  per  annum,  to  be  con- 
vertible after  October  1,  1918,  and  not  later  than  October  1,  1928, 
into  shares  of  the  Company's  capital  stock,  par  for  par,  with  an 
adjustment  of  interest  and  dividend,  and  to  be  issued  under  and  in 
pursuance  of  an  indenture  between  this  Company  and  a  trustee,  to 
all  the  provisions  of  which  said  debentures  and  the  rights  of  the 
holders  thereof  will  be  subject. 

These  debentures  will  in  substance  provide,  so  far  as  lawfully  may 
be,  that  the  holders  thereof  shall  enjoy,  until  October  1,  1928,  a  right 
of  subscription  to  any  future  issue  of  capital  stock  of  the  Railroad 
Company  to  the  same  extent  as  if  holders  at  the  time  of  such  issue  of 
the  shares  of  the  capital  stock  of  the  Company  to  the  future  delivery 
of  which  they  are  entitled. 

These  debentures  will  also  provide,  so  far  as  lawfully  may  be,  that 
if  this  Company  shall  hereafter  create  any  mortgage  upon  its  now 
existing  main  line  of  railroad  between  Woodlawn  in  the  City  and 
State  of  New  York  and  Springfield  in  the  Commonwealth  of  Massa- 
chusetts, or  its  now  existing  main  line  of  railroad  between  New 
Haven  in  the  State  of  Connecticut  and  Providence  in  the  State  of 
Rhode  Island,  such  debentures  shall  without  further  act  be  entitled 
to  share  in  the  security  of  such  mortgage  pro  rata  with  any  other 
obligations  that  may  be  secured  thereby,  and  that  any  such  mortgage 
shall  expressly  so  provide. 

The  right  to  subscribe  for  these  Convertible  Debentures  of  1913, 
on  or  before  November  15,  1913,  but  not  thereafter,  is  offered  as 
follows: 

i  Notice  advertised  in  New  York  Times,  November  1,  1913. 


STOCKHOLDERS'   RIGHTS  359 

To  the  holders  of  stock  of  this  Company  (not  held  in  its  treasury) 
of  record  at  the  close  of  business  September  9,  1913,  a  right  of 
subscription  at  the  rate  of  One  Hundred  Dollars  of  principal  amount 
of  such  debentures  for  every  three  shares  of  this  Company's  stock 
held  by  them  respectively. 

To  all  holders  at  the  close  of  business  September  9,  1913,  of  this 
Company's  3^%  Convertible  Debenture  Certificates  convertible  into 
stock  between  January  1,  1911,  and  January  1,  1916,  which  are 
registered  as  to  principal  and  interest,  a  right  of  subscription  at  the 
same  rate  as  if  the  holders  of  such  contracts  were  holders  of  the 
stock  of  the  future  delivery  of  which  they  are  entitled  under  the  terms 
of  said  contracts,  to  wit,  at  the  rate  of  One  Hundred  Dollars  of 
principal  amount  of  such  debentures  for  each  Four  Hundred  and 
Fifty  Dollars  of  principal  amount  of  such  3^2%  Convertible  Deben- 
ture Certificates  held  by  them  respectively. 

To  all  holders  at  the  close  of  business  September  9,  1913,  of  this 
Company's  6%  Convertible  Debentures  convertible  into  stock  between 
January  15,  1923,  and  January  15,  1948,  which  are  registered  as  to 
principal  and  interest,  a  right  of  subscription  at  the  same  rate  as  if 
the  holders  of  such  contracts  were  holders  of  the  stock  to  the  future 
delivery  of  which  they  are  entitled  under  the  terms  of  said  contracts, 
to  wit,  at  the  rate  of  One  Hundred  Dollars  of  principal  amount  of 
such  debentures  for  each  Three  Hundred  Dollars  of  principal  amount 
of  such  6%  Convertible  Debentures  held  by  them  respectively. 

To  all  holders  of  such  Zl/2%  Convertible  Debenture  Certificates 
or  such  6%  Convertible  Debentures  having  coupons  attached,  whether 
registered  as  to  principal  or  not,  a  similar  right  of  subscription  at 
the  same  rate  as  if  the  holders  of  such  contracts  were  holders  of  the 
stock  to  the  future  delivery  of  which  they  are  entitled :  provided,  how- 
ever, that  such  holders  shall  present  such  debentures  on  or  before 
November  15,  1913,  to  either 

The  Treasurer  of  the  Company,  New  Haven,  Conn., 
Treasurer's  Agent,  Grand  Central  Terminal,  New  York  City, 
Treasurer's  Agent,  South  Station,  Boston,  Mass., 
Bankers  Trust  Company,  New  York  City, 
Old  Colony  Trust  Company,  Boston,  Mass., 
Rhode  Island  Hospital  Trust  Company,  Providence,  R.  I., 
Hartford  Trust  Company,  Hartford,  Conn., 
Union  Trust  Company,  Springfield,  Mass., 
Morgan,  Grenfell  &  Company,  London,  England,  or 
Morgan,  Harjes  &  Company,  Paris,  France, 
to  be  stamped  substantially  as  follows: 


360         MATERIALS    OF   CORPORATION    FINANCE 

"Right  to  subscribe  for  Convertible  Debentures  of  1913  exercised 
by  holder  hereof  without  affecting  the  within  contract." 
All  subscriptions  must  be  for  debentures  of  the  principal  amount 
of  One  Hundred  Dollars  or  multiples  thereof.     Fractional  rights  of 
subscription  must  be  so  combined  by  purchase  or  sale  thereof  as  to 
entitle  the  holders  to  subscribe  for  debentures  of  the  principal  amount 
of  One  Hundred  Dollars  or  multiples  thereof.     The  Company  can 
neither  buy  nor  sell  rights. 

Under  the  subscriptions  to  be  made  in  accordance  herewith,  the 
subscribers  will  be  obliged  to  make  payments  in  one  of  the  following 
ways: 

1.  In  one  payment  on  or  before  November  15,  1913,  of  an  amount 
equal  to  the  principal  amount  of  the  debentures  subscribed  for,  with 
interest  thereon  at  the  rate  of  6%  per  annum  from  October  1,  1913, 
to  November  15,  1913. 

2.  In  two  payments,  the  first  on  or  before  November  15,  1913,  of 
an  amount  of  money  equal  to  sixty-five  per  cent,  of  the  principal 
amount  of  the  debentures  subscribed  for,  with  interest  at  the  rate  of 
6%  per  annum  on  the  amount  paid,  from  October  1,  1913,  to  Novem- 
ber 15,  1913,  and  the  second  on  or  before  January  15,  1914,  of  the 
unpaid  balance  of  the  principal  amount  of  the  debentures  subscribed 
for,  with  interest  at  the  rate  of  6%  per  annum  on  the  amount  then 
paid  from  October  1,  1913,  to  January  15,  1914. 

Payments  may  be  made  either  directly  to  the  Treasurer  of  the  Com- 
pany at  New  Haven,  Connecticut,  or  through  any  of  the  above-named 
agencies. 

Failure  to  make  payment  upon  a  subscription  in  accordance  with 
the  above  provisions  will  operate  as  an  abandonment  of  all  rights 
as  a  subscriber. 

No  subscription  or  assignment  of  any  right  to  subscribe  will  be 
recognized  unless  made  on  the  forms  of  the  Company  and  upon  the 
terms  and  in  the  manner  prescribed  by  the  Company. 

Subscription  warrants  specifying  the  amount  of  debentures  for 
which  under  this  circular  stockholders  and  registered  holders  of  Con- 
vertible Debenture  Certificates  and  Convertible  Debentures  are  en- 
titled to  subscribe,  will  be  mailed  to  them  as  soon  as  is  practicable.' 
Such  warrants  will  be  issued  to  the  holders  of  such  Convertible  De- 
benture Certificates  and  Convertible  Debentures  having  coupons  at- 
tached after  the  holders  thereof  have  presented  them  to  be  stamped. 

The  warrants  to  be  issued  will  be  of  two  kinds :  warrants  certifying 
a  right  of  subscription  for  debentures  of  an  aggregate  principal 
amount  of  One  Hundred  Dollars  or  multiples  thereof,  and  warrants 


STOCKHOLDERS'    RIGHTS  361 

for  fractional  rights  of  subscription,  expressed  in  ninths,  for  a  Deben- 
ture of  the  principal  amount  of  One  Hundred  Dollars. 

For  illustration:  The  holder  of  four  shares  of  stock  will  receive 
a  warrant  entitling  him  or  his  assigns  to  subscribe  for  a  Convertible 
Debenture  of  1913  of  the  principal  amount  of  One  Hundred  Dollars 
and  a  fractional  warrant  for  three-ninths  of  a  right  to  subscribe  for 
such  a  Debenture;  the  holder  of  eight  shares  of  stock  will  receive 
a  warrant  entitling  him  or  his  assigns  to  subscribe  to  Convertible 
Debentures  of  1913  of  the  principal  amount  of  Two  Hundred  Dollars 
and  a  fractional  warrant  for  six-ninths  of  a  right  to  subscribe  for  a 
Convertible  Debenture  of  One  Hundred  Dollars;  the  holder  of  a  3>£% 
Convertible  Debenture  Certificate  of  the  face  value  of  One  Thousand 
Dollars  will  receive  a  warrant  entitling  him  or  his  assigns  to  subscribe 
for  Convertible  Debentures  of  1913  of  the  principal  amount  of  Two 
Hundred  Dollars  and  a  fractional  warrant  for  two-ninths  of  a  right 
to  subscribe  for  a  Convertible  Debenture  of  One  Hundred  Dollars; 
the  holder  of  a  3^%  Convertible  Debenture  Certificate  of  the  face 
value  of  Five  Thousand  Dollars  will  receive  a  warrant  entitling  him 
or  his  assigns  to  subscribe  for  Convertible  Debentures  of  1913  of  the 
principal  amount  of  One  Thousand  One  Hundred  Dollars  and  a 
fractional  warrant  for  one-ninth  of  a  right  to  subscribe  for  a  Con- 
vertible Debenture  of  One  Hundred  Dollars;  the  holder  of  a  6% 
Convertible  Debenture  of  the  principal  amount  of  One  Hundred  Dol- 
lars will  receive  a  fractional  warrant  for  three-ninths  of  a  right  to 
subscribe  for  a  Convertible  Debenture  of  1913  of  the  principal  amount 
of  One  Hundred  Dollars;  the  holder  of  a  6%  Convertible  Debenture 
of  the  face  value  of  One  Thousand  Dollars  will  receive  a  warrant 
entitling  him  or  his  assigns  to  subscribe  for  Convertible  Debentures 
of  1913  of  the  principal  amount  of  Three  Hundred  Dollars  and  a 
fractional  warrant  for  three-ninths  of  a  right  to  subscribe  for  a 
Convertible  Debenture  of  One  Hundred  Dollars. 

The  fractional  warrants  will  be  transferable  by  delivery;  the  other 
warrants  will  be  transferable  by  execution  of  the  blank  form  of  assign- 
ment on  the  back  thereof. 

Holders  of  these  warrants  other  than  fractional  warrants  who 
may  wish  to  subscribe  for  a  portion  of  the  debentures  covered  by  the 
warrant  and  to  dispose  of  the  remainder  of  their  rights,  or  to  dispose 
of  a  portion  of  their  rights  to  one  person  and  of  the  remainder  to 
another,  should  return  these  warrants  to  the  Treasurer  of  the  Com- 
pany at  New  Haven,  Connecticut,  or  through  one  of  the  agencies 
above  specified,  to  be  exchanged  for  other  warrants  of  the  same  aggre- 
gate principal  amount,  specifying  the  number  of  warrants  desired  in 


362         MATEEIALS    OF    CORPORATION    FINANCE 

exchange,  the  amount  of  debenture  to  be  covered  by  each,  and  the 
names  of  those  to  whom  they  are  to  be  issued  respectively. 

Warrants  will  be  void  and  of  no  value  unless  surrendered  to  the 
Treasurer  of  the  Company  at  his  office  or  through  one  of  the  above- 
named  agencies  on  or  before  November  15,  1913,  accompanied  by  a 
subscription  duly  made  in  pursuance  of  the  terms  of  the  warrants 
and  by  the  payment  of  either  the  first  instalment  or  of  the  full 
amount  payable  upon  such  subscription. 

Upon  payment  of  subscriptions  in  full  or  in  part,  non-negotiable 
receipts  will  be  issued,  certifying  the  amount  that  has  been  paid. 
Such  receipts  may  be  exchanged  for  negotiable  receipts  when  de- 
sired. 

Full  paid  receipts  will  be  exchangeable  for  debentures  as  soon  as 
these  are  prepared. 

Coupon  debentures  will  be  issued  in  the  denomination  of  One 
Thousand  Dollars,  and  may  be  registered  as  to  principal  in  the 
owner's  name,  and  at  his  election  be  discharged  from  registration  in 
the  manner  prescribed  in  the  indenture  under  which  they  are  issued. 
Registered  debentures  will  be  issued  in  denominations  of  One  Hun- 
dred Dollars,  One  Thousand  Dollars,  and  Ten  Thousand  Dollars. 

Coupon  debentures  may  be  exchanged  for  registered  debentures  and 
registered  debentures  for  coupon  debentures,  in  the  manner  provided 
in  said  indenture. 

All  the  debentures  are  to  be  payable  at  the  option  of  the  holder  in 
London,  England,  in  sterling  money  of  Great  Britain,  as  set  forth 
in  said  indenture. 

Application  will  be  made  to  have  the  said  debentures  listed  on  the 
New  York  Stock  Exchange. 

All  correspondence  relating  to  the  foregoing  should  be  addressed 
to  the  Treasurer  of  the  Company  at  New  Haven,  Connecticut. 

By  Order  of  the  Directors : 

A.  E.  CLARK,  Secretary. 


STOCKHOLDERS'   EIGHTS  363 

STOCKHOLDERS'  RIGHTS 

To  Stockholders  (Common  and  Preferred)  of  the 

UNION  PACIFIC  RAILROAD  COMPANY  1  and 

Stockholders  of  the 

SOUTHERN  PACIFIC  COMPANY: 

With  the  approval  of  the  Attorney-General  of  the  United  States, 
the  Union  Pacific  Railroad  Company  has  adopted  a  plan,  which  haa 
also  been  assented  to  by  the  Southern  Pacific  Company  in  so  far  as 
action  on  its  part  is  required,  for  complying  with  the  terms  of  the 
decree  to  be  entered  in  the  Government  suit  in  accordance  with  the 
recent  decision  of  the  United  States  Supreme  Court,  which  plan  in- 
cludes the  following:  The  Southern  Pacific  Company  has  agreed 
to  sell  to  the  Union  Pacific  Railroad  Company  the  entire  capital 
stock  of  the  Central  Pacific  Company,  and  to  cancel  or  assign  the 
existing  lease  of  the  railroad  and  other  property  of  the  Central 
Pacific  Company,  thus  transferring  to  the  Union  Pacific  Railroad 
Company  the  beneficial  ownership  of  the  railroads  and  other  property 
of  the  Central  Pacific  Company,  subject  to  certain  leases,  reciprocal 
contracts  for  the  joint  use  of  railroads  and  terminals,  and  other  ar- 
rangements intended  for  the  mutual  protection  of  the  two  companies. 
It  had  been  expected  that  the  Union  Pacific  Railroad  Company  would 
pay  for  the  Central  Pacific  property  by  surrendering  or  transferring 
$84,675,500,  par  value,  of  the  stock  of  the  Southern  Pacific  Com- 
pany now  held  by  the  Oregon  Short  Line  Railroad  Company,  by  the 
cancellation  and  surrender  of  $5,449,000,  face  value,  of  the  Four 
Per  Cent.  Central  Pacific  Stock  Collateral  Bonds  of  the  Southern 
Pacific  Company  now  owned  by  the  Union  Pacific  Railroad  Com- 
pany, and  by  the  payment  of  $14,065,441  in  cash.  But  there  being 
doubt  as  to  the  right  of  the  Southern  Pacific  Company  to  acquire 
its  own  stock,  it  has  been  decided  to  sell  the  Oregon  Short  Line  Rail- 
road Company's  entire  holdings  of  stock  in  the  Southern  Pacific 
Company  ,  aggregating  $126,650,000,  par  value,  and  it  has  been  agreed 
that  the  net  proceeds  of  the  sale  of  $84,67.5,500,  par  value,  of  said 
stock,  shall  be  paid  to  the  Southern  Pacific  Company  in  lieu  of  such 
contemplated  surrender  to  it  of  said  amount  of  stock.  Accordingly 
the  privilege  is.  offered  to  stockholders,  registered  on  the  books  of 
the  Union  Pacific  Railroad  Company  and  the  Southern  Pacific  Com- 
pany (excluding,  however,  the  Oregon  Short  Line  Railroad  Company 

i  Notice  advertised  in  New  York  Times,  February  12,  1913. 
13 


364         MATEEIALS   OF   COEPOEATION   FINANCE 

and  its  nominees),  respectively,  at  the  close  of  business  on  February 
28,  1913,  to  subscribe  on  or  before  March  21,  1913,  for  such  stock  of 
the  Southern  Pacific  Company  in  the  proportion  of  one  share  of 
Southern  Pacific  stock  for  each  four  shares  of  Union  Pacific  stock, 
preferred  or  common,  and  of  one  share  of  Southern  Pacific  stock  for 
each  three  shares  of  Southern  Pacific  stock  held  by  others  than. the 
Oregon  Short  Line  Eailroad  Company  and  its  nominees. 

The  price  of  subscription  is  $100  for  each  share  of  $100  par  value 
(equivalent  as  of  the  date  of  subscription  to  98.67  per  cent,  and 
accrued  dividend)  payable  either  in  full  on  March  21,  1913,  or  in 
four  instalments  of  $25  each  on  March  21,  July  1  and  October  1, 
1913,  and  January  2,  1914. 

A  check  for  the  dividend  payable  on  April  1,  1913,  will  be  mailed 
by  the  depositary  hereinafter  mentioned,  as  and  when  received  by 
it,  to  registered  subscribers,  having  paid  either  in  full  or  the  first 
instalment.  Interest  will  be  charged  from  March  21,  1913,  on  de- 
ferred payments  at  the  accruing  rate  of  dividends.  Dividends  pay- 
able after  April  1,  1913,  when  received  by  the  Depositary,  will  be  so 
far  as  needed  applied  in  payment  of  such  interest  and  a  check  for  the 
balance  will  upon  payment  of  the  instalments  be  mailed  to  holders  of 
part-paid  receipts.  Holders  of  part-paid  receipts  may  anticipate  pay- 
ment at  any  time  by  paying  interest  as  above  stated  to  the  date  of 
full  payment.  Until  and  except  to  the  extent  that  stock  is  paid  for 
in  full  by  the  subscribers  and  certificates  therefor  delivered  to  them, 
the  shares  subscribed  for  are  to  be  transferred  of  record  to  the 
National  City  Bank  of  New  York,  as  Depositary,  or  its  nominee, 
which  is  to  vote  the  same  in  accordance  with  the  written  directions 
of  the  registered  subscription  receipt-holders  and  hold  the  same  for 
them  as  owners,  but  subject  to  the  payment  of  the  unpaid  portion 
of  the  subscription  price. 

Warrants  signed  by  the  Treasurer  or  an  Assistant  Treasurer  of  the 
Union  Pacific  Eailroad  Company  will  be  issued  to  each  stockholder 
(the  Southern  Pacific  to  furnish  the  Union  Pacific  Eailroad  Com- 
pany a  list  of  its  stockholders  for  the  purpose)  as  soon  as  possible 
after  the  closing  of  the  books  on  February  28,  1913,  specifying  the 
amount  of  stock  for  which  the  stockholder  is  entitled  to  subscribe. 
Warrants  will  be  mailed  to  stockholders  at  addresses  to  which  their 
dividends  are  sent.  If  dividends  are  collected  by  bankers  or  others 
on  powers  of  attorney,  or  other  authority,  warrants  will  be  sent  to 
such  authorized  parties,  unless  other  instructions  are  received.  War- 
rants not  so  provided  for  may  be  obtained  at  this  office  not  later  than 
March  18,  1913.  "Subscription  Warrants'*  entitling  the  holder  to 
subscribe  will  be  isued  for  amounts  of  $100,  or  multiples  thereof, 


STOCKHOLDEBS'   EIGHTS  365 

and  "Fractional  Warrants"  for  fractions  of  $100.  "Fractional  War- 
rants" will  not  entitle  the  holder  to  subscribe,  but  will  be  exchange- 
able in  amounts  aggregating  at  least  $100  on  or  before  March  18, 
1913,  for  "Subscription  Warrants,"  and  if  the  surrendered  "Frac- 
tional Warrants"  include  a  fraction  in  excess  of  $100  a  new  "Frac- 
tional Warrant"  will  be  issued  for  such  fraction.  "Fractional  War- 
rants" desired  by  stockholders  to  complete  full  shares  or  "Fractional 
Warrants"  which  the  stockholders  desire  to  dispose  of  must  be  bought 
or  sold  in  the  market,  as  the  Company  will  not  sell  or  purchase  such 
fractions.  After  March  18,  1913,  all  "Fractional  Warrants"  will 
be  void  and  of  no  effect.  On  the  back  of  the  warrants  will  be  two 
forms.  In  case  it  is  desired  to  subscribe,  the  first  form  is  to  be  filled 
cut  and  signed  by  the  stockholders  or  by  their  assignees,  but  in  case  it 
is  desired  to  dispose  of  the  subscription  privilege,  the  second  form, 
which  is  an  assignment,  is  to  be  filled  out  and  signed  by  the  stockhold- 
ers. Where  a  warrant  authorizes  a  subscription  to  two  or  more  shares, 
stockholders  who  may  wish  to  subscribe  for  a  portion  of  the  shares  cov- 
ered by  the  warrant  and  dispose  of  the  balance,  or  who  may  wish  to 
dispose  of  a  portion  of  the  shares  covered  by  the  warrant  to  one  person 
and  the  balance  to  another,  should  return  the  warrants  to  this  office  on 
or  before  March  18,  1913,  to  be  exchanged  for  other  warrants,  specify- 
ing in  writing  the  number  of  warrants  desired  in  exchange  and  the 
number  of  shares  to  be  covered  by  each.  In  no  case,  however,  on  such 
exchange  will  a  fractional  warrant  be  issued.  The  subscription  war- 
rants must  be  surrendered  at  the  office  of  the  National  City  Bank  of 
New  York,  or  at  the  office  of  Baring  Brothers  &  Co.  Ltd.,  8  Bishopsgate 
Within,  London,  E.  C.,  England,  by  the  stockholders  or  by  the  persons 
to  whom  assigned,  on  or  before  March  21,  1913,  accompanied  by  the 
payment  of  the  first  instalment  or  the  full  amount  payable,  and  all 
warrants  not  so  surrendered  with  such  payment  on  or  before  said  date 
shall  be  void  and  of  no  value.  Failure  to  pay  any  instalment  when 
and  as  payable  will  operate  as  a  forfeiture  of  all  rights  in  respect  of  the 
subscription  and  the  instalments  previously  paid.  Said  Bank,  directly 
or  through  said  Baring  Brothers  &  Co,  Ltd.,  as  its  agents  in  London, 
will,  on  surrender  of  the  warrants  and  on  payment  of  the  first  instal- 
ment, or  full  payment,  as  the  case  may  be,  issue  receipts  which  shall  be 
transferable  by  assignment,  and  which  must,  unless  previously  paid  in 
full,  be  returned  on  or  before  July  1,  and  on  or  before  October  1,  1913, 
and  on  or  before  January  2,  1914,  accompanied  by  the  payment  of  the 
second,  third  and  final  instalments,  respectively,  or,  at  the  option  of  the 
holder,  accompanied  by  the  payment  of  the  full  amount  remaining  pay- 
able, for  endorsement  thereon,  as  the  case  may  be,  of  the  payment  of 
the  said  instalments  or  full  payment.  Certificates  of  stock  registered 


366         MATERIALS   OF   CORPORATION   FINANCE 

in  the  name  of  or  as  directed  by  receipt-holders  will  be  delivered  in  ex- 
change for  full-paid  receipts.  No  subscription  or  assignment  of  this 
privilege  will  be  recognized  unless  made  on  the  forms  approved  by  the 
Union  Pacific  Railroad  Company.  No  holder  of  the  stock  of  either  the 
Union  Pacific  Railroad  Company  or  the  Southern  Pacific  Company 
shall  be  entitled  to  any  of  the  above  mentioned  shares  unless  the  terms 
of  subscription  herein  specified  are  fully  complied  with.  The  subscrip- 
tion and  respective  instalment  payments  must  be  made  at  the  dates  and 
in  accordance  with  the  provisions  stated  above.  Checks  or  drafts  in 
payment  of  subscriptions  must  be  drawn  in  favor  of  the  National  City 
Bank  of  New  York  in  New  York  funds  or  in  favor  of  Baring  Brothers 
&  Co.,  Ltd.,  in  London  funds,  as  the  case  may  be,  and  for  the  exact 
amounts  covering  the  respective  instalments. 

The  plan  and  the  agreements  embodying  the  same  will  not  become 
effective  unless  and  until  approved  by  the  District  Court  of  the  United 
States  for  the  District  of  Utah  in  the  suit  of  the  United  States  of 
America  vs  Union  Pacific  Railroad  Company  et  al.,  now  pending  there- 
in, upon  the  mandate  of  the  Supreme  Court  of  the  United  States,  nor 
unless  and  until  the  Railroad  Commission  of  the  State  of  California 
shall  approve  the  provisions  of  said  plan  in  respect  of  which  in  the 
opinion  of  the  Company's  counsel  the  approval  of  said  Commission 
may  be  necessary  or  advisable  to  give  the  same  validity. 

By  order  of  the  Board  of  Directors. 

FREDERIC  V.  S.  CROSBY,  Treasurer, 

Union  Pacific  Railroad  Company, 

165  Broadway,  New  York. 
New  York,  February  10,  1913. 


UNITED   DRY   GOODS   CO.    PFD.    STOCK  367 

$10,000,000  » 

SEVEN  PER  CENT.  CUMULATIVE  PREFERRED  STOCK 
(Preferred  as  to  Both  Dividends  and  Principal) 

of 
UNITED  DRY  GOODS  COMPANIES 

Dividends  Payable  Quarterly  at  the  Rate  of  Seven  Per  Cent.  Per 
Annum  from  June  1st,  1909.     Shares  $100  each. 

Office  of  J.  P.  Morgan  &  Co., 
23  Wall  St,  New  York, 
May  27th,  1909. 

UNITED  DRY  GOODS  COMPANIES 

('A  Corporation  Under  the  Laws  of  Delaware.) 

Has  Preferred  Stock  authorized   $16,000,000 

of  which  $10,000,000  is  now  issued ; 

and  Common  Stock  authorized  $35,000,000 

of  which  $10,000,000  is  now  issued. 

Having  sold  a  large  portion  of  the  above  Preferred  Stock,  we  offer, 
subject  to  prior  sale  and  change  in  price,  the  balance  of  the 
$10,000,000  Seven  Per  Cent.  Cumulative  Preferred  Stock  of 
the  United  Dry  Goods  Companies  at  $110  per  share. 

Attention  is  called  to  the  letter  received  from  John  Claflin,  Esq., 
printed  below;  and  also  to  the  report  of  Messrs.  Raskins  &  Sells, 
Certified  Public  Accountants. 

Provision  has  been  made  either  in  the  certificate  of  incorporation 
or  in  the  by-laws  to  the  following  effect: 

(1)  That  from  time  to  time  by  vote  of  the  Board  of  Directors 
additional  authorized  Common  Stock  to  the  amount  of  $25,000,000 
may  be  issued  and  disposed  of  for  the  following  purposes: 

(a)  To  be  sold  for  cash  at  not  less  than  par. 

(b)  To  be  exchanged  for  the  various  classes  of  stock  of  The  Asso- 
ciated Merchants  Company  on  equitable  terms. 

(2)  That  from  time  to  time  by  vote  of  the  Directors  additional 
authorized   Preferred   Stock  to  the  amount  of  $6,000,000  may  be 
issued  and  disposed  of  for  the  following  purposes: 

»  Three-quarter  page  advertisement  in  Wall  Street  Journal  of  May  28,  1909. 


368         MATERIALS    OF   CORPORATION   FINANCE 

(a)  To  be  sold  for  cash  at  not  less  than   120,  excepting  that 
$1,000,000  thereof  (reserved  for  the  exclusive  benefit  of  the  employees 
of  the  Companies)  may  be  allotted  from  time  to  time  by  the  Direc- 
tors of  the  United  Dry  Goods  Companies  at  a  price  not  less  than  par 
on  such  terms  and  conditions  as  shall  encourage  and  enable  the  em- 
ployees to  participate  in  the  profits  of  the  business. 

(b)  To  be  exchanged  for  the  Preferred  Stocks  of  The  Associated 
Merchants  Company  on  equitable  terms. 

No  stock  other  than  that  above  mentioned  can  be  authorized  with- 
out consent  of  stockholders,  as  provided  in  the  certificate  of  incor- 
poration or  by-laws,  and  no  bonds  can  be  issued  except  upon  the 
written  consent  of  three-fourths  of  the  holders  of  each  class  of  the 
company's  stock,  or  by  a  vote  of  the  stockholders  holding  at  least 
three-fourths  of  the  amount  of  each  class  of  the  capital  stock  of  the 
corporation  represented  at  a  meeting  specially  called  for  that  purpose 
or  an  annual  meeting. 

Temporary  certificates  will  be  issued  pending  the  delivery  of  the 
definitive  stock. 

Application  will  be  made  to  list  the  stock  on  the  New  York  Stock 
Exchange. 

We  offer  and  recommend  this  Preferred  Stock  as  a  mercantile  in- 
vestment of  the  highest  class. 

J.  P.  MORGAN  &  Co. 

224  Church  Street, 
NEW  YORK,  N.  Y.,  May  25,  1909. 
MESSRS.  J.  P.  MORGAN  &  Co.: 

Dear  Sirs — The  United  Dry  Goods  Companies,  incorporated  under 
the  laws  of  the  State  of  Delaware,  has  issued  at  par  $20,000,000  Cap- 
ital Stock,  divided  into  $10,000,000  Common  Stock  and  $10,000,000 
Seven  per  cent,  cumulative  Preferred  Stock,  having  a  preference  as 
to  both  principal  and  dividends.  It  has  acquired  from  me  in  exchange 
for  $8,650,000  of  its  Common  Stock  $8,650,000  of  the  Capital  Stock 
of  The  Associated  Merchants  Company  out  of  a  total  issued  Capital 
Stock  of  $17,250,000.  This  gives  the  United  Dry  Goods  Companies 
control  of  The  Associated  Merchants  Company,  which  has  control  of 
the  following  companies: 

Wholesale:  The  H.  B.  Claflin  Company. 

Retail:         James  McCreery  &  Company,  34th  Street,  New  York. 

James  McCreery  &  Company,  23d  Street,  New  York. 

O'Neill- Adams  Company,  two  blocks  on  Sixth  Avenue, 
20th  to  22d  Streets,  New  York. 


UNITED    DRY   GOODS    CO.    PFD.    STOCK  369 

Stewart  &  Company,  of  Baltimore. 
J.  N.  Adam  &  Company,  of  Buffalo, 

and  Four-fifths  of  the  Common  Stock  of 
C.  0.  Ounther's  Sons  (furs),  New  York. 

The  market  value  of  The  Associated  Merchants  Company's  stock" 
is  more  than  par,  and  the  dividends  on  the  $8,650,000  of  its  stocks 
at  current  rates  exceed  the  dividend  requirements  on  the  $10,000,000 
Preferred  Stock  of  the  United  Dry  Goods  Companies. 

The  United  Dry  Goods  Companies  has  bought  outright  from  me 
four  large  stores,  to  wit: 

Hahne  &  Company,  of  Newark, 
Powers  Mercantile  Company,  of  Minneapolis, 
The  William  Hengerer  Company,  of  Buffalo,  and 
Stewart  Dry  Goods  Company,  of  Louisville. 

The  available  income  of  these  four  stores  alone,  disregarding  all 
other  sources  of  income,  exceeds  the  dividend  requirements  on  the 
$10,000,000  Preferred  Stock  of  the  United  Dry  Goods  Companies. 

In  the  acquisition  of  the  entire  Capital  Stock  of  these  stores  the 
United  Dry  Goods  Companies  has  paid  current  market  values  for 
their  tangible  assets  as  appraised  by  independent  experts,  without 
any  allowance  for  their  exceedingly  valuable  good-will. 

The  merchandise  has  been  taken  at  figures  somewhat  below  whole- 
sale prices. 

Upon  the  opening  of  its  books  the  balance  sheet  of  the  United  Dry 
Goods  Companies  will  stand  in  substance  approximately,  thus: 

$8,650,000  Capital    Stock    of    The   Associated    ( Common  Stock.  .$10,000,000 
Merchants'  Company   \Preferred   Stock.   10,000,000 

10,000,000  Tangible  Assets  of  Hahne  &  Com- 
pany, Powers  Mercantile  Com- 
pany, The  William  Hengerer 
Company  and  the  Stewart  Dry 
Goods  Company. 
1,350,000  Cash. 


$20,000,000  $20,000,000 

In  the  tangible  assets  is  included  the  entire  capital  stock  of  Hahne 
Realty  Company.  This  stock  represents  the  store  property  of  Hahne 
&  Company,  and  is  appraised  subject  to  a  mortgage  of  $1,250,000 
on  said  property.  It  is  taken  over  by  the  United  Dry  Goods  Com- 
panies at  the  net  value  so  determined.  This  mortgage  can  be  paid 
in  1911,  two  years  hence,  should  the  company  so  desire. 


370         MATERIALS    OF   CORPORATION"   FINANCE 

There  is  no  net  indebtedness  whatsoever  against  any  other  of  the 
tangible  assets  aforesaid,  an  amount  of  cash  exactly  equal  to  the 
indebtedness  of  each  company  conveyed  being  left  in  the  treasury  of 
each  company  to  cancel  its  indebtedness.  This  cash  is  additional  to 
the  tangible  assets  of  $10,000,000,  and  is  also  additional  to  the 
$1,350,000  cash  in  the  treasury  of  the  United  Dry  Goods  Companies. 

The  fact  that  the  United  Dry  Goods  Companies  has  no  net  in- 
debtedness, has  assets  at  market  value  more  than  double  in  amount 
the  face  value  of  its  Preferred  Stock,  and  has  from  various  and  sepa- 
rate sources  an  income  which  in  bad  times  would  be  more  than  double 
its  preferred  dividend  requirements,  renders  its  Preferred  Stock  ex- 
ceptionally safe  as  to  principal  and  as  to  dividends. 

In  this  relation  it  is  interesting  to  note  the  dividend  record  of  The 
H.  B.  Claflin  Company,  which  was  incorporated  in  1890,  and  that 
of  The  Associated  Merchants  Company,  incorporated  in  1901. 

The  H.  B.  Claflin  Company  has  paid  dividends  on  all  classes  of  its 
stock  from  organization  to  date,  covering  the  three  panic  periods  of 
1892-1894,  1903-1904  and  1907-1908,  always  full  fixed  dividends  on 
its  Preferred  Stock  and  dividends  at  a  rate  never  less  than  six  per 
cent,  on  its  Common  Stock.  The  total  dividends  on  its  Common 
Stock  amount  to  139  per  cent.  The  present  dividend  rate  of  eight 
per  cent,  has  not  been  changed  in  ten  years. 

The  Associated  Merchants  Company  has  paid  regular  dividends  on 
its  Preferred  Stocks  from  organization  to  date,  and  numerous  addi- 
tional dividends  beyond  those  provided  for  in  the  organization  of  the 
Company.  After  accumulating  a  safe  surplus  during  the  first  year 
and  a  half  of  its  corporate  existence,  it  began  dividends  on  its  Com- 
mon Stock  December,  1902,  at  the  rate  of  Seven  per  cent,  per  annum. 
It  has  maintained  this  rate  to  date,  and  has  paid  frequent  extra  divi- 
dends. Its  average  distribution  for  the  last  six  years  has  been  more 
than  Eight  per  cent,  per  annum.  In  an  experience  covering  more 
than  eighteen  years  in  one  case  and  eight  years  in  the  other,  neither 
company  has  ever  needed  to  modify  in  the  least  the  statements  or 
promises  made  in  its  prospectus. 

No  change  is  proposed  in  the  management  of  the  affiliated  com- 
panies. The  active  heads  of  the  various  companies  will  continue 
their  customary  work.  I  will  continue  to  be  President  of  The  H.  B. 
Claflin  Company  and  of  The  Associated  Merchants  Company  and  of 
the  United  Dry  Goods  Companies  if  the  stockholders  so  wish. 

I  enclose  copies  of  the  Certificate  of  Incorporation  and  of  the 
By-Laws  of  the  United  Dry  Goods  Companies. 

JOHN  CLAFLIN. 


UNITED    DRY    GOODS    CO.    PFD.    STOCK  371 

HASKINS  &  SELLS 
Certified  Public  Accountants 

30  Broad  Street,  New  York,  May  24,  1909. 

MESSRS.  J.  P.  MORGAN  &  COMPANY, 

3  Broad  Street,  New  York  City. 

Gentlemen — In  accordance  with  our  arrangement  with  you  we  have 
made  an  examination  of  the  books,  records,  and  accounts  of  the  fol- 
lowing named  companies: 

Hahne  &  Company,  Newark,  N.  J. 
The  Wm.  Hengerer  Company,  Buffalo,  N.  Y. 
The  Stewart  Dry  Goods  Company,  Louisville,  Ky. 
Powers  Mercantile  Company,  Minneapolis,  Minn. 

The  general  purpose  of  our  examination  was  to  determine  the  value 
as  of  April  30,  1909,  of  the  assets  of  these  companies  in  respect  to 
real  estate,  buildings,  store  fixtures,  delivery  equipment,  and  mer- 
chandise on  hand,  and  to  study  and  report  on  the  organization. 

From  our  examination  of  the  various  properties  and  of  the  books 
and  records  relating  thereto,  and  from  the  appraisals  and  estimates 
which  have  been  furnished  us  by  competent  real  estate  dealers  and 
engineers,  we  are  of  the  opinion  that  the  value  of  the  real  estate  and 
buildings  is  conservatively  stated.  We  are  also  of  the  opinion  that 
the  store  fixtures  and  delivery  equipment  are  conservatively  valued. 

Regarding  the  merchandise,  from  the  tests  made  by  us  in  several 
departments  at  each  of  the  stores  we  estimate  that  the  trading  stock 
is  undervalued  below  wholesale  cost  from  2%  to  4%,  and  that  3% 
is  a  conservative  estimate  of  such  undervaluations  of  the  stock  as  a 
whole. 

It  was  noted  that  while  two  of  the  companies  carry  certain  of 
their  miscellaneous  store  supplies  as  assets,  as  a  general  rule  all  pur- 
chases of  this  nature,  including  fuel  and  feed,  and  in  some  cases 
insurance  premiums  and  interest  paid  in  advance,  were  charged  to 
expenses  as  incurred.  We  are  of  the  opinion  that  a  detailed  audit 
of  the  accounts  of  each  of  the  companies  would  show  assets  of  this 
nature  on  hand  which  are  not  reflected  in  the  statement  attached 
hereto,  amounting  in  the  aggregate  to  $75,000  or  more.  This  amount, 
in  connection  with  the  excess  of  the  cost  of  the  merchandise  on  hand 
over  the  book  cost  heretofore  referred  to,  makes  total  additional  assets 
of  approximately  $200,000,  which,  in  our  opinion,  might  reasonably 
be  added  to  £he  total  of  the  assets  shown  by  our  statement  to  deter- 
mine the  real  value  of  such  assets. 


372         MATERIALS    OF   CORPORATION   FINANCE 

All  of  the  companies  have  a  very  large  good-will  value  which  is 
not  included  in  the  statement  of  the  assets. 

The  loss  from  uncollectible  accounts  has  been  very  low,  averaging 
only  a  small  fraction  of  one  per  cent,  of  the  amount  of  the  total  sales. 

A  uniform  system  of  periodical  reports  is  maintained  in  all  of  the 
department  stores  controlled  by  Mr.  Claflin.  These  reports  show  the 
result  of  operation  in  each  department  of  each  store  by  days,  weeks, 
months,  seasons,  etc.,  and  its  aid  to  the  executives  and  consequent 
effect  on  the  results  of  operation  can  scarcely  be  overestimated.  Such 
a  system  enables  comparisons  to  be  made  which  are  of  the  highest 
value  in  determining  and  locating  specifically  the  primary  sources  of 
any  variation  in  profit  or  loss. 

A  system  of  reports  is  also  maintained  in  each  store  which  shows 
at  once  the  nature  and  amount  in  detail  of  all  slow-moving  stock  in 
each  department.  It  appeared  to  us  that  these  reports  were  receiving 
consideration  and  attention  by  the  executives,  and  only  about  3% 
of  slow-moving  stock  existed  in  the  stores  examined. 

The  management  and  organization  of  the  business  throughout  im- 
pressed us  as  being  capable  and  efficient,  with  a  spirit  of :  earnest 
co-operation  existing  between  the  general  officers,  the  store  managers 
and  all  other  employees.  We  were  particularly  impressed  with  the 
interest  taken  by  the  managers  of  the  different  stores  in  the  success 
of  the  business  as  a  whole,  and  the  prosperity  of  their  own  store  in 
particular. 

In  the  various  companies  controlled  by  Mr.  Claflin,  the  general 
supervising  organization  consists  of  Mr.  Claflin,  at  its  head,  Mr.  Louis 
Stewart,  his  principal  associate  and  adviser,  Mr.  John  C.  Eames, 
Vice-President  of  The  H.  B.  Claflin  Company,  and  about  a  dozen  of 
the  most  able  executives  among  the  store  managers.  These  gentlemen 
comprise  a  board  of  council  which  considers  and  decides  upon  all 
important  questions  involving  policy,  management  and  operation  of 
the  various  stores  controlled.  Few  organizations  possess  so  capable 
a  managing  force  or  give  so  great  attention  to  the  training  of  their 
employees,  with  a  view  to  their  future  usefulness.  This  policy  assures 
in  large  measure  the  continuance  of  successful  operation  of  the 
business. 

The  system  of  checks  and  reports  maintained  throughout  is  thor- 
ough and  complete,  and  the  reports  are  advantageously  used  in  the 
administration  of  the  business.  The  results  of  each  store  and  each 
department  therein  are  compared  with  the  results  of  the  other  stores 
and  the  same  departments  in  such  stores.  The  employees  who  show 
themselves  most  efficient  are  moved  forward  from  department  to  de- 


UNITED   DRY   GOODS   CO.    PFD.    STOCK  373 

partment,  and  from  store  to  store,  and  the  inefficient  are  relieved. 
The  organization  is  strengthened  by  this  system  and  a  spirit  of  in- 
terest among  the  employees  is  developed. 

The  men  charged  with  the  administration  in  the  various  stores 
impress  us  as  being  broad-minded  business  men,  capable  of  success- 
fully assuming  larger  responsibilities. 

Yours  truly, 

HASKINS  &  SELLS, 
Certified  Public  Accountants. 


374 


$10,000,000 

JONES  &  LAUGHLIN  STEEL  COMPANY 

FIEST  MOETGAGE  THIETY-YEAE  SINKING  FUND 

5%  GOLD  BONDS  x 


Dated  May  1,  1909.    Due  May  1,  1939.    Authorized  issue  $30,000,000. 
Issued  $25,000,000. 

Interest  payable  May  1st  and  November  1st  at  First  Trust  and  Savings 

Bank,  Chicago,  or  the  agency  of  the  Company  in  New  York. 

Coupon  Bonds,  or  may  be  registered  as  to  principal. 

Redeemable  after  May  1,  1914,  at  105  and  interest. 

First  Trust  and  Savings  Bank,  Chicago,  Trustee. 


A  letter  from  the  President  of  the  Company  on  file  at  our  office  empha- 
sizes the  following  statements : 

1.  Secured  by  an  absolute  first  mortgage  on  all  the  property  now 

owned  by  the  Company  and  additional  property  acquired  by 
these  bonds. 

2.  The  property  consists  of  real  estate,  furnaces,  steel  mills,  includ- 

ing the  new  modern  plant  of  the  Company  at  Aliquippa, 
which  is  recognized  as  one  of  the  most  modern,  convenient 
and  economical  plants  to  be  found  in  the  country. 

3.  Through  its  subsidiary  companies,  whose  stocks  are  pledged  to 

secure  these  bonds,  it  controls  ore  lands,  coal  lands  and  lime- 
stone property  sufficient  to  supply  the  Company  many  years 
beyond  the  term  of  the  bonds 

4.  During  the  last  two  years  the  Company  has  invested  twenty  mil- 

lion dollars  in  the  new  plant  and  additions  and  betterments  to 
its  former  property. 

5.  The  Company  is  required  to  keep  net  quick  assets  of  eight  million 

dollars  as  long  as  a  like  amount  of  bonds  remain  outstanding. 

6.  A  sinking  fund  is  provided  which  will  approximately  retire  the 

bonds  at  maturity. 

7.  The  average  yearly  earnings  for  the  last  ten  years  were  more  than 

four  times  the  interest  payment  on  the  outstanding  bonds. 


i  Bond  house  circular,  issued  by  Blair  &  Co..  announcing  the  Jones  & 
Laughlin  Steel  Co.  Bonds.  See  Jones  &  Laughlin  Steel  Co.  Mortgage,  pp. 
183  et  seq. 


BOND   CIRCULAR  375 

Having  sold  a  large  part  of  these  bonds,  the  undersigned  offer  the 
remainder  at  102£  and  accrued  interest. 


We  regard  these  bonds  a  desirable  investment. 


FIRST  TRUST  &  SAVINGS  BANK  BLAIR  &  CO. 

Chicago  New  York 

THE  JONES  &  LAUGHLIN  STEEL  COMPANY 
Geatlemen:  Pittsburgh,  June  16,  1911 

Referring  to  the  $10,000,000.00,  5%  First  Mortgage  Bonds  of  this  Company 
recently  purchased  by  you,  these  bonds  are  part  of  an  authorized  issue  of  $30,- 
000,000.00,  dated  May  1,  1909,  of  which  $25,000,000.00  has  been  issued,  and 
$24,487,000.00  are  outstanding,  the  balance  having  been  retired  by  the  opera- 
tion of  the  sinking  fund. 

They  are  secured  by  an  absolute  first  mortgage  on  all  the  property  of  the 
Company  now  owned,  and  on  additional  property  which  may  hereafter  be 
acquired  by  the  proceeds  of  these  bonds.  They  are  further  secured  by  the 
pledge  of  bonds  and  stocks  of  subsidiary  companies,  whose  property  consists 
of  coal  mines,  ore  lands  and  railways;  all  used  in  connection  with  this  business 
in  a  general  way. 

The  security  behind  these  bonds  is: 

First:  The  real  estate,  furnaces,  steel  mills,  finishing  mills,  plants  of 
various  kinds,  located  largely  in  the  City  of  Pittsburgh,  and  the  new  and 
modern  plant  of  the  Company  at  Aliquippa,  twenty  miles  from  Pittsburgh, 
which  plant  has  been  constructed  by  the  Company  during  the  last  three  years, 
and  is  recognized  as  one  of  the  most  complete,  modern,  convenient  and  econom- 
ical plants  to  be  found  in  this  country. 

Second:  Through  its  subsidiary  companies  it  controls  ore  lands,  coal  lands 
and  limestone  properties  in  fee  or  under  lease,  containing  sufficient  ore,  coal 
and  limestone  to  supply  the  Company's  furnaces,  at  their  present  capacity,  for . 
many  years  beyond  the  term  of  these  bonds. 

During  the  last  two  years  the  Company  has  invested,  approximately,  twenty 
million  dollars  in  new  plants  or  additions  or  betterments  to  its  former  prop- 
erty, and  the  proceeds  of  the  ten  million  dollars  of  bonds  sold  you  will  be 
largely  used  to  reimburse  the  Company  for  such  expenditures,  and  when  their 
proceeds  are  absorbed,  will  leave  the  Company  practically  free  of  debt  other 
than  these  first  mortgage  bonds. 

Among  the  covenants  of  this  trust  deed,  I  might  mention  that  the  Company 
is  required  to,  at  all  times  while  an  equal  amount  of  their  bonds  is  outstand- 
ing, have  net  quick  assets  to  the  amount  of  eight  million  dollars,  and  further, 
a  sinking  fund  is  provided,  equal  yearly  to  one-fifteenth  of  the  amount  of 
bonds  outstanding,  which  sinking  fund  is  applied  to  the  payment  of  interest 
on  the  outstanding  bonds  and  to  the  retirement  of  principal.  The  sinking 
fund,  it  is  figured,  will  approximately  retire  the  bonds  at  their  maturity. 

The  Audit  Company  of  New  York,  before  the  investment  of  the  twenty 
million  dollars  above  referred  to,  made  a  careful  examination  of  the  property, 
from  which  it  is  safe  to  say  that  the  net  value  of  our  property  is  over  three 
times  the  bonded  debt.  It  has  been  the  policy  of  the  Company,  for  many 


376         MATERIALS    OP   CORPORATION   FINANCE 

years,  to  return  to  the  property  large  sums  for  additions  and  improvements, 
besides  making  a  liberal  allowance  for  depreciation. 

The  average  yearly  earnings,  for  the  last  ten  years,  have  been  more  than 
sufficient  to  pay  four  times  the  interest  on  the  present  outstanding  bonds. 

Yours  truly, 

(Signed)     B.  F.  JONES,  JR., 
President. 


PROSPECTUS    OF   MINING   COMPANY  377 


PROSPECTUS1 

MR.  WILLIAM  LAWRENCE  GREEN  ORGANIZES  A  BIG 
EXPLORATION  COMPANY 


A  REMARKABLE  OPPORTUNITY  FOR  MONEY  MAKING  OFFERED  TO 
READERS  OF  "VAN  NORDEN  MAGAZINE" 

By  E.  C.  Rowe 

A  fortunate  opportunity  for  extraordinary  profits  from  a  $200  ex- 
penditure is  open  to  Van  Norden  readers  exclusively.  This  opportu- 
nity arises  from  the  recent  formation  of  an  exploration  company  by  a 
number  of  prominent  and  wealthy  Eastern  business  men,  well  known  to 
the  publishers,  who  agree  to  permit  the  readers  of  Van  Norden  Maga- 
zine to  obtain  an  interest  in  their  company  upon  the  most  fair  and 
equitable  terms. 

You  may  secure  a  $1,000  interest  in  the  new  exploration  company 
for  a  total  expenditure  of  $200.  Or  you  make  a  smaller  investment, 
obtaining  the  same  proportionate  interest;  $50  secures  an  interest 
equivalent  to  a  $250  investment  at  par,  and  so  on.  The  extraordinary 
value  of  this  opportunity  is  apparent  when  I  tell  you  that  the  active 
head  and  president  of  this  company  is  William  Lawrence  Green,  vice- 
president  and  treasurer  of  Banks  &  Company  (Inc.),  the  great  law 
publishers,  booksellers  and  importers,  of  Albany,  New  York.  Banks  & 
Company,  as  a  copartnership  firm,  was  established  in  Albany  105 
years  ago  by  the  grandfather  of  the  present  head  of  the  firm,  Hon.  A. 
Bleecker  Banks,  who  is  associated  with  Mr.  Green  in  the  Exploration 
Company.  Mr.  A  Bleecker  Banks  has  served  in  the  State  Senate  and 
as  Mayor  of  Albany. 

The  other  men  forming  the  directorate  are  prominent  and  have  been 
attracted  to  exploration  work  because  of  the  amazing  profits  accruing 
to  those  engaged  in  the  business,  and  because  they  were  able  to  secure 
ownership  for  the  corporation  to  1,200  acres  of  some  of  the  richest  min- 
eralized land  in  the  entire  Southwest.  This  land  was  brought  to  the 
attention  of  Mr.  Green  and  his  associates  by  Senator  Stephen  E.  Bar- 
ron,  of  California,  who  has  mined  in  the  Colorado  River  Desert  for 
upward  of  forty  years.  Mr.  Barron  has  been  many  years  in  collecting 
these  properties,  perfecting  their  titles,  doing  assessment  work  and 
proving  their  richness,  and  it  was  not  until  he  had  fully  determined 
their  value  that  he  sought  the  aid  of  Eastern  people.  These  properties 
are  in  three  different  States,  Nevada,  California  and  Arizona,  and  the 

i  Aa  it  appeared  in  Van  Iforden  Magazine. 


378         MATEEIALS    OF   CORPORATION   FINANCE 

Green-Banks-Barron  Company  is  officially  known  as  the  Tri-State  De- 
velopment Company. 

The  Tri-State  Development  Company  has  been  organized  for  the 
working  and  development  of  over  sixty  claims,  representing  about 
1,200  acres  located  in  the  choicest  section  of  Death  Valley,  and  at  the 
conjunction  of  that  vast  mineral  deposit  that  lies  partly  in 
the  States  of  California  and  Nevada  and  the  Territory  of 
Arizona.  This  section  marks  the  center  of  the  famous  min- 
eral zone  and  group  of  mines  that  has  brought  to  the  world 
new  life  and  twice  saved  the  credit  of  the  nation  by  yielding  millions 
of  gold  which  turned  into  coin  as  a  redeemer  of  all  obligations.  It  is 
that  portion  of  our  hemisphere  and  new  zone  of  wealth  that  makes  any 
traveler  look  with  awe  at  the  gold  and  copper  mining  giants  contained 
within  its  borders. 

Two  miles  west  from  the  Tri-State  Mines  are  the  Copper  Butte 
Mines.  One  mile  east  is  the  Pioneer,  four  miles  northeast  the  Kline- 
felter,  ten  miles  south  the  Gold  Bend,  fifteen  miles  east  the  Colorado 
Eiver  with  its  many  celebrated  mineral  veins  on  both  sides,  in  Nevada, 
California  and  Arizona.  Just  north  of  the  Gold  Knob  group,  owned 
by  the  Tri-State,  is  the  famous  Turtle  Dove,  and  a  little  further  north 
comes  the  wonder  of  all  mines  in  the  district  near  Von  Trigger,  and 
known  as  Cram's  Mines,  celebrated  for  their  uniform  values  and  rich- 
ness in  both  gold  and  copper. 

This  is  a  property  that  we  don't  read  much  about,  but  which  haa 
produced  gold  for  some  fourteen  years  and  is  a  really  wonderful  prop- 
erty. At  250-foot  depth  it  has  an  80-foot  body  of  copper;  at  about 
the  same  depth  it  has  an  immense  gold  ore  vein  running  as  high  as 
$140  to  the  ton.  The  property  is  now  erecting  smelter  works  and  pip- 
ing water  many  miles  for  its  operations.  It  is  under  bond  for  $2,500,- 
000.  The  Patsy  Pat  group  of  claims  is  in  precisely  the  same  belt  as 
the  great  Cram's  Mine. 

A  feature  of  the  properties  here  in  these  districts  is  uniformity  of 
values,  and  without  exception  they  are  both  gold  and  copper.  The 
Cram's  Mines  are  perhaps  the  best  illustration  of  this  because  they 
have  been  well  developed  and  there  are  millions  in  both  metals  in  this 
one  property. 

Several  other  mines  of  great  value  in  the  Crazy  Basin  and  on  York 
Mountain  form  the  connecting  link  between  the  Tri-State  Mines  and 
the  well-known  Quartette  Group  of  mines  in  the  Searchlight  District, 
and  the  Duplex  Mines  which  have  struck  ore  extraordinarily  rich  in 
the  lower  level  of  their  workings. 

The  Tri-State  claims,  known  as  the  Copper  Vault  Group,  are 
located  just  east  of  Death  Valley,  on  the  Nevada  side  of  the  State  line, 


PROSPECTUS   OF    MINING   COMPANY  379 

and  between  the  great  Potosi  and  Copper  Chief  Mines  south  from 
Goldfields  and  Bullfrog  Districts  with  connecting  claims  the  entire 
distance. 

Another  group  of  five  claims  belonging  to  the  Tri- State  is  situated 
about  ten  miles  north  from  Kingman,  Arizona,  in  Mojave  County, 
near  Stockton  Hills,  where  the  great  producers,  known  as  the  Banner 
and  Treasure  Hills  Mines,  are  located,  and  are  connected  by  adjoining 
claims  that  promise  just  as  satisfactory  results  as  their  better  developed 
neighbors. 

Between  the  Tri- State  group  of  claims  on  the  west  side  of  the  Colo- 
rado River  and  their  group  on  the  east  side  of  Stockton  Hills  is  the 
most  celebrated  group  of  the  district,  the  Gold  Roads  Mines,  which  are 
producing  and  shipping  $50,000  per  month  regularly.  It  was  gold 
from  this  wonderfully  rich  property  that  set  the  visitors  in  Los  Angeles 
wild  during  the  Shriners*  visit  a  few  months  ago. 

Just  east  the  United  Verde  at  Jerome,  Arizona,  offers  an  example 
of  the  value  of  a  mine  in  this  mineral  zone  when  fully  developed.  It 
is  doubtful  if  $500,000,000  would  be  accepted  for  this  one  property. 

Other  claims  of  great  promise  and  value  in  these  districts  are  the 
Gold  Cone,  Moonlight,  Delaip  and  Gold  Basin,  south  of  Goffs,  Califor- 
nia, where  the  Tri-State  has  nine  claims,  two  miles  south  of  the  far- 
famed  Turtle  Dove  group  of  gold  claims,  are  linked  together  by  the 
Keyes  and  Banta  Mines.  Properties  of  the  Tri-State  being  centrally 
located  in  the  midst  of  this  great  mineral  zone  and  bound  on  all  sides 
for  miles  with  rich  producers  are  located  among  the  best  properties  in 
the  entire  country. 

A  very  important  feature  of  the  plans  of  the  Tri-State  Development 
Company  will  be  the  locating,  the  partial  development  and  sale  of 
properties.  This  is  essentially  the  work  of  exploration  companies, 
and  the  sale  of  a  single  claim  often  affords  profit  enough  to  reimburse 
the  shareholders  in  one  dividend,  all  they  expended  originally  for  their 
shares. 

The  properties  of  the  Tri-State  Development  Company  are  in  one  of 
the  richest  mineralized  sections  on  the  globe.  "Within  sight  of  the  Tri- 
State  property,  known  as  the  Patsy  Pat  group,  is  the  Tom  Reed  Mine, 
which  recently  sold  for  $2,000,000  to  interests  represented  by  John 
Hays  Hammond. 

Shrewd,  successful  merchants  do  not  embark  in  mining  ventures 
nowadays  until  they  have  assured  themselves  by  expert  advice  beyond 
any  doubt  that  their  ventures  shall  be  profitable,  hence  before  Mr. 
Green  and  his  associates  paid  over  their  money  for  the  properties 
owned  by  the  Tri-State  Company  they  sent  Mr.  George  C.  Harrison, 
of  New  York,  to  visit  the  properties  and  make  report  thereon.  Mr. 


380 

Harrison  discovered  26  veins  of  exceedingly  rich  free  milling  ore, 
much  of  it  assaying  $30  in  gold  and  from  10  per  cent,  to  35  per  cent, 
copper.  The  extent  of  this  vein  matter  is  fully  revealed  in  Mr.  Harri- 
son's report  to  the  directors. 

The  opportunity  for  extraordinary  profits  is  offered  exclusively  to 
the  readers  of  this  magazine.  Fifty  dollars  may  be  invested  in  the 
shares  of  this  company.  This  opportunity  comes  at  a  time  when  min- 
ing investment  is  once  more  engaging  the  attention  of  the  better  class 
of  the  speculative  masses  by  virtue  of  the  steady  outpouring  of  profits 
from  American  mines.  The  following  figures  are  significant: 

The  Mining  World  says :  "One  hundred  and  nine  American  mines 
during  the  first  ten  months  of  the  year  paid  their  shareholders  $52,- 
850,110.  Of  this  amount  the  Amalgamated  disbursed  $3,077,757." 
These  figures  are  eloquent  facts.  There  is  absolutely  no  other  indus- 
try, no  other  investment  that  rivals  the  possibility  of  mining  when 
conducted  with  a  proper  regard  for  clean  and  honest  methods  and 
when  in  the  hands  of  capable  men  who  shall  apply  industrial  econom- 
ics in  winning  the  metal  from  the  ore  deposits  they  own. 

When  a  mining  and  exploration  company  is  organized  by  men  of 
the  type  of  Mr.  William  Lawrence  Green  and  Mr.  A.  Bleecker  Banks, 
there  is  every  evidence  of  sincerity  and  ultimate  success  attending  their 
operations,  and  all  those  who  are  permitted  to  join  in  such  an  enter- 
prise have  more  than  an  average  chance  of  making  an  amount  of  profit 
out  of  all  proportion  to  the  amount  invested. 

Mr.  Green  and  his  associates  in  the  Tri- State  Development  Com- 
pany permit  you  to  join  them  upon  the  exceedingly  liberal  terms  they 
mention  to  test  the  writer's  theory  that  the  readers  of  this  magazine 
are  financially  able,  and  indeed  eager  to  purchase  all  the  treasury 
shares  of  the  new  company,  first  at  20  cents,  then  at  35  cents,  and  then 
at  par.  I  believed  that  Mr.  Banks  could  thus  widely  distribute  the 
shares  of  his  company  without  publicly  advertising,  and  I  told  him  so, 
and  my  proposition  was  accepted  after  it  had  been  passed  upon  by  the 
Board  of  Directors. 

But  Mr.  Green's  offer  must  be  accepted  quickly,  else  the  opportunity 
to  secure  $1.00  shares  for  20  cents  will  be  canceled.  You  should  notify 
Mr.  Green  to-day  that  you  will  accept  his  offer,  provided,  of  course,  you 
desire  to.  Address  your  letter  to  Mr.  Wm.  Lawrence  Green,  President, 
Tri-State  Development  Company,  32  Broadway,  New  York  City. 
You  need  not  limit  your  investment  to  $200.  Mr.  Green  will  permit 
you  to  secure  a  $300  or  a  $500  investment  in  his  enterprise,  but  not 
more  than  $500  will  be  accepted  from  any  one  reader  of  this  magazine, 
as  it  is  Mr.  Green's  desire  to  have  the  shares  of  his  company  very 
widely  distributed. 


PROSPECTUS   OF   MINING   COMPANY  381 

Remember  this,  even  a  $100  investment  in  mining  shares  possesses 
great  possibilities  for  profit ;  such  a  venture  may  make  you  rich.  Such 
things  are  numerous  in  mining  history.  One  hundred  dollars  in- 
vested a  few  years  ago  in  gold  coin  stock  at  20  cents  increased  to  $7,500 
and  paid  4,800  per  cent,  in  profits.  Home  Mining  Company  paid 
$10,000  in  profits  for  every  $100  investment,  and  every  $100  invested 
in  Copper  Queen  has  earned  over  $3,000  in  dividends,  and  the  com- 
pany pays  millions  in  profits  every  year.  The  Bonanza  Mine  of  East 
Oregon  was  sold  in  1896  for  $100.  In  1902  a  60  per  cent,  interest  in 
this  same  property  was  sold  by  the  exploration  company  who  had 
bought  it  for  $2,000,000  cash.  The  Independence  Mine  of  Cripple 
Creek,  a  mere  prospect  in  1891,  has  paid  about  $30,000  in  profits  for 
every  $100  originally  invested  in  the  shares  when  they  were  selling  at 
20  cents.  The  original  shareholders  of  the  Camp  Bird  Mine  realized 
$8,500  for  every  $100  they  expended.  And  so  the  long  list  goes  on 
and  on. 

Of  course  every  one  who  reads  of  wealth  quickly  made  by  this  or 
that  man  by  fortunate  investment  in  some  mining  or  exploration  com- 
pany, wishes  that  some  such  opportunity  would  present  itself  to  him. 
He  perhaps  sees  offered  to  the  public  the  shares  of  mining  companies 
actively  traded  in  on  the  New  York  Curb.  He  halts  between  his  desire 
for  quick  gain  and  profits  and  his  doubts  about  the  prudence  of  specu- 
lating in  mines,  and  finally  resolving  to  take  a  flyer,  he  buys  the  stock 
that  seems  to  be  the  most  active,  or  the  one  backed  by  the  most  ex- 
travagant promises,  either  of  which  is  likely  to  be  the  most  worthless 
of  all.  He  is  probably  perfectly  unfamiliar  with  mining  and  the  tricks 
of  promoters  and  curb  brokers,  and  simply  goes  it  blind.  And  when 
his  speculation  proves  disastrous  he  wrongly  thinks  he  has  lost  money 
in  mining. 

Still  real  mining  or  the  selling  of  partially  developed  mines  is  the 
most  profitable  industry  in  America  to-day,  and  for  capital  invested  it 
pays  a  far  greater  percentage  of  returns  than  any  other  industry.  The 
time  to  invest  in  mining  is  when  a  company  is  in  its  infancy.  Then 
the  investor  obtains  all  the  benefit  of  the  rise  in  the  prices  of  the  shares 
that  generally  occurs  when  a  mine  is  managed  by  competent  and  re- 
sponsible men. 

Now  again.  Two  hundred  dollars  obtains  a  $1,000  interest  in  the 
Tri-State  Development  Company.  Suppose  you  hold  your  investment 
for  two  or  three  years?  Suppose  the  Tri-State  Company  meets  with 
ordinary  success  and  has  distributed  profits  to  the  shareholders  aggre- 
gating $1,000  for  every  $200  invested  ?  Would  such  earnings  on  your 
investment  be  satisfactory?  I  take  it  that  they  would.  Still  such 
percentage  of  profit  is  not  only  usual  in  well  conducted  mining  com- 


382         MATEEIALS    OP   COKPOKATION   FINANCE 

panies,  but  it  would  be  unusual  if  tbis  amount  should  not  be  dis- 
tributed within  two  or  three  years  after  the  formation  of  a  company 
officered  and  protected  by  such  men  as  form  the  directorate  of  the  Tri- 
State  Development  Company. 

But,  you  say,  even  acknowledging  that  Mr.  Green  and  his  associates 
are  earnest,  responsible,  pushing  business  men,  how  do  I  know  that  my 
investment  will  turn  our  satisfactorily?  Frankly,  you  do  not  know. 
But  given  a  fair  field  for  operations,  a  proven  property  and  an  able 
management  by  men  of  large  affairs  in  other  pursuits,  and  who  have 
amply  endowed  their  enterprise  with  their  own  funds — an  interest  in 
such  a  company  is  more  than  likely  to  succeed  and  to  pay  in  profits  an 
amount  far  outclassing  any  expenditure  made  at  the  initial  stage. 

Tell  Mr.  Green  to  reserve  for  you  as  much  of  an  interest  in  his 
company  as  you  may  afford  to  take,  or  you  may  ask  him  to  send  you 
Mr.  Harrison's  report  and  a  prospectus  of  the  Tri-State  Development 
Company.  Although  a  very  busy  man,  Mr.  Green  will  find  time  to 
answer  your  letter  personally  if  you  desire  to  ask  him  questions,  or  pre- 
fer to  pay  for  shares  by  remittances  covering  a  space  of  six  or  twelve 
months.  If  it  is  possible  for  you  to  visit  Mr.  Green  by  appointment  at 
his  office,  you  will  find  doubtless  such  a  visit  profitable  and  instructive, 
for  Mr.  Green,  aside  from  being  a  business  man  and  merchant,  has 
large  interests  in  the  mining  world,  and  converses  with  rare  intelli- 
gence with  his  visitors  upon  mining  topics. 


PROMOTER'S   LETTERS  383 


CABLE  "STEBENTURE  NEW  YOKK"      COD»  USED:  ABC  (5ra  EDITION)      TEL.  2280  STOTVESAWT 

STERLING  DEBENTURE  CORPORATION 

BANE  AND  TRUST  COMPANY  STOCKS— INVESTMENT  SECURITIES 

TO  AVOID  POSSIBLE  DELAYS 

ALL  COMMUNICATIONS  vnWlT 

SHOULD  BE  ADDRESSED  TO  lOOiilAol     lOtQ  O  I  .,    NtjW    YOKK 

THE  CORPORATION,  NOT 

TO  INDIVIDUAL  MEMBERS. 

February  19,  1912. 
MR.  JOHN , 

New  York,  N.  Y. 

Dear  Sir: 

The  enclosed  Referendum  is  being  mailed  to  every  shareholder  of 
the  Bartica  Company,  and  is  practically  sure  to  result  in  the  with- 
drawal of  the  Company's  present  offer  of  shares  with  Convertibles. 

As  all  whose  subscriptions  are  registered  before  the  present  offer  is 
withdrawn  will  receive  Convertibles  with  their  shares,  and  will  also  be 
entitled  to  a  vote  in  this  referendum  and  the  right  of  first  call  on  a 
pro  rata  portion  of  each  yearly  bond  issue,  we  are  sending  the  enclosed 
documents  to  those  of  our  clients  who,  in  our  judgment,  will  be  glad 
to  take  this  opportunity  to  claim  the  special  benefits  vouchsafed  to 
the  original  shareholders  in  this  remarkable  plantation  enterprise. 

Attached  to  the  Referendum  Form  is  a  special  blank  for  your  con- 
venience in  applying  for  shares.  This  application  when  registered 
entitles  you  to  vote  in  the  Referendum.  We  suggest,  therefore,  that 
you  fill  out  the  Referendum  Form  at  the  same  time  and  forward  [it] 
to  us  so  that  your  vote  may  be  recorded  simultaneously  with  your  ap- 
plication. 

Whatever  opinion  one  may  hold  regarding  political  Referendums 
there  can  be  no  doubt  that  in  the  relationship  between  a  Company 
and  its  shareholders  the  idea  is  as  commendable  as  it  is  unusual.  It  is 
a  practical  recognition  of  the  intimate  relations  which  should  exist 
between  shareholders  and  Directors  in  all  corporate  bodies.  It  is  an 
example  of  what  should  be,  and  a  forerunner  of  what  soon  will  be  the 
basis  of  all  corporations  whose  officers  recognize  their  true  obligations 
to  the  investing  public. 

Whichever  way  the  vote  may  go,  every  shareholder  has  cause  for 
congratulation  on  the  fact  that  the  Bartica  Company  has  passed 
through,  with  such  credit  to  its  management,  the  difficulties  that  al- 
ways confront  a  new  enterprise  of  this  nature,  and  is  now  entering 
on  a  new  era  in  full  possession  of  the  excellent  results  which  have  been 
wrought  out  by  that  management — a  record  that  cannot  be  surpassed 


384         MATERIALS    OF   CORPORATION    FINANCE 

in  thorough  scientific  efficiency  by  any  other  rubber  plantation  on  the 
Globe. 

The  proceeds  of  the  proposed  bond  issue  will  provide  for  putting  at 
least  1,000  additional  acres  under  rubber  cultivation  during  the  next 
twelve  months  in  addition  to  installing  the  fibre  factory  and  providing 
ample  funds  for  the  continued  care  of  the  fields  already  planted  and 
approaching  maturity.  As  the  successive  rubber  plantings  come  into 
bearing  you  will  receive  larger  profits  than  could  be  hoped  for  from 
any  other  agricultural  enterprise. 

Your  application  for  such  shares  as  you  may  desire  will  have  our 
prompt  attention. 

Yours  very  truly, 


Vice-President. 


CABLE  "STEBENTUBE  NEW  YORK"       CODE  USED-  ABC  (5-TH  EDITION)        TEL.  5750  MAD.  SQ. 

STERLING  DEBENTURE  CORPORATION 

BANK  AND  TRUST  COMPANY  STOCKS— INVESTMENT  SECURITIES 

BRUNSWICK  BLDG.,  MADISON  SQUARE,  NEW  YORK 

F.  W.  SHUMAKER,  CHAIRMAN 

G.  H.  MIDDLEBROO'K,  PRESIDENT  E.  A.  BARRON,  SECRETARY 

C.  B.  SEABURY,  IST  VICE-PRES.  W.  S.  EDWARDS.  TREASURER 

S.  E.  F1NDLEY,  ZND  VICE-PRES.  H.  H.  PLATT.  ASST.  TREASURES 

MR   E   September  19,  1910. 

New  York,  N.  Y. 
Dear  Sir: 

Because  of  its  advance  information  this  is  the  most  important  let- 
ter we  have  ever  addressed  to  you. 

When  we  recently  mailed  to  you  a  pamphlet  on  the  Bartica  Com- 
pany it  was  to  tell  you  of  a  place  admirably  adapted  to  the  culture  of 
rubber  and  which  it  was  proposed  to  plant  with  Para  rubber  trees. 
The  plans  for  the  development  of  the  immense  estate  were  then  well 
under  way.  On  the  basis  of  tapping  the  trees  now  under  cultivation 
or  being  set  out,  the  rubber  estate  would  return  very  large  earnings 
to  the  stockholders.  But  extensive  explorations  on  the  property  have- 


PROMOTER'S   LETTERS  385 

resulted  in  remarkable  discoveries,  and  a  cablegram  from  Manager 
Withers  now  confirms  the  news  to  an  extent  which  raises  the  value  of 
Bartica  shares  to  several  times  their  par  value. 

When  Mr.  Henry  C.  Pearson,  the  foremost  rubber  expert  of  Amer- 
ica, went  to  British  Guiana,  in  behalf  of  the  Sterling  Debenture  Cor- 
poration, to  investigate  the  conditions  and  prospects  of  the  Bartica 
Estates,  he  made  the  unexpected  discovery  that  wild  rubber  trees  were 
already  growing  on  the  plantation  and  expressed  the  opinion  that  the 
find  indicated  the  possibility  of  an  extensive  growth  of  rubber  on  the 
Estate  and  advised  careful  examination  of  the  forests  before  further 
clearing  was  done. 

The  management  at  once  proceeded  to  act  on  the  advice,  but  as  the 
Company's  property  comprises  fifteen  thousand  acres,  being  consider 
ably  larger  than  the  Island  of  Manhattan  (New  York  City),  and  is 
covered  with  tropical  forest,  it  was  cf  course  slow  work  to  inspect  it 
carefully  and  get  any  clear  idea  of  the  number  of  rubber  trees.  Un- 
der instructions  from  the  Governing  Director,  Manager  Withers  has 
been  carrying  his  investigations  into  the  forest  all  over  the  concession. 
Recent  letters  from  him  reported  the  finding  of  Hevea  growing  in 
great  profusion  as  well  as  quantities  of  Sapium,  a  tree  producing  rub- 
ber almost  equal  in  value  to  Para.  Some  of  these  trees  have  been  tapped 
and  the  rubber  has  come  on  to  New  York  for  examination  and  analy- 
sis. Although  hastily  cured,  without  proper  facilities,  all  the  experts 
who  have  seen  it  pronounce  it  of  excellent  quality. 

Mr.  Withers'  work  has  been  pushed  steadily  on,  and  his  latest  cable- 
gram, rounding  out  his  earlier  information,  states  that  further  explora- 
tion indicates  an  average  of  twenty  rubber  trees  to  the  acre  throughout 
the  entire  tract.  These  trees,  he  states,  range  from  20  to  90  inches 
in  circumference. 

You  will  see  at  once  the  importance  to  the  Bartica  Company  of 
this  discovery.  On  Mr.  Withers'  estimate  there  are  approximately 
280,000  trees  now  ready  for  tapping  which  on  the  most  conservative 
basis  will  yield  five  pounds  of  rubber  per  tree  in  the  first  year.  At  the 
present  price  of  rubber  (or  even  at  only  half  the  present  price)  you 
can  readily  figure  out  that  this  means  an  enormous  income  each  year. 
There  will  now  be  no  waiting  for  the  trees  to  grow.  All  that  is 
necessary  is  to  clear  paths  to  the  rubber  trees,  tap  and  collect  the  latex. 
As  rapidly  as  this  work  is  pushed  will  the  income  increase.  It  may 
take  a  year  to  fully  cover  and  open  up  the  whole  tract,  but  every  day's 
progress  will  add  to  the  earnings. 

This  work  of  gathering  and  handling  the  rubber  can  all  be  done 
with  only  a  fraction  of  the  capital  which  would  have  been  required  to 


386         MATERIALS    OF   CORPORATION   FINANCE 

plant  and  develop  the  Estate  along  the  original  plan.  The  gathering 
of  rubber  from  the  wild  trees  discovered  will  not,  however,  interfere 
with  the  development  of  the  estate  along  the  lines  originally  planned. 
It  means  additional  income,  enough  to  pay  large  dividends,  while  the 
planted  Para  trees  are  growing  to  the  producing  stage.  Splendid  pos- 
sibilities are  in  sight  for  those  who  secure  shares  at  the  original  price. 

The  sudden  development  which  so  greatly  increases  the  value  of  this 
investment  will  require  immediate  changes  in  the  Company's  plans. 
Mr.  E.  A.  Hackett,  Secretary  of  the  Bartica  Company,  is  well  experi- 
enced in  matters  pertaining  to  the  handling  and  marketing  of  crude 
rubber,  and  he  has  already  sailed  for  the  Estates.  He  will  supplement 
Mr.  Withers'  work  to  the  end  of  quickly  starting  the  Company's  in- 
come, and  his  early  advice  will  help  in  the  decision  of  the  Company, 
whether  to  withdraw  their  stock  entirely  from  the  market  or  to  re- 
open the  subscription  lists  at  a  price  commensurate  with  its  present 
value.  In  the  meantime  the  Bartica  Company  instructed  us  to  close 
the  stock  subscription,  accepting  no  further  orders  under  our  original 
offer  of  $10  a  share. 

In  addition  to  the  subscriptions  already  accepted,  we  had  in  good 
faith  extended  the  offer  at  $10  to  a  number  of  our  correspondents,  and 
we  insisted  that  in  such  cases  we  be  permitted  to  give  due  notice  of  the 
withdrawal  of  the  offer.  The  justice  of  this  demand  was  conceded, 
and  you  being  one  to  whom  the  offer  had  already  been  made,  are  en- 
titled to  receive  this  notice. 

It  is  to  our  interest  always  to  protect  our  customers,  giving  them 
the  lowest  price  on  every  security  offered.  We  would  prefer  to  secure 
for  you  to-day  at  $10  as  many  Bartica  shares  as  you  can  afford  to  carry, 
rather  than  to  'sell  you  a  lesser  number  next  month  or  next  year  at 
$30  or  $40  or  $50  per  share.  That  is  why  we  give  you  this  advance 
notice  of  the  withdrawal  of  our  previous  offer;  but  in  the  nature  of 
the  case  we  cannot  continue,  beyond  the  receipt  of  this  notice,  your 
privilege  of  accepting  our  offer  at  $10  a  share.  It  is  advisable  that  a 
telegram  be  used  in  making  application  for  this  stock,  but  telegraphic 
reservations  should  be  confirmed  immediately  by  mail. 

Yours  very  truly, 


First  V ice-President 


ANNUAL    REPORT,    BARTICA    RUBBER    CO.        387 

BARTICA  COMPANY  ANNUAL  REPORTS,  JANUARY,  1912 

REPORT  OF  THE  PRESIDENT 
To  the  Shareholders  of  the  Bartica  Company: 

To  comply  with  the  laws  of  British  Guiana  the  plantation  is  held 
by  the  Bartica  Agricultural  Estates,  Ltd.,  a  British  Guiana  corpora- 
tion owned  by  the  Bartica  Company. 

The  Board  of  Directors  of  the  Bartica  Company  and  the  Bartica 
Agricultural  Estates  are  identical,  and  the  business,  both  here  and 
in  British  Guiana,  is  transacted  through  this  Board.  Funds  as 
received  are  remitted,  less  necessary  office  and  administration  expenses 
here,  to  the  Bartica  Agricultural  Estates  in  British  Guiana,  through 
which  corporation  the  business  is  carried  on  in  that  country.  Neither 
the  Bartica  Company  nor  the  Bartica  Agricultural  Estates  has  any 
indebtedness.  At  no  time  has  there  been  any  debt  except  for  current 
expenses  during  the  month. 

The  Bartica  Company  has  a  contract  with  the  Sterling  Debenture 
Corporation  to  sell  its  treasury  stock,  making  payments  according  to 
the  requirements  of  the  Company,  which  are  stipulated  in  the  contract 
and  will  enable  us  to  plant  and  carry  to  full  bearing  six  thousand 
acres  of  rubber  without  using  any  portion  of  our  profits  for  planta- 
tion purposes. 

PLANTINGS  OF  1911 

To  provide  for  our  first  planting  the  company  ordered  through  the 
Agricultural  Department  of  British  Guiana  170,000  rubber  seeds. 
These  were  received  and  planted  in  the  nursery.  It  was  expected  that 
they  would  yield  125,000  plants,  but  because  of  defective  packing  in 
Ceylon,  we  got  a  very  small  percentage  of  germination,  securing  only 
about  5,000  plants.  In  consequence  of  this  loss  and  because  of  its 
desire  to  encourage  worthy  enterprise  in  its  territory,  the  Government 
subsequently  refunded  the  purchase  price. 

We  were  able  to  secure  from  the  Government  Agricultural  Station 
about  15,000  seedlings,  so  that  from  our  seeds  and  the  seedlings  we 
had  20,000  trees  in  the  nursery  available  for  planting. 

In  addition  to  this,  we  purchased  from  Ceylon  70,000  stumps,  and 
Messrs.  P.  W.  Woolley  &  Company,  through  whom  the  purchase  was 
made,  sent  a  surplus  of  about  5  per  cent,  to  cover  possible  losses.  We 
were  extremely  fortunate  with  this  shipment,  as  our  superintendent 
reports  that  about  70,000  of  the  stumps  developed,  and  are  either 
planted  permanently  in  the  fields  or  are  in  the  nursery  ready  for 
planting  out  as  fast  as  the  ground  is  prepared  for  them. 


388 


MATERIALS    OF   CORPORATION   FINANCE 


Besides  caring  for  and  keeping  in  order  the  two  hundred  and  fifty 
acres  planted  in  sisal,  the  Company  has  planted  50,000  Para  rubber 
trees  raised  in  the  nursery  on  four  hundred  and  fifty  acres  and  has 
remaining  40,000  trees  in  the  nursery,  giving  us  a  total  of  90,000 
trees. 

An  additional  one  hundred  and  fifty  acres  have  been  felled  and 
20,000  trees  will  be  transplanted  from  the  nursery  to  this  ground 
between  now  and  the  15th  of  April. 

PLANTINGS  FOE  1912 

To  provide  for  the  current  year's  planting  we  purchased  and  have 
received  200,000  seeds  through  P.  W.  Woolley  &  Company,  and  Mr. 
Withers  reports  that  we  are  getting  very  excellent  results  in  germina- 
tion. 

EXCEPTIONALLY   FAVORABLE   CONDITIONS 

The  trees  planted  are  all  showing  results  beyond  our  anticipation. 
The  reason  for  this  is  found  in  the  showing  made  by  meteorological 
records  which  have  been  kept  on  the  plantation  for  the  past  three 
years.  The  noon  sun  temperature  is  145  to  148  degrees.  Our  max- 
imum shade  temperature  has  been  92  degrees,  the  minimum  70 
degrees,  with  an  average  of  about  80  degrees.  A  great  factor  is 
the  unusual  percentage  of  sunshine.  In  May,  one  of  our  months  of 
greatest  rainfall,  with  a  record  of  12.88  inches,  we  had  an  average 
of  ten  hours  a  day  of  sunshine  out  of  a  possible  twelve.  The  rainfall 
has  been  as  follows: 

1908  to  1909     1909  to  1910     1910  to  1911 

Rainfall  Inches  Inches  Inches 

September    6.44  3.73  7.04 

October    6.51  10.14  5.37 

November    10.23  4.59  8.03 

December    15.14  10.52  3.83 

January   5.13  11.50  10.70 

February    12.37  8.81  10.12 

March 7.23  10.72  8.93 

April  5.95  8.10  12.99 

May     13.57  8.82  12.88 

June    11.68  15.42  12.78 

July    8.71  12.92  10.14 

August   7.32  5.79  7.73 

Totals    110.28  111.06  110.54 

Our  longest  times  without  rain  for  the  three  years  have  been  once 
ten  days,  twice  nine  days,  once  eight  days,  once  seven  days;  so  that 
only  five  times  in  three  years  have  we  had  a  week  at  a  time  without 


ANNUAL    REPORT,    BARTICA    RUBBER    CO.       389 

rain,  and  the  rainfall  for  each  of  the  three  years  is  practically  the 
same,  as  shown  above.  During  the  three  years  we  have  had  296  dry 
days  and  799  days  with  rain. 

I  do  not  believe  that  any  rubber  plantation  in  the  world  can  show 
such  favorable  conditions  for  growing  Para  rubber.  Our  trees,  one 
year  old,  show  an  average  of  4  inches  in  girth  3  feet  from  the  ground, 
and  those  two  and  one-half  years  old,  8£  inches,  with  the  best  11 
inches.  Our  trees  over  two  years  old  have  been  showing  a  growth  of 
substantially  one-half  inch  per  month  in  circumference. 

FREEDOM  FROM  DISEASE  AND  PESTS 

The  plantation  has  been  absolutely  free  from  either  disease  (fomes 
or  fungus  growth)  or  ants  (termites),  the  two  serious  plagues  of  the 
East.  From  the  conditions  surrounding  the  plantation,  we  do  not 
anticipate  any  trouble  from  either  of  these  causes.  In  the  first  place, 
the  Government  has  strict  regulations  prohibiting  the  bringing  in 
of  stumps  carrying  any  soil  from  any  of  the  rubber-growing  coun- 
tries lest  the  fungus  disease  be  imported.  In  the  next  place,  the 
plantation  has  thorough  natural  drainage  by  reason  of  its  hilly  forma- 
tion and  there  is  no  possibility  of  a  development  of  disease  from 
excessive  moisture  and  bad  drainage,  a  common  cause  in  the  East. 
As  our  plantation  lies  on  a  broad  river  and  there  are  no  other  rubber 
plantations  in  the  neighborhood,  there  is  no  chance  for  the  spread 
of  infection  such  as  occurs  in  the  thickly  planted  portion  of  the 
Malay  Peninsula. 

GOVERNMENT  INSPECTION 

In  May  the  Government,  through  Professor  Harrison,  head  of  the 
Department  of  Agriculture,  and  Mr.  Ward,  agricultural  instructor, 
made  a  thorough  examination  of  the  plantation  to  see  that  our  cultiva- 
tion is  in  accord  with  Government  requirements.  Unfortunately,  the 
policy  of  the  Government  does  not  permit  the  publication  of  the 
reports  of  this  examination,  but  the  Demerara  "Argosy"  published 
the  following  notice: 

"On  Tuesday  the  party  went  to  'The  Hills'  estate,  which  is  under 
the  management  of  Mr.  Withers,  and  inspected  the  cultivation  of 
sisal  and  rubber.  *We  were  astonished  with  the  progress  made  since 
oui4  last  visit/  said  Professor  Harrison,  'and  very  much  struck  with 
the  potentialities  of  Para  rubber  cultivation  in  the  Bartica  district.' " 

We  have  every  reason  to  believe  that  not  only  is  our  cultivation 
fully  up  to  Government  requirements,  but  that  it  is  equal  to  any 
in  the  East 


390         MATERIALS    OF   CORPORATION    FINANCE 

BUILDINGS 

During  the  year  the  company  purchased  a  largs  building  known 
as  Kalicoon  House,  which  would  have  cost  us  from  $5,000  to  $6,000 
to  build.  It  is  to  be  used  as  quarters  of  the  overseer  and  as  our  rubber 
curing  house.  In  addition,  we  have  made  a  considerable  investment 
in  building  permanent  laborers'  quarters,  so  that  we  now  have  suf- 
ficient to  house  properly  all  the  laborers  needed  to  plant  one  hundred 
acres  per  month  and  care  for  the  existing  plants. 

ROADS,   BRIDGES,  ETC. 

As  the  land  is  cleared  it  is  laid  out  in  regular  fields  with  roads 
and  substantial  bridges  where  required,  all  being  kept  in  good  order. 
It  is  the  policy  of  the  Company  to  leave  standing  a  belt  of  forest 
trees  from  fifty  to  one  hundred  feet  in  width  surrounding  each  five 
hundred-acre  field  to  act  as  a  wind  brake.  I  would  state  here,  how- 
ever, that  we  have  no  high  winds  and  have  never  lost  a  tree  from 
such  cause. 

AMPLE  PROVISIONS  FOR  DEVELOPMENT 

The  Bartica  Company  has  a  capital  of  $2,000,000  to  provide  the 
necessary  working  funds  for  planting  and  carrying  to  maturity  6,000 
acres.  When  we  have  6,000  acres,  producing  one  hundred  pounds 
per  'acre,  which  they  will  do  when  the  trees  are  four  years  old,  we 
will  have  600,000  pounds  of  rubber  per  year;  and  when  they  are  pro- 
ducing 600  pounds  per  acre,  which  they  will  do  when  the  trees  are 
nine  years  old,  we  shall  have  3,600,000  pounds  of  rubber.  The  cost 
of  this  rubber  laid  down  in  New  York  City  will  not  .exceed  25  cents 
per  pound,  and  our  net  profit  will  be  the  difference  between  this  cost 
and  the  selling  price  of  rubber.  Even  on  the  basis  of  a  gross  selling 
price  of  75  cents  per  pound  and  a  net  profit  of  only  50  cents,  the 
sale  of  600,000  pounds  of  rubber  will  give  us  a  net  profit  of  $300,000, 
or  15  per  cent,  on  our  capital  stock,  and  when  we  are  producing 
3,600,000  pounds  will  give  us  a  profit  of  $1,800,000,  or  90  per  cent, 
per  annum  on  our  capital  stock. 

SUPPLY  AND  DEMAND 

The  average  price  for  rubber  during  1911  has  been  over  $1.44, 
and  both  the  present  price  and  the  indication  of  the  rubber  trade  are 
that  the  price  will  remain  substantially  above  this  estimate  during 
the  present  year  and  in  the  future.  The  best  posted  men  in  the 
rubber  trade  do  not  anticipate  purchasing  rubber  at  an  average  annual 
price  of  less  than  $1.00  per  pound  for  a  good  many  years.  An 
examination  of  the  sources  of  rubber  supply  for  the  past  year  shows 


ANNUAL    REPORT,    BAKTICA    RUBBER    CO.        391 

that  there  is  a  steady  decrease  in  wild  rubber.     The  total  world's 
production  has  been  as  follows: 

Plantation  Wild  All  Other  Total 

Para  Para  Wild  Rubber  in  Tons 

1905 179  27,905  37,423  65,507 

1909  3,700  31,150  34,522  69,372 

1910 8,500  31,500  36,553  76,553 

1911  15,000  31,612  32,683  79,305 

A  very  considerable  portion  of  the  trade  has  been  supplied  by 
Guayule,  a  low-grade  rubber  extracted  from  a  shrub  in  Mexico  and 
the  United  States.  This  rubber  is  secured  by  pulling  the  shrub  up 
by  its  root,  macerating  it  and  extracting  the  rubber  by  a  mechanical 
and  chemical  process.  This,  of  course,  means  the  destruction  of  the 
plant.  The  production  of  Guayule  rose  from  a  few  hundred  tons  in 
1905  to  something  over  14,000  tons  in  1910.  The  production  for 
1911  was  about  8,500  tons,  for  1912  it  will  not  exceed  4,000  tons, 
and  by  1915  will  be  less  than  1,000  tons  a  year,  or  a  negligible 
quantity  in  the  market. 

Another  process  for  extracting  a  low  grade  rubber  was  that  under- 
taken at  Goebilt,  in  Borneo,  by  the  United  Malaysian  Company,  a 
large  proposition  financed  principally  by  the  Vanderbilts  and  Goelets. 
This  company  was  organized  to  collect  jelutong,  a  gum  which  sells 
in  the  market  for  about  four  to  five  cents  a  pound  and  carries  a  small 
per  cent,  of  rubber.  They  have  a  process  by  which  the  gum  is  puri- 
fied, and  it  was  expected  that  the  resin  which  was  extracted  in  this 
purification  would  pay  the  total  cost,  leaving  a  very  large  profit.  The 
latest  reports,  however,  are  that  in  this  there  has  been  a  serious  dis- 
appointment, and  not  only  has  the  company  paid  no  dividends,  but 
it  is  not  in  good  financial  condition. 

A  DECREASING  WILD  RUBBER  SUPPLY 

The  same  is  true  of  the  other  wild  rubbers.  There  will  be  a 
decrease  in  wild  rubber,  due,  first,  to  the  exhaustion  of  the  supply, 
and  second,  to  the  fact  that  at  an  average  price  of  $1.00  for  up-river 
fine  Para  and  a  proportionate  low  price  for  the  poorer  grades  of 
rubber,  there  is  a  very  small  profit  in  collecting.  The  average  cost 
of  gathering  and  delivering  wild  Para  rubber  to  the  New  York 
market  exclusive  of  the  export  tax  exacted  by  Brazil,  is  admitted 
to  be  about  75  cents  per  pound.  As  the  Government  at  present  col- 
lects an  export  duty  of  about  20  per  cent,  on  the  value  of  the  rubber, 
it  will  be  readily  seen  that  with  rubber  selling  at  a  dollar  a  pound 
the  margin  of  profit  on  wild  rubber  is  entirely  too  small  to  compen- 
sate for  the  risks  of  the  industry. 


392         MATEEIALS    OF   COKPOKATION   FINANCE 

Should  Para  rubber  reach  a  permanent  level  of  $1.00  per  pound, 
the  only  possible  profit  sufficient  to  continue  the  wild  rubber  industry 
must  arise  from  the  decrease  by  Brazil  in  its  export  royalties.  With 
this  royalty  totally  removed,  some  rubber  would  still  be  shipped, 
unless  the  price  drops  below  75  cents  per  pound. 

Two  points  are  to  be  remembered:  The  first  is  that  the  quotation 
for  Para  rubber  means  up-river  fine  Para;  that  only  about  50  per 
cent,  of  the  wild  rubber  gathered  is  of  this  grade,  the  balance  selling 
for  from  60  per  cent,  to  80  per  cent,  of  the  price  of  up-river  fine. 
With  up-river  fine  selling  at  75  cents,  the  rubber  gatherer  would 
probably  only  receive  60  cents  to  65  cents  for  the  average  of  the  total 
crop  gathered.  A  drop  therefore  to  75  cents  per  pound  for  up-river 
fine  Para  would  mean  practically  the  stopping  of  the  production  of 
wild  rubber.  The  second  point  is  that  plantation  Para  rubber,  such 
as  we  are  growing,  on  account  of  its  preparation  and  lack  of  moisture, 
commands  in  the  market  from  8  cents  to  12  cents  per  pound  more 
than  up-river  fine  Para. 

CROP   SHORTAGES   INEVITABLE 

The  total  rubber  supply  of  the  world  has  increased  between  5  and 
10  per  cent,  per  annum,  due  entirely  to  the  increase  in  the  plantation 
production.  This,  however,  is  not  sufficient  to  balance  the  increased 
demand  for  rubber  in  the  arts.  Not  only  has  there  been  a  general 
increase  in  the  demand  for  rubber,  but  it  is  especially  strong  in  the 
department  of  automobile  tires.  This  increase  has  been  so  great  as 
to  overshadow  the  other  demands.  It  now  accounts  for  at  least  60 
per  cent,  of  the  total  rubber  consumption  of  the  world.  A  statement 
was  recently  published  from  one  of  the  leading  tire  manufacturers 
of  the  United  States  to  the  effect  that  there  are  in  use  in  the  United 
States  about  600,000  automobiles  and  that  for  all  of  these  there  will 
be  made  an  average  of  six  tires  each  a  year,  making  a  total  of 
3,600,000  tires,  and  that  three-quarters  of  the  regular  tire  is  rubber. 

The  weight  of  a  4  x  32  automobile  tire,  which  is  about  the  average 
size,  is  27  pounds,  and,  on  the  above  statement,  20  pounds  of  this  is 
rubber.  This  would  make,  for  tires  in  the  United  States  alone, 
72,000,000  pounds,  or  36,000  tons,  of  rubber.  If  the  rest  of  the 
world  manufactures  an  equal  number  of  tires,  this  would  account 
for  72,000  tons  of  rubber.  While  there  is  an  annually  increasing 
quantity  of  rubber  used  in  pneumatic  automobile  tires,  we  are  now 
entering  upon  a  new  field  for  rubber  which  will  probably  require 
even  a  larger  quantity  than  that  taken  by  the  pneumatic  tire.  This 
use  is  the  solid  rubber  tire  for  trucks.  A  prominent  tire  maker  has 


ANNUAL    REPORT,    BARTICA    RUBBER    CO.        393 

estimated  that  the  trucks  within  three  years  from  to-day  will  con- 
sume as  much  rubber  as  the  automobiles. 

In  his  analysis  of  Eastern  plantations,  Mr.  Parry,  who  is  probably 
the  best  authority,  estimates  that  the  total  plantation  production  of 
rubber  in  1916  will  be  80,000  tons.  It  is  not  likely,  from  present 
indications,  that  the  total  production,  other  than  plantation  rubber, 
will  be  more  than  20,000  to  30,000  tons,  giving  a  total  of  100,000  to 
110,000  tons  of  rubber  for  1916. 

GOOD  PRICES  ASSURED 

Under  all  these  conditions  I  believe  that  we  are  safe  in  estimating 
that  the  average  annual  price  of  rubber  will  not  fall  below  $1.00  for 
the  next  five  years,  and  that  ten  years  will  probably  not  see  rubber  as 
low  as  75  cents  per  pound. 

That  these  facts  are  appreciated  by  the  large  users  of  rubber  is 
shown  by  the  fact  that  the  United  States  Rubber  Corporation  invested 
$15,000,000  in  Eastern  plantations  and  that  a  very  large  proportion 
of  the  manufacturers  are  acquiring  an  interest  in  rubber  plantations 
to  ensure  them  at  least  a  portion  of  their  necessary  supply. 

I  do  not  believe  that  any  other  industry  shows  as  bright  a  future 
or  afe  great  a  certainty  of  continued  prosperity. 

In  the  Bartica  Estates  we  believe  we  have  a  plantation  which  will 
rank  among  the  best  and  most  profitable  of  the  rubber  estates  of  the 
world. 

Respectfully  submitted, 

JAMES  C.  BAYLES,, 
President. 

Jersey  City,  New  Jersey,  Jan.  9,  1912. 

REPORT  OF  THE  TREASURER 

To  the  Shareholders  of  the  Bartica  Company: 

The  financial  statement  shows  simply  the  financial  condition  of 
the  Company,  but  equally  important  is  the  executive  organization  and 
the  management.  The  Directors  of  your  Company  realize  the  impor- 
tance of  these  matters  and  keep  in  perfect  touch  with  the  work  on  the 
plantation.  They  receive  twice  a  month  detailed  reports  of  the  work 
on  the  plantation,  which  is  checked  off  on  a  copy  of  a  survey  map, 
and  once  each  month  they  receive  a  statement  from  Fitzpatrick,  Gra- 
ham, Greenwood  &  Co.,  chartered  accountants  in  Georgetown,  certify- 
ing the  expenditures  in  British  Guiana.  The  superintendent  sends 
each  month  a  copy  of  the  daily  meteorological  reports,  showing  tern- 


394         MATERIALS    OF    CORPORATION    FINANCE 

perature  and  rainfall  conditions.  In  addition  we  have  the  benefit  of 
the  regular  inspection  by  the  Department  of  Agriculture  of  British 
Guiana,  three  such  examinations  having  been  made  during  the  past 
year. 

The  Governing  Director  has  had  some  twenty  years'  experience  in 
the  tropics  and  is  thoroughly  familiar  with  agricultural  work,  the 
labor  conditions,  and  the  management  of  estates,  and  has  been  at  all 
times  in  readiness  to  take  up  the  work  should  the  General  Manager 
be  incapacitated  for  any  reason.  The  property  is  frequently  visited 
and  inspected  by  the  officers  and  agents  of  the  Company  from  New 
York. 

FINANCIAL  STATEMENT  OF  THE  BARTICA  COMPANY 
ASSETS  AND  DISBURSEMENTS 

Cash  and  receivables   $      5,921.56 

Bartica  Agricultural  Estates,  Ltd.  See  note  1 . .  600,000.00 
Plantation  work,  organization,  and  all  expenses 
and  payments  since  the  organization  of  the 

Company.     See  note  2 229,597.94 

Furniture  and  fixtures  in  the  United  States. . .  150.50 

Treasury  shares.    See  note  3 1,164,330.00 


$2,000,000.00 

LIABILITIES 

Capital  stock  authorized    (no  debts  or  other 
liabilities)    $2,000,000.00 

Note  1.  The  item,  "Bartica  Agricultural  Estates,  Ltd.,"  repre- 
sents the  30  per  cent,  paid  to  the  vendors  for  the  15,000  acres  under 
a  99  years  lease,  and  the  further  assumption  by  the  vendors  of  the 
payment  of  $60,000  to  the  Government  for  a  deed  to  the  property; 
and  all  development  work  done  on  the  plantation  previous  to  its  pur- 
chase by  the  Bartica  Company.  It  further  includes  stock  to  the 
amount  of  $100,000  paid  to  Mr.  Withers  for  his  contract  to  manage 
the  Estates  for  five  years.  These  payments  were  made  entirely  in 
Treasury  Stock  of  Series  E  (carrying  no  convertibles)  and  the  total 
amount  is  trusteed  by  the  vendors,  and  is  not  to  be  released  until  the 
completion  of  the  financing  of  the  Bartica  Company. 

Note  2.  The  item  "Plantation  work,  etc.,"  represents  the  total 
expenditures  by  the  Company  since  it  took  over  the  property,  includ- 
ing all  development  and  organization  work,  and  cost  of  financing  the 
enterprise. 


ANNUAL    REPORT,    BARTICA    RUBBER    CO.        395 

Against  this  expenditure  the  Company  shows  rubber  plantings 
which  by  the  conservative  British  standards  of  valuation  represent  a 
sale  value,  at  the  present  stage  of  growth,  of  $135,000.00,  which,  with 
the  150  acres  cleared  and  to  be  planted  with  stumps  now  in  the  nur- 
sery, will  have  a  sale  value  in  December,  1912,  of  $292,200.00;  in 
December,  1913,  $448,200.00;  in  December,  1914,  $633,600.00,  and 
so  on  continuously  until  the  trees  have  reached  their  maximum  pro- 
ductiveness. 

The  1,000  additional  acres  to  be  planted  to  rubber  this  year  will 
have  by  the  British  standards  a  sale  value  of  $300,000.00  in  Decem- 
ber, 1912;  $487,000.00  in  December,  1913;  $737,000.00  in  Decem- 
ber, 1914,  etc.  And  each  succeeding  year's  development  will  give  an 
added  sale  value  to  the  Estates  at  the  same  rapid  rate  of  increase. 

The  sisal  acreage  has  now  reached  a  stage  where  it  will,  after  pay- 
ing all  costs  of  labor  and  upkeep,  yield  a  net  profit  of  7  per  cent,  on 
$85,000.00  to  $115,000.00  this  year,  and  will  increase  rapidly  until  it 
reaches  its  maximum  productiveness  two  years  hence,  after  which 
time  it  will  continue  to  produce  at  the  maximum  rate. 

Note  S.  The  Company's  treasury  stock  provides  amply  for  the 
complete  development  of  the  first  6,000  acres  by  1917,  which  will 
give  the  developed  portion  of  the  Estates  a  sale  value  at  that  time 
of  $6,348,200.00  by  the  British  standards,  and  in  addition  the  Com- 
pany will  hold  full  title  to  9,000  acres  yet  to  be  developed.  The 
Estates  will  then,  by  the  most  conservative  estimates,  be  yielding 
annual  net  profits  sufficient  to  pay  very  large  dividends,  after  provid- 
ing for  the  redemption  of  convertibles  and  setting  aside  enough  to 
continue  the  development  of  the  remaining  9,000  acres  of  the  Estates 
at  the  rate  of  1,500  acres  per  year. 

In  view  of  the  fact  that  the  sisal  plantings  have  now  reached  a 
productive  stage,  I  have  attached  to  this  report  a  recommendation  to 
the  Board  of  Directors  which,  if  adopted  will,  in  my  judgment,  prove 
decidedly  advantageous  to  the  Company  and  its  shareholders. 

Respectfully  submitted, 


Jersey  City,  N.  J.,  Jan  9,  1912. 


LlNDLEY    VlNTON, 

Secretary  and  Treasurer. 


A  RECOMMENDATION  BY  THE  TREASURER 
To  the  Board  of  Directors  of  the  Bartica  Company: 

Recognizing  that  the  early  investor  is  entitled  to  ample  returns 
upon  his  investment  to  compensate  him  for  the  use  of  his  money  dur- 


14 


396         MATERIALS    OF   CORPORATION   FINANCE 

ing  the  unproductive  period,  we  gave  to  our  early  shareholders  Con- 
vertible Certificates,  each  certificate  representing  a  50  per  cent,  extra 
dividend  on  the  amount  of  his  investment. 

As  the  Company  is  now  in  a  position  to  earn  interest  on  a  reason- 
able amount  of  bonds,  I  suggest  that  the  Directors  consider  the  advan- 
tage that  will  come  to  the  Company  from  the  saving  of  interest 
through  the  lower  rate  which  would  be  made  possible  by  a  bond  issue. 

To  provide  for  the  present  year's  plantings  the  Bartica  Company 
could  issue  at  par  ten-year  exchangeable  bonds  paying  7  per  cent, 
interest,  payable  semi-annually,  this  bond  to  be  redeemable  in  cash 
on  call,  at  any  interest  period  at  110  per  cent,  and  accrued  interest; 
the  holder  to  have  the  right  at  any  time  before  maturity  of  the  bond 
to  exchange  this  bond  for  shares  at  par;  should  the  bond  be  called 
before  maturity,  the  holder  to  have  the  privilege  for  sixty  days  after 
call  to  exercise  his  option  of  exchanging  liis  bond  for  shares. 

Two  hundred  and  fifty  acres  of  sisal  on  the  company's  property 
have  now  reached  the  productive  stage.  The  sisal  will  return  within 
the  first  year  a  net  profit  of  about  eight  thousand  dollars  and  the 
monthly  yield  will  increase  each  month  for  two  years,  by  which  time 
the  first  rubber  field  will  come  into  bearing.  This  enables  the  Com- 
pany to  offer  a  security  which  gives  an  income  of  7  per  cent,  per 
annum  until  the  rubber  production  enables  the  Company  to  pay  divi- 
dends in  excess  of  7  per  cent.  And  when  the  bonds  are  exchanged 
for  shares,  this  income  will  be  increased  from  year  to  year,  until  it 
exceeds  50  per  cent,  per  annum  on  the  investment. 

The  proposed  issue  of  bonds  would  find  a  ready  market,  for  investors 
have  come  to  realize  that  no  agricultural  investment  is  so  secure  or 
offers  such  large  profits  as  rubber  planting. 

As  an  instance  of  the  Company's  advantage  in  the  proposed  plan, 
I  would  call  your  attention  to  the  experience  of  the  Malacca  rubber 
plantations,  which,  in  November,  1909,  out  of  a  total  authorized  issue 
of  £400,000  ($2,000,000.00)  in  £1  ($5.00)  shares,  issued: 

Seven  and  one-half   cumulative  par- 
ticipating preference  shares £115,000   ($575,000) 

Ordinary  shares    £185,000   ($925,000) 

They  then  issued  £500,000  ($2,500,000.00)  in  6  per  cent,  bonds  in 
November,  1909,  giving  holders  the  right  to  the  30th  of  November, 
1914,  of  exchanging  each  £10  ($50)  bond  for  one  ordinary  share  of 
£1  ($5.00)  par  value.  These  bonds  are  selling  at  par  and  the  ordinary 
shares  of  the  Malacca  Company  are  selling  £11  ($55.00)  bid  and 
£HJ/2  ($57.50)  asked,  showing  that  the  stock  has  already  reached 
conversion  value. 


ANNUAL    REPORT,    BARTICA    RUBBER    CO.        397 

It  will  be  obvious  to  all  that  in  the  case  of  the  Bartica  Estates,  with 
its  exceptional  advantages  in  climatic  and  soil  conditions,  the  rate  of 
increase  in  share  values  will  be  such  that  when  the  subsequent  yearly 
bond  issues  are  made,  the  exchangeable  value  of  shares  will  be  in  a 
rapidly  ascending  ratio.  Therefore  it  would  not  be  advisable,  in  my 
opinion,  to  make  the  succeeding  years'  bond  issues  exchangeable  for 
shares  at  par,  though  it  would  be  well  to  reward  the  subscribers  for 
the  first  issue  in  this  liberal  manner. 

Should  the  Board  of  Directors  favor  the  bonding  plan,  I  recom- 
mend that  the  present  shareholders  of  the  Bartica  Company  be  given 
first  call  on  the  bond  issue  for  such  succeeding  year. 

Respectfully  submitted, 

LlNDLEY  VlNTON, 

Secretary  and  Treasurer. 


398         MATERIALS    OF    CORPORATION    FINANCE 

EXAMPLE  OF  MINING  PROSPECTUS  PERSUASION 

SAFE    BANKING    SYSTEM 

Mining  Recorder 
THE    ONLY    RELIABLE    BANKER 

Old  Mother  Nature  is  the  only  reliable 
banker,  and  a  good  mine  is  her  bank.  Crops 
may  fail,  drouth  may  wither  the  prospects  of 
the  farmer,  scourge  and  devastation  may  visit 
the  stock  man  and  the  rancher,  the  factory, 
the  foundry  and  every  other  species  of  industry 
may  fail,  but  nothing  can  disturb  the  splendid 
equilibrium  of  a  mine.  The  property  is  there. 
It  cannot  decay,  it  cannot  be  stolen ;  therefore, 
it  constitutes  Nature's  unfailing  banker. 

That  bank  may  not  be  blessed  with  an  au- 
gust surplus,  but  this  much  is  sure,  the  cashier 
never  absconds,  the  paying  teller  is  always  at 
his  post  with  ample  funds.  That  bank  never 
has  to  close.  It  never  petitions  the  commis- 
sioner in  bankruptcy. 

True,  it  requires  judgment  and  experience  of 
a  fine  order  to  calculate  the  contents  of  its 
vaults  and  extract  it  when  located. 

It  requires  brains  and  muscle  to  open  its 
combination.  But  it  never  accepts  deposits  and 
never  dishonors  a  check.  The  greater  the  run 
you  make  on  that  bank,  the  bigger  the  surplus 
after  the  teller  has  handed  you  your  shining 
share.  When  the  report  of  that  bank  shows 
that  one  dollar  has  been  added  to  the  aggregate 
wealth  of  the  world  by  production  and  not  by 
manipulation,  that  dollar  has  been  made,  not 
Bimply  exchanged.  Not  precipitated  from  a 
father's  perspiration  or  a  mother's  tears,  not 
in  the  form  of  residuum  in  the  bottom  of  the 
washer-woman's  tub,  the  weary  sighs  of  the 
factory  girl  or  the  grime  of  overworked  child- 
hood; BUT,  a  dollar  gathered  from  dear  old 
Nature's  breast,  thrown  out  into  the  world  by 
her  fair  hand,  a  shining  token  of  her  love,  a 
tribute  to  honest  toil  and  brains  consisting  of 
an  article  in  which  values  are  inherent  and  in- 
trinsic to  sustain  the  unfailing  stability  of  the 
industrial  world  and  incidentally  to  contribute 
to  everything  that  is  dear,  precious  and  patri- 
otic. 

Pin  your  faith  to  the  mines,  Nature's  bank- 
ing system.  They  are  the  only  trust  com- 
panies that  can  be  trusted;  their  issue  needs 
no  redemption.  Gold,  silver  and '  copper  are 
their  own  redeemers 

Never  hesitate  to  take  all  the  stock  you  can 
get  in  NATURE'S  BANKING  SYSTEM,  the  mines. 

The  Surest  Way  to  Get  Some  of  the  Big  Dividends  That 
Nature's  Banking  System  Pays  Is  to  Invest  in  the  Stock 
of  the  Mexamerican  Company,  owner  of  the  Great 

BLACK   WONDER    MILL  AND   MINES. 


PROMOTER'S  LETTER  399 

OFFER  OF  STOCK  CONVERTIBLE  INTO  FUNERAL 


New  York  City, 
DEAR  SIR: 

I  have  incorporated  my  business  and  offer  for  sale  to  the  Public 
$300,000  worth  of  7%  Preferred  Stock  at  $10  per  share. 

$300,000  worth  of  7%  Preferred  Stock  will  be  sold  to  the  Public  in 
shares  of  $10  each. 

INCORPORATED  FOR  $1,000,000 

Net  Profit  from  operations  in  1912  as  shown  by  the  report  issued  by 
the  Audit  Co.—  $72,331.14,  which  is  over  7%  on  $1,000,000. 

Established  1895.  Incorporated  1914  under  the  laws  of  the  State 
of  New  Jersey. 

Gross  amount  of  business  for  1912  —  $425,000. 

Gross  amount  of  business  for  1913  —  $500,000. 

Total  number  of  funerals  conducted  during  January,  February  and 
March,  1914—1,542. 

Total  amount  of  business  done  during  January,  February  and 
March,  1914—  $172,400.00. 

Total  number  of  funerals  conducted  since  established  —  21,123. 
Gross  amount  of  business  done  —  $2,227,990.00. 

The  above  statement  shows  you  how  this  business  has  grown  and  the 
confidence  the  Public  has  placed  in  me  when  I  could  build  up  an  un- 
dertaking business  to  the  amount  of  $2,227,990. 

The  history  of  the  business  is  too  well  known  without  making  a 
lengthy  explanation.  To-day  it  is  the  largest  in  the  world. 

In  February,  1895,  I  started  in  business  without  a  dollar.  During 
the  first  year  I  conducted  46  funerals  under  the  old  system  of  a  few 
funerals  a  year  and  exorbitant  prices  for  funeral  supplies.  I  shortly 
woke  up  to  the  fact  that  I  was  overcharging  my  friends  and  was  ac- 
tually acting  the  part  of  a  hypocrite.  I  immediately  broke  away  from 
the  old  custom,  started  to  fight  the  Undertakers'  Association  and  the 
exorbitant  prices  charged  for  funeral  supplies.  The  wonderful  success 
I  had  in  this  new  method  can  be  better  explained  by  reading  the  state- 
ment on  page  4  of  this  letter  (p.  402  below)  as  to  how  this  establish- 
ment grew.  During  the  year  1913,  I  conducted  4,820  funerals  at  a 
total  amount  of  a  half  million  dollars.  During  the  months  of  January, 
February  and  March,  1914,  I  conducted  1,542  funerals,  at  a  gross 
amount  of  $172,740. 

On  January  1st,  1913,  I  engaged  the  Audit  Co.,  of  1G5  Broadway, 
Vow  York,  at  an  expense  of  $1,200,  to  take  an  inventory,  make  an  ap- 


400         MATEKIALS    OF    CORPORATION    FINANCE 

praisal,  audit  my  books  and  issue  a  report  on  the  gross  amount  of  busi- 
ness done  during  1912,  and  the  profit  I  made  thereon.  The  report  is 
on  file  in  my  office  and  open  for  inspection  to  prospective  stock  buyers 
and  shows  a  gross  amount  of  business  of  $425,000,  with  a  net  profit 
from  operations  of  $72,331.14. 

During  the  year  of  1913  I  increased  my  business  to  a  half  million 
dollars,  opened  a  great  many  branch  offices,  increased  my  equipment  to 
almost  double  the  amount  of  1912,  added  another  seven-story  building 
to  the  already  large  plant,  and  I  am  to-day  equipped  to  handle  10,000 
funerals  yearly.  I  also  spent  about  $15,000  during  the  year  of  1913  in 
preparing  a  staff  to  handle  10,000  funerals  a  year,  and  still  have  a  very 
substantial  profit,  which  is  shown  by  the  report  made  by  the  Audit  Co. 
of  New  York,  and  is  also  on  file  in  my  office  and  open  for  inspection  to 
prospective  stock  buyers. 

I  feel  safe  to  say  that  the  gross  amount  of  business  during  1914  will 
be  about  $690,960  or  more. 

I  have  to-day  the  largest  and  best  equipped  undertaking  establish- 
ment in  the  world,  facing  on  Main  Street  150  feet  and  running 
through  200  feet  to  Liberty  Street,  seven  stories,  all  new  and  up-to- 
date  construction,  where  I  have  my  factory,  garage,  varnish  room, 
paint  shop,  woodworking  department,  cloth-covering  department,  sew- 
ing rooms  and  my  own  crematory  and  florist  department.  My  garage 
is  equipped  with  over  forty  automobiles  and  the  livery  department 
with  over  one  hundred  horses.  This  will  prove  to  you  that  I  am  able 
to  handle  10,000  funerals  a  year  without  any  difficulty. 

I  have  started  this  business  without  a  dollar,  made  a  fortune  and 
have  spent  another  fortune  in  advertising  it  and  putting  it  on  the 
footing  it  is  to-day,  and  assure  those  who  invest  money  in  this  proposi- 
tion that  it  is  just  as  safe  as  though  it  were  in  their  own  hands. 

For  the  benefit  of  those  who  wish  to  purchase  stock  and  share  my 
profits  with  me,  I  will  state  that  I  would  be  pleased  to  have  them  call 
personally,  go  through  the  plant,  examine  the  books  and  see  the  report 
issued  by  the  Audit  Co.,  or  if  they  would  make  an  appointment,  I 
would  make  it  my  business  to  call  at  their  homes  personally  and  go 
over  the  matter  more  fully. 

Ten  dollars  will  give  you  a  start  in  life  which  might  be  the  making 
of  you.  You  can  rest  assured  it  is  earning  7%  from  the  moment  it  is 
invested.  This  stock  will  not  be  handled  by  brokers,  and  I  hold  the 
right  to  reject  any  application.  You  are  dealing  with  me  per- 
sonally and  can  receive  stock  from  absolutely  nobody  but  William 
Necker. 

Why  allow  your  money  to  lay  in  a  savings  account  in  some  bank  at 
3%  and  earn  big  profits  for  already  millionaires,  when  you  can  get  into 


PROMOTER'S   LETTER  401 

a  commercial  business  as  sound  as  this  one  and  buy  1%  Preferred 
Stock  at  $10  per  share? 

There  is  no  doubt  in  my  mind  that  you  are  familiar  with  the  Henry 
Ford  Motor  Proposition,  also  the  Douglas  Shoe  Company.  I  claim 
our  proposition  is  second  to  none  if  properly  financed  and  handled. 
As  to  my  ability  of  handling  this  proposition,  I  will  leave  that  to  the 
Public. 

To  further  increase  the  profits  of  this  business,  I  intend  to  take  one 
entire  floor  in  the  main  building  and  equip  in  it  a  monumental  and 
mausoleum  department.  On  another  floor  a  mourning  goods  depart- 
ment will  be  installed,  where  clothing  of  all  descriptions  can  be  had, 
including  millinery.  I  also  intend  to  establish  a  great  many  more 
branch  offices  within  a  radius  of  100  miles,  and  possibly  later  on,  all 
over  the  country,  all  of  which  will  add  large  profits  to  the  business 
which  will  be  a  benefit  to  every  stockholder.  The  extent  this  business 
might  grow  to  is  unknown  and  cannot  be  predicted  by  anyone. 

//  you  have  $10  or  more  to  invest,  don't  hesitate  when  you  can  get 
into  a  commercial  business  established  for  19  years,  knocked  from  pil- 
lar to  post  by  the  Undertakers'  Association,  better  known  as  the  Trust, 
survived  all  storms  and  to-day  stands  out  as  the  largest  undertaking 
establishment  in  the  world.  Come  in  and  go  through  the  plant  and 
visit  the  various  branches,  examine  the  books  and  reports  if  you  will, 
and  be  convinced  for  yourself. 

In  our  certificate  of  incorporation  we  have  the  privilege  of  manufac- 
turing coffins,  caskets  and  monuments,  building  vaults,  controlling 
cemeteries,  manufacturing  mourning  goods,  automobiles  and  furni- 
ture, or  everything  else  pertaining  to  woodwork.  This  will  be  very 
beneficial  in  enabling  us  to  produce  for  our  own  use  and  for  the  pur- 
pose of  sale  to  other  dealers,  all  things  usually  used  by  any  un- 
dertaker. 

I  also  have  connected  with  my  establishment  one  of  the  largest 
florist  departments  that  has  ever  been  controlled  by  any  undertaker  in 
the  world,  doing  close  to  $25,000  worth  of  business  yearly,  which  also 
can  be  increased  to  double  the  amount. 

We  have  also  built,  in  the  home  office,  at  the  rear  of  the  main  chapel, 
which  has  a  seating  capacity  of  400,  one  of  the  most  up-to-date  crema- 
tories, built  by  the  F.  B.  Branklin  Co.,  of  New  York.  After  we  have 
received  our  permit  from  the  State  to  operate  same,  we  will  positively 
be  able  to  handle  the  cremating  for  the  City  of  New  York  and  sur- 
rounding territories,  as  we  will  be  able  to  do  the  cremating  at  probably 
one-quarter  the  cost  charged  by  the  cremation  companies. 

Through  my  incorporating  and  having  associated  myself  with  thou- 
sands of  families  who  will  purchase  this  7%  Preferred  Stock  at  $10  per 


SANTA  BARBARA  STATE  COLLEGE  LIBRAR 


102         MATERIALS    OF    CORPORATION    FINANCE 

share,  I  will  have  a  Fort  established  that  the  Undertakers'  Association 
could  never  break  into. 

The  stocks  will  be  transferable  on  the  books  of  the  Company  at  any 
time. 

One  of  the  greatest  and  most  important  things  in  my  Incorporation 
that  should  interest  thousands  and  thousands  of  people,  especially  those 
who  cannot  receive  life  insurance  and  others  who  do  not  believe  in  it : 

You  can  purchase  five  shares  of  my  7%  Preferred  Stock  for  $50,  or 
you  can  purchase  ten  shares  of  my  7%  Preferred  Stock  for  $100,  and 
I  feel  safe  to  say,  receive  your  7%  dividend  during  your  lifetime,  and 
if  you  have  no  life  insurance  or  any  money  at  the  time  of  death,  the 
five  shares  can  be  paid  into  the  Company  for  a  $50  funeral,  which  is 
as  good  as  ever  furnished  by  any  other  undertaker  for  $100,  or  the  ten 
shares  can  be  paid  into  the  Company  for  a  $100  funeral,  including  a 
new  grave,  which  is  equal  to  any  funeral  furnished  by  any  other  under- 
taker for  $200.  This  $100  funeral  that  I  offer  in  this  proposition,  in- 
cluding a  new  grave,  is  positively  only  to  stockholders. 

My  business  is  established  for  the  past  19  years.  I  started  without 
a  dollar,  and  have  positively  to-day  the  largest  undertaking  establish- 
ment in  the  world,  and  to  more  fully  convince  you  as  to  how  well  my. 
business  is  established,  and  on  how  good  a  paying  condition  it  is,  look 
up  my  certificate,  filed  with  the  Income  Tax  Bureau  of  the  State  of 
New  Jersey,  and  see  the  amount  of  taxes  I  am  forced  to  pay  as  a 
positive  net  income,  and  you  can  bet  your  life  there  isn't  anybody  pad- 
ding his  income  tax  report. 

You  should  not  hesitate.  Sit  right  down  and  send  in  your  applica- 
tion for  five  shares  of  the  7%  Preferred  Stock  or  ten  shares  if  you 
choose,  and  take  advantage  of  the  above  offer. 

HOW  THIS  ESTABLISHMENT  GREW 

During  1895  I  conducted  46  funerals.  During  1896  I  conducted  93 
funerals.  During  1897  I  conducted  102  funerals.  During  1898  I 
conducted  137  funerals.  During  1899  I  conducted  162  funerals. 
During  1900  I  conducted  243  funerals.  During  1901  I  conducted  207 
funerals.  During  1902  I  conducted  216  funerals.  During  1903  I 
conducted  297  funerals.  During  1904  I  conducted  427  funerals. 
During  1905  I  conducted  415  funerals.  During  1906  I  conducted  392 
funerals.  During  1907  I  conducted  636  funerals.  During  1908  I 
conducted  940  funerals.  During  1909  I  conducted  1,278  funerals. 
During  1910  I  conducted  1,904  funerals.  During  1911  I  conducted 
3,146  funerals.  During  1912  I  conducted  4,118  funerals.  During 
1913  I  conducted  4.820  funerals. 


PROMOTER'S   LETTER  403 

Total  number  of  funerals  conducted  since  established,  21,123. 
Gross  amount  of  business  done  since  established,  $2,227,990.00. 
Total  number  of  funerals  conducted  in  January,  February  and 
March,  1914,  1,542. 

Gross  amount  of  business  done  in  January,  February  and  March, 
1914,  $172,740. 

Yours  truly, 

WM.  NECKER. 

OFFICERS 

WILLIAM  NECKER,  Pres.  and  Treasurer. 

THOMAS  MCCLELLAND  (Banker),  Vice- President. 

CHAS.  SINGER,  JR.  (Real  Estate),  Secretary. 

BOARD  OF  DIRECTORS 

EDW.  W.  BERGER  (Banker), 

GEORGE  LIMOUZE  (Retired), 

THOMAS  HENRY  (Building  Supplies  and  Banker), 

CHAS.  NIELSON  (Contractor), 

CHAS.  SINGER,  JR.  (Real  Estate), 

THOMAS  MCCLELLAND  (Banker), 

WILLIAM  NECKER. 

EXECUTIVE  COMMITTEE 

WILLIAM  NECKER 
CHAS.  SINGER,  JR. 
GEO.  LIMOUZE 
THOMAS  MCCLELLAND. 


404         MATERIALS    OF    CORPORATION    FINANCE 

BOND   HOUSE  LETTER 

N.    W.    HALSEY    &    Co. 

49  Wall  Street 
New  York,  Philadelphia, 
San  Francisco, 

Chicago.  New  York,  Sept.  28,  1912. 

Pacific  Gas  &  Electric  Co.  General  &  Refunding  5s,  1942 

We  ask  careful  consideration  of  the  enclosed  circular  because  we 
believe  these  bonds  are  unusually  safe  and  some  of  the  reasons  are 
as  follows: 

First. — The  market  equity  is  more  than  $29,000,000. 

Second. — During  the  last  seven  years  over  $11,500,000  has  been 
put  into  the  property  from  earnings. 

Third. — Net  earnings  for  three  years  have  been  about  double  in- 
terest charges. 

Fourth. — The  Company  is  paying  dividends  as  follows: 

6%  on  $10,000,000   Preferred   Stock. 
5%  on  $31,998,750  Common  Stock. 

Contrast  these  facts  with  the  present  price  of  91|  and  interest  at 
which  the  bonds  yield  about  5.60%.  The  price  certainly  looks  very, 
very  cheap,  and  it  is  cheap. 

The  Company  is  now  making  application  to  list  on  the  New  York 
Stock  Exchange. 

We  recommend  that  you  telephone  or  telegraph  us  to  reserve  a  cer- 
tain amount  of  these  bonds  for  you  pending  investigation,  for  the 
preliminary  sales  have  been  large,  and  the  price  is  strictly  subject  to 
advance. 

Yours  very  truly, 

JSA:S  N.  W.  HALSEY  &  CO. 


UNDERWRITING  SYNDICATE  AGREEMENT         405 

UNDERWRITING  SYNDICATE  AGREEMENT1 

EEPUBLIC  OF  CUBA 
FIVE  PER  CENT  BONDS  OF  1904 

SYNDICATE  AGREEMENT 
Dated  February  16,  1904 

SPEYER  &  CO., 

New  York, 
Syndicate  Managers. 

PARTIES 

AGREEMENT  made  this  16th  day  of  February,  1904,  by  and  between 
Speyer  &  Co.,  of  the  City  of  New  York,  hereinafter  called  the  "Syn- 
dicate Managers/'  parties  of  the  first  part,  and  the  subscribers  hereto, 
severally,  each  of  whom  is  hereinafter  termed  a  "Subscriber,"  and  all 
of  whom,  taken  together  with  the  said  parties  of  the  first  part,  are 
termed  the  "Syndicate,"  parties  of  the  second  part 


DESCRIPTION   OF  BONDS 

WHEREAS  the  Republic  of  Cuba  acting  under  the  law  of  February 
27th,  1903,  as  amended  by  the  law  of  January  25th,  1904,  pioposes  to 
issue  Thirty-five  Million  Dollars  ($35,000,000)  five  per  cent  gold 
bonds,  to  be  known  as  "Republic  of  Cuba  five  per  cent.  Gold  Bonds 
of  1904,"  which  said  bonds  are  to  be  coupon  bonds  of  denominations 
to  be  hereafter  determined,  with  the  privilege  of  registration,  to  be 
dated  March  1,  1904,  and  to  be  payable  March  1,  1944,  except  so  far  as 
previously  retired  by  the  Sinking  Fund,  and  to  bear  interest  at  the 
rate  of  five  per  cent,  per  annum,  payable  semi-annually  on  the  first 
days  of  March  and  September  in  each  year,  both  principal  and  inter- 
est being  payable  in  the  City  of  New  York  in  United  States  gold  coin 
of  the  present  standard  of  weight  and  fineness,  and  in  such  European 
cities  and  in  such  foreign  moneys  as  may  be  designated,  and  are  to  be 
exempt  from  all  kinds  of  Cuban  taxes  that  now  exist  or  may  be  im- 
posed hereafter;  and 

1  Exhibit  No.  52  in  connection  with  testimony  taken  before  the  Legislative 
Insurance  Investigating  Committee  of  New  York.- 


406          MATERIALS  OF  CORPORATION  FINANCE 

RELATION    OF   MANAGERS   TO   THE   ISSUE 

WHEREAS,  Speyer  &  Co.  (having  heretofore  purchased  from  the 
Government  of  Cuba  all  said  $35,000,000  Bonds)  have  agreed  to  sell 
to  a  syndicate,  of  which  they  are  to  be  the  managers  and  in  which 
the  subscribers  desire  to  join,  Twenty  Million  Dollars  ($20,000,000) 
face  value  of  the  said  bonds  at  ninety-one  per  cent.  (91  per  cent.)  and 
accrued  interest  with  the  option  to  the  Syndicate  until  September 
1,  1904,  to  buy  all  or  any  part  of  the  remaining  Fifteen  Million  Dol- 
lars ($15,000,000)  face  value  of  bonds  at  ninety-two  and  one-half  per 
cent  (92%  per  cent.)  and  accrued  interest. 

Now,  THIS  AGREEMENT  WITNESSETH,  That  in  consideration  of  the 
premises  and  the  mutual  promises  herein  contained,  the  subscribers 
hereto  severally  agree  with  each  other  and  with  the  Syndicate  Man- 
agers as  follows: 

LIABILITY  OP  UNDERWRITERS 

FIRST.  Each  subscriber  hereby  agrees  to  purchase  the  amount  of 
said  Republic  of  Cuba  five  per  cent.  Gold  Bonds  of  1904  (or  of  tem- 
porary certificates  issued  by  Speyer  &  Co.,  representing  the  same) 
which  is  set  opposite  his  signature  hereto,  and  to  pay  for  the  same 
ninety-one  per  cent.  (91  per  cent.)  of  the  face  value  thereof  and 
accrued  interest  as  herein  provided,  and  also  to  purchase  at  any  time, 
or  from  time  to  time,  at  ninety-two  and  one-half  per  cent.  (92%  per 
cent.)  of  the  face  value  thereof  and  accrued  interest,  a  further  portion 
or  portions  of  the  Fifteen  Million  Dollars  ($15,000,000)  of  said  bonds, 
which  are  subject  to  the  option  of  purchase  above  mentioned  (or  of 
the  part  or  parts  thereof  which  the  Syndicate  Managers  shall  under 
said  option  at  any  time,  or  from  time  to  time,  elect  to  purchase), 
which  shall  bear  the  same  ratio  to  the  whole  amount  which  the  Syn- 
dicate Managers  shall  so  elect  to  purchase  as  the  amount  of  bonds 
set  opposite  his  signature  hereto  bears  to  the  amount  of  Twenty  Mil- 
lion Dollars  of  such  bonds  purchased  firm  as  aforesaid. 

MANAGERS    AS   UNDERWRITERS 

The  Syndicate  Managers,  parties  hereto  of  the  first  part,  may  be 
subscribers  to  the  Syndicate  and  to  the  extent  of  their  subscription 
shall  be  liable  hereunder  for  and  entitled  to  receive  their  ratable 
proportion  of  the  said  bonds  or  temporary  certificates  or  of  the  net 
proceeds  of  the  sales  thereof,  in  the  same  manner  as  other  subscribers. 


UNDERWRITING  SYNDICATE  AGREEMENT         407 

PAYMENTS   TO   BE   MADE  WHEN   CALLED 

SECOND.  The  subscribers  will  at  any  time,  and  from  time  to  time 
(but  not  before  June  1,  1904),  make  cash  payments  on  account  of 
their  respective  subscriptions  hereunder,  as  called  for  by  the  Syndi- 
cate Managers.  At  least  five  days'  previous  notice  in  writing  shall  be 
given  by  the  Syndicate  Managers  in  the  manner  herein  provided,  of  the 
amount  and  date  when  each  payment  is  to  be  made,  and  each  sub- 
scriber will  promptly  pay  when  and  as  required  by  such  notices. 

RECEIPTS  FOR  PAYMENTS 

THIRD.  All  subscriptions  shall  be  payable  to  the  Syndicate  Man- 
agers at  their  office  in  the  City  of  New  York,  and  on  making  the 
first  payment  each  subscriber  shall  be  entitled  to  receive  a  Participa- 
tion Certificate  certifying  that  the  subscriber  or  his  assigns,  so  long 
as  he  or  they  shall  not  be  in  default  hereunder,  is  or  are  entitled  to 
participate  pro  rata  in  the  benefits  of  the  Syndicate  formed  here- 
under and  to  receive  his  ratable  proportion  of  said  bonds  or  tem- 
porary certificates  when  the  Syndicate  Managers  shall  deliver  the  same, 
or  of  the  net  proceeds  thereof  if  and  so  far  as  sold.  The  said  Par- 
ticipation Certificates  shall  be  of  such  tenor  and  form  as  the  Syndi- 
cate Managers  may  determine,  and  all  subsequent  payments  shall  be 
receipted  for  or  endorsed  thereon. 

SYNDICATE  MANAGERS*  RIGHT  TO  HOLD  BONDS. AND  DEAL  IN  THEM  FOR 

SYNDICATE 

FOURTH.  The  Syndicate  Managers  may  retain  all  of  the  bonds 
or  temporary  certificates  for  the  bonds  purchased  by  the  Syndicates 
either  from  or  under  the  said  option  for  such  period  as  in  their  dis- 
cretion they  may  deem  expedient,  not  exceeding  twelve  months  from 
the  first  day  of  March,  1904,  and  from  time  to  time  during  said  period, 
and  at  any  time  before  final  distribution  hereunder,  they  may  for 
account  of  the  Syndicate  deal  in  and  buy  and  sell  all  or  any  of  such 
bonds  or  temporary  certificates  at  public  or  private  sale  at  such  prices 
as  they  may  deem  fit,  and  in  their  discretion  they  may  repurchase  and 
resell  the  same  for  account  of  the  Syndicate  at  such  prices  as  they 
may  deem  proper  and  advisable. 

RIGHT    OF    UNDERWRITERS    TO    WITHDRAW 

Within  such  period  or  periods  as  the  Syndicate  Managers  may  pre- 
scribe, and,  with  their  written  consent  any  subscriber  may,  on  pay- 


408          MATEEIALS  OF  COKPOEATION  FINANCE 

ment  of  one  per  cent,  on  the  face  value  of  bonds  withdrawn  (as  being 
his  pro  rata  share  of  the  estimated  expense  of  the  Syndicate  and 
the  commission  on  sales),  withdraw  from  sale,  at  the  respective  prices 
for  firm  and  option  bonds  herein  specified,  his  pro  rata  share  of  the 
unsold  bonds  or  temporary  certificates  included  in  the  firm  purchase 
or  the  option  above  mentioned.  Each  such  withdrawing  subscriber 
must  simultaneously  with  such  withdrawal  agree  that  he  will  not, 
without  the  written  consent  of  the  Syndicate  Managers,  sell  or  offer  for 
sale  any  such  withdrawn  bonds  or  temporary  certificates  before  the 
termination  of  the  Syndicate  Agreement. 

COMPENSATION    OF    MANAGERS    AND   DIVISION    OF    PROFITS 

FIFTH.  The  Syndicate  Managers  will  make  no  charge  to  subscrib- 
ers for  their  services  in  managing  the  Syndicate,  but  in  respect  of 
bonds  or  temporary  certificates  sold  by  them  shall  be  entitled  to  re- 
ceive the  commission  of  one-half  of  one  per  cent,  upon  the  face  value 
of  the  bonds  or  temporary  certificates  sold,  which  may  be  allowed 
by  them  to  issuing  houses.  The  Syndicate  Managers  shall  determine 
the  profits  and  losses  of  the  Syndicate  and  such  determination  thereof 
shall  be  final.  All  profits  and  losses  of  the  Syndicate  shall  be  divided 
and  borne  by  the  subscribers  pro  rata, 

MANAGERS'  RIGHT  TO  INCUR  EXPENSES 

SIXTH.  The  Syndicate  Managers  shall  have  authority,  so  long  as 
this  agreement  is  in  force,  to  incur  such  expenses,  including  cost  of 
engraving,  preparation  and  execution  of  bonds  and  temporary  certi- 
ficates, counsel  fees,  advertising,  commissions  and  brokerages  paid  on 
purchases  or  sales  of  bonds  and  outlays  of  any  other  character,  as  they 
may  deem  proper  and  in  the  interest  of  the  Syndicate;  and  all  such 
expenses  shall  be  a  charge  against  the  Syndicate. 

LIABILITY  OF  UNDERWRITERS  NOT  THAT  OF  PARTNERS 

SEVENTH.  Nothing  herein  contained  or  otherwise  shall  constitute 
the  parties  hereto  partners  or  shall  render  any  one  of  the  subscribers 
liable  to  contribute  more  than  his  several  and  proportionate  amount 
as  herein  provided  or  shall  prevent  any  of  the  parties  from  contract- 
ing with  each  other  with  reference  to  any  of  their  respective  interests. 

Each  subscriber  signing  this  agreement  or  any  counterpart  thereof 
shall  set  opposite  his  name  the  amount  of  his  subscription  to  the 


UNDERWRITING  SYNDICATE  AGREEMENT         409 

$20,000,000  face  value  of  the  said  bonds  purchased  firm,  and  each 
subscriber  shall  be  called  upon  to  pay  and  be  liable  for  only  such 
portion  or  portions  of  said  $20,000,000  of  firm  bonds,  and  of  the 
amount  or  amounts  of  said  $15,000,000  of  option  bonds,  in  respect 
of  which  the  options  shall  be  exercised  as  aforesaid,  as  the  amount 
set  opposite  his  signature  hereto  shall  bear  to  the  sum  of  $20,000,000. 

DURATION  OF  SYNDICATE 

EIGHTH.  The  Syndicate  shall  continue  until  March  1,  1905;  but 
the  Syndicate  Managers  shall  be  the  sole  and  final  judges  as  to  whether 
at  any  time  it  is  to  the  interest  of  the  Syndicate  to  proceed  further 
under  this  agreement,  and  they  may  at  any  time  prior  to  said  date 
by  notice  in  writing  to  the  subscribers,  terminate  this  agreement,  in 
which  event  any  or  all  bonds  or  temporary  certificates  then  held  for 
account  of  the  Syndicate,  and  the  proceeds  of  such  bonds  or  certifi- 
cates as  may  have  been  sold,  shall  remain  charged  with  the  payment 
of  all  expenses  and  liabilities  by  them  incurred  hereunder,  and  shall 
be  applied  and  dealt  with  as  above  provided.  The  Syndicate  Man- 
agers may  also  terminate  this  agreement  in  case  of  the  failure  of  the 
Government  of  Cuba  to  deliver  to  Speyer  &  Company  all  of  said 
$35,000,000  of  said  bonds  purchased  by  Speyer  &  Company  as  afore- 
said, or  if  Speyer  &  Company  under  advice  of  counsel,  decline  to  ac- 
cept same. 

POWERS  OP  MANAGERS 

NINTH.  The  Syndicate  Managers  may  sell  any  bonds  or  temporary 
certificates  held  hereunder  to  any  subscriber  and  any  such  subscriber 
may  make  any  purchase  of  bonds  or  temporary  certificates  from  the 
Syndicate  Managers.  The  Syndicate  Managers  shall  have  absolute  con- 
trol over  the  disposition  of  all  bonds  and  temporary  certificates  held 
by  them  hereunder,  subject  to  the  provisions  hereof.  They  shall  have 
sole  direction  and  management  and  entire  control  of  the  Syndicate, 
and  shall  have  exclusive  power  to  determine  whether  and  to  what 
amount  or  amounts  and  at  what  time  or  times  the  option  of  purchase 
above  mentioned  shall  be  exercised.  They  shall  be  sole  judges,  in  be- 
half of  the  Syndicate,  as  to  the  form  and  terms  of  the  said  bonds. 
The  enumeration  of  particular  or  specific  powers  in  this  agreement 
shall  not  be  considered  as  in  any  way  limiting  or  abridging  each  power 
and  discretion  intended  to  be  conferred  upon  and  reserved  to  the 
Syndicate  Managers,  in  order  to  authorize  them  to  do  any  and  all 
things  proper,  necessary  or  expedient  in  their  discretion  to  carry  out 


the  purposes  of  this  agreement.  The  Syndicate  Managers  shall  not  be 
liable  for  any  error  of  judgment  nor  for  any  mistake  of  law  or  fact 
nor  for  anything  except  gross  negligence  or  bad  faith.  Each  sub- 
scriber nominates  and  appoints  the  Syndicate  Managers  his  agents 
and  attorneys  irrevocably  until  the  termination  of  thi&  agreement  to 
enter  into  or  execute  any  and  all  arrangements  or  agreements  deemed 
by  the  Syndicate  Managers  expedient  or  necessary  ta  carry  out  and 
perform  said  agreement  for  the  purchase  of  said  bonds  by  the  Syn- 
dicate and  the  issue  of  the  temporary  certificates  herein  referred  to, 
and  to  accomplish  the  objects  and  purposes  of  the  Syndicate,  and 
each  subscriber  hereby  ratifies  and  assents  to  any  action  of  the  Syn- 
dicate Managers  taken  under  this  agreement,  and  agrees  to  perform 
his  undertakings  herein  from  time  to  time  promptly  on  the  call  of  the 
Syndicate  Managers,  to  the  full  extent  of  his  proportion  of  the  entire 
Syndicate  liability. 

BREACH   OP   CONTRACT  BY   UNDERWRITERS 

TENTH.  The  failure  of  any  subscriber  to  perform  any  of  his  un- 
dertakings hereunder  shall  not  affect  or  release  any  other  subscriber. 
In  case  of  any  and  every  such  failure  the  Syndicate  Managers  may, 
at  their  sole  and  exclusive  option,  exclude  such  failing  subscriber 
from  further  interest  and  participation  in  the  Syndicate  and  forfeit 
all  payments  theretofore  made  by  him  hereunder  and  hold  the  failing 
subscriber  liable  for  any  damages  that  may  have  been  caused  by  such 
failure. 

EELEASE  OF  UNDERWRITER  BY  MANAGER 

The  Syndicate  Managers  may  in  their  discretion  release  any  sub- 
scriber, either  absolutely  or  upon  such  terms  as  the  Syndicate  Man- 
agers may  prescribe,  and,  in  case  of  failure  to  perform  on  the  part 
of  any  subscriber,  or  a  release  of  any  subscriber  by  the  Syndicate 
Managers,  other  subscribers  may  be  received  by  the  Syndicate  Man- 
agers to  take  the  place  of  the  subscribers  so  failing  to  perform  or  so 
released. 

DEFINITION   OF   MANAGER 

ELEVENTH.  The  term  "Syndicate  Managers"  as  herein  used  shall 
be  deemed  to  apply  to  the  firm  of  Speyer  &  Company,  as  the  same 
is  at  present  constituted  and  as  it  may  hereafter  at  any  time  be  con- 
stituted. 


UNDERWRITING  SYNDICATE  AGREEMENT         411 

NOTICE  TO  SUBSCRIBERS 

TWELFTH.  Each  subscriber  shall  set  opposite  his  subscription 
hereunder  written  an  address  to  which  notices  or  other  communica- 
tions may  be  sent,  and  any  such  notice  or  communication  addressed 
to  any  subscriber  at  the  address  so  given,  and  either  left  at  such 
address  or  deposited  in  a  post  office,  enclosed  in  a  post-paid  wrapper 
addressed  to  such  subscriber  at  such  address,  shall  be  deemed  actually 
given  to  such  subscriber  on  the  date  of  so  leaving  or  depositing  the 
same,  and  shall  be  sufficient  for  all  the  purposes  of  this  agreement.  If 
any  subscriber  shall  fail  so  to  furnish  his  address  to  the  Syndicate 
Managers  he  shall  not  be  entitled  to  any  notice  or  other  communica- 
tion, and  he  shall  be  deemed  to  assent  to  any  action  of  the  Syndicate 
Managers. 

AGREEMENT,  HOW  MADE  UP 

THIRTEENTH.  An  original  copy  shall  be  signed  by  the  Syndicate 
Managers  and  retained  by  them,  and  one  or  more  counterparts  may  be 
signed  by  the  subscriber,  but  all  together  shall  be  taken  and  deemed 
to  be  but  one  original  instrument. 


OBLIGATION  TO  BIND  LEGAL  SUCCESSORS  OP  SUBSCRIBERS 

FOURTEENTH.  This  agreement  shall  bind  the  subscribers  respec- 
tively, their  respective  personal  representatives,  successors  and  as- 
signs. 

IN  WITNESS  WHEREOF  the  Syndicate  Managers,  parties  of  the  first 
part  hereto,  have  subscribed  an  original  hereof,  and  the  subscribers, 
parties  of  the  second  part  hereto,  have  subscribed  said  original  or  a 
counterpart  thereof,  as  of  the  day  and  year  first  above  written. 

SPEYER  &  Co. 


Name  of  subscribers. 

The  Mutual  Life  Insurance 

Company  of  New  York 

Signed : 


Address.  ' 
32  Nassau  Street 


.,  Secretary. 


Firm  bonds 
(face  value) 
subscribed  for 

$2,500,000 


F.  C.,  Treasurer. 


412         MATEEIALS    OF    COKPOKATION    FINANCE 


A.  E.   STILWELL,  PRESIDENT 
SINGEE  BUILDING,   NEW  TOEK 

February  6,  1912. 
To  the  Secretaries  of  Boards  of  Trade  and 

Members  of  New  York,  Boston  and  Chicago  Stock  Exchanges. 

Dear  Sirs:  I  have  started  out  on  a  campaign  to  help  free  Amer- 
ican business  from  the  inquisition  of  the  money  power. 

I  understand  full  well  the  magnitude  of  this  fight,  but  after  six- 
teen years  of  unrelenting  persecution  while  building  two  important 
railroads  of  the  United  States,  I  have  made  up  my  mind  that  it 
would  be  un-American  longer  to  stand  such  treatment  without  pro- 
test; that  it  would  be  better  to  fight  for  clean  business  methods  and 
go  down  if  need  be  than  to  work  longer  against  unbearable  conditions. 

Sixteen  years  ago  a  leading  New  York  banker  wanted  me  to  exploit 
my  stockholders  to  enrich  him  and  myself.  I  refused,  and  he  forth- 
with proceeded  by  every  device  to  make  my  work  most  difficult. 
Eleven  years  ago  a  second  New  York  banker  of  prominence  made  me 
a  similar  proposition.  I  again  refused,  and  more  obstacles  were  put 
in  my  way.  I  made  up  my  mind  then  and  there  to  look  directly  to 
the  business  men  of  the  country  rather  than  to  the  money  power 
for  fair  and  honest  backing.  This  plan  I  have  adhered  to,  but  the 
persecution  keeps  up;  and  I  am  now  in  the  frame  of  mind  of  the 
people  of  Boston  when  they  threw  the  tea  overboard. 

I  am  convinced  that  if  other  deals  are  engineered  like  the  two 
offered  to  me,  it  is  a  menace  to  our  civilization  and  to  the  business 
of  the  United  States;  and  it  is  easy  to  see  how  unscrupulous  men 
may  amass  colossal  fortunes  in  a  few  years'  time. 

This  land  is  developing  fast.  All  men  are  entitled  to  a  fair  field 
and  no  favor.  The  money  of  our  land,  which  under  existing  condi- 
tions drifts  to  the  reserve  banks  in  large  cities,  ought  not  to  be  used 
simply  to  make  billionaires  of  a  few.  There  is  no  reason  why  the 
people  that  own  it  shall  realize  only  2%  and  the  people  that  use  it 
realize  from  10%  to  25%.  This  is  to  serve  favorites  and  ruin 
industry. 

Wall  Street  ought  to  be  a  help  to  enterprise,  not  a  hindrance; 

1  Letter  of  A.  E.  Stillwell  as  promoter  of  Kansas  City,  Mexico  and  Orient 
Railway  Co. 


SELLING   STOCK   WITHOUT   UNDERWRITING      413 

but  ask  the  experience  of  many  great  industries  that  have  been 
forced  to  go  there  for  the  last  five  or  six  years.  They  will  tell  you 
that  they  have  seen  their  competitors  helped  in  every  way  if  they 
happened  to  have  a  friend  who  was  on  one  of  the  interlocking  bank 
directorates. 

There  is  no  way  on  earth  for  the  egregious  fortunes  that  are  made 
in  this  district  to  be  made  honestly  and  so  quickly.  It  is  only  be- 
cause of  the  enormous  toll  that  is  exacted  from  American  business 
and  industry.  The  whole  nation  pays  these  men  tribute.  They  toil 
not,  neither  do  they  spin,  but  Solomon  in  all  his  glory  is  not  arrayed 
like  one  of  these. 

Mr.  Reynolds,  president  of  the  second  largest  bank  in  the  United 
States,  says  that  the  money  power  is  in  the  hands  of  twelve  men — 
and  that  he  is  one  of  them.  Vanity  here  spoke  truly! 

So  American  industry  is  chained  to  a  Hydra  with  twelve  heads — 
twelve  sharp,  shrewd  heads,  thinking,  working  only  for  self!  It  is 
a  monstrous  power  of  which  the  Chicago  banker  was  led  to  brag! 

The  remedy  for  all  this  is  not  so  difficult.  The  members  of  the 
New  York,  Boston  and  Chicago  stock  exchanges  are  as  honorable, 
high-minded  men  as  can  be  found.  Let  all  contracts  for  financing 
be  passed  on  by  them.  Let  all  contracts  for  commissions  and  pur- 
chase of  a  business  be  endorsed  by  them  as  fair.  Let  no  bond  pros- 
pectus of  any  offer  of  bonds  be  issued  unless  it  has  their  0.  K. ;  and 
then  robbery  would  stop.  The  money  deals  would  not  be  handled  by 
a  few.  Any  man  could  float  a  company  on  fair  terms,  as  the  "hall- 
marking" of  the  Exchange  would  be  for  any  house  of  bankers  or 
brokers  that  did  honest  business.  Let  any  man  who  deems  himself 
to  have  been  treated  unjustly  appear  before  a  committee  of  the  Ex- 
change, state  his  grievance,  and  if  the  committee  finds  his  statement 
true,  let  it  from  that  time  on  refuse  to  pass  any  flotation  by  the  house 
that  adopts  crooked  methods.  Give  the  New  York,  Boston  and  Chi- 
cago Exchanges  the  right  of  "hall-marking"  deals  and  prospectuses 
and  at  once  American  finance  will  be  on  a  rock  foundation,  and  every 
enterprise  have  a  fair  chance  to  succeed  on  its  merits. 

This  would  make  the  Stock  Exchanges  of  New  York,  Boston  and 
Chicago  take  the  place,  in  a  measure,  of  Somerset  House  in  England ; 
the  terms  of  underwriting  would  be  stated,  also  the  commission  paid 
and  the  list  of  underwriters;  and  this  would  end  the  three  levels 
("friends,  good  friends,  and  very  good  friends")  that  now  exist.  It 
would  bring  the  sunlight  into  business  deals,  and  things  now  done 
in  the  dark  would  not  be  done.  England  solved  this  problem  in 
1900,  after  the  Baring  failure,  by  requiring  the  vis6  of  Somerset 
House  on  all  financial  deals  of  consequence. 


414         MATERIALS    OF   CORPORATION   FINANCE 

My  suggestion  is  merely  that  the  function  assumed  by  Mr.  Rey- 
nolds and  his  confreres,  who  are  partial  and  self-seeking,  he  trans- 
ferred to  the  Stock  Exchanges,  whose  members  are  impartial  men, 
interested  only  to  have  business  naturally  developed  and  honestly 
conducted. 

Very  truly  yours, 

A.  E.  STILWELL, 

President, 


SELLING   STOCK   WITHOUT   UNDERWRITING      415 


AMERICAN  WOLVES1 

Every  few  years  the  commerce  and  prosperity  of  our  country  have 
been  forced  to  pay  tribute  to  the  financial  raiders. 

Pirates  of  the  North  African  coast,  in  the  fifties,  demanded  from 
the  United  States  a  tribute  so  small,  as  compared  to  the  demands 
and  exactions  of  these  bear  leaders,  that  it  makes  the  African  pirates 
of  old  seem  meek  as  Sunday-school  teachers.  In  each  bear  attack 
we  see  some  leading  man  mangled  on  the  financial  rack.  While  the 
victim's  fingers  are  not  pulled  out,  as  was  the  method  of  the  Spanish 
inquisition,  and  while  the  torture  chamber  is  not  now  in  some  dark 
dungeon,  but  in  beautifully  equipped  and  furnished  offices,  the  tor- 
ture is  just  as  great. 

A  man  may  have  a  fair  financial  standing.  He  perhaps  thinks  he 
has  the  confidence  and  respect  of  leading  interests.  He  imagines 
he  may  escape  the  cough-up-quick  methods  of  the  street.  No  doubt 
he  is  a  director  of  banks  or  trust  companies.  He  has  been  requested 
to  carry  his  account  in  this  or  that  bank  or  trust  company;  he  has 
been  given  unlimited  credit  at  the  broker's;  but  the  day  comes  when 
the  bears — or,  in  truth,  wolves — "need  his  money";  these  wolves  may 
have  been  associated  with  him  and  he  thinks  they  will  play  fair. 
Like  Russian  wolves,  financial  raiders  do  not  discriminate  while 
picking  their  victims. 

The  time  comes  for  the  victim  to  disgorge  a  million  or  two  be- 
cause he  believed  in  his  wolfish  chums.  These  wolves  have  friends 
in  many  banks  and  can  find  out  just  where  his  loans  are,  nearly  all 
being  "on  demand."  In  twenty-four  hours  they  size  up  what  pres- 
sure he  can  stand;  they  know  his  assets,  almost  to  a  cent. 

The  play  begins.  They  sell  short,  three  or  four  thousand  shares 
of  his  favorite  stock.  The  banks  call  for  more  collateral  and  he 
complies.  *  Next,  three  or  four  thousand  shares  more  are  dumped  on 
the  market  and  the  man  they  are  after  is  the  principal  supporter  of 
these  stocks ;  he  is  now  on  the  run !  Therefore,  the  market  is  not 
protected  in  these  stocks.  Gossip  is  started  that  Mr.  Victim  is  in  a 
tight  place.  This  stops  all  buying  of  his  stocks,  since  a  greater 
slump  is  feared  because  he  is  reported  weak.  Suddenly  more  shares 
are  sold  at  a  five  point  drop.  More  collateral  is  demanded,  which 
he  cannot  now  give,  and  this  is  known  at  once  at  the  seat  of  war. 
His  bank  loans  are  called;  cash  and  collateral  gone — excepting  a 
package  of  "cats  and  dogs"  that  the  bankers  will  not  accept.  One 

i  Circular  of  A.  E.  Stillwell  as  promoter  of  Kansas  City,  Mexico  and  Orient 
Railway  Co. 


416         MATERIALS    OF    CORPORATION    FINANCE 

more  raid  on  prices;  a  little  more  bear  talk,  and  the  victim,  recog- 
nizing the  pursuers,  disgorges  to  the  wolf-pack  anywhere  from  a 
quarter  to  half  of  his  life  savings.  Then  the  market  rebounds  and 
the  papers  mention  how  the  day  was  saved.  The  curtain  falls! 

FROM  "CONFIDENCE  OR  NATIONAL  SUICIDE" 

BY  ARTHUR  E.  STILWELL,  PRESIDENT  KANSAS  CITY,  MEXICO  AND 
ORIENT  RAILWAY 

It  was  a  put-up  job  from  start  to  finish.  If  he  had  been  a  big  fish, 
a  panic  might  have  resulted  affecting  all  interests.  Confidence  is 
shaken !  Millions  of  dollars  are  lost ;  our  people  are  made  to  suffer ; 
business  is  retarded;  and  we  are  damned  in  the  eyes  of  the  world. 

Why  is  it  that  a  man,  on  the  slightest  provocation,  will  whoop  it 
up  for  the  Stars  and  Stripes,  singing: — "My  country,  'tis  of  thee," 
will  fight  in  the  Spanish  War,  and  allow  his  son  to  join  the  Society 
for  the  Prevention  of  Cruelty  to  Animals;  will  contribute  to  the  Ice 
Fund  and  other  charities;  will  do  all  in  his  power  (as  he  thinks)  for 
humanity's  sake;  will  weep  great  tears  over  the  Armenian  massacres; 
and  then,  forsaking  all  good  prompting,  will  perversely  degenerate 
to  engineer  a  financial  raid?  Raiders  are  willing  to  attack  a  great 
American,  and  ruin  an  enterprise  which  probably  represented  years 
of  suffering  and  labor  in  the  building.  The  money  wolves  may  bring 
down  in  the  wreck  a  bank  or  trust  company  just  for  a  little  gold. 
And  while  doing  this  wrecking,  he  dares  to  think  he  is  a  patriot,  and 
considers  himself  a  Christian  or  an  orthodox  Jew,  yet  feels  no  more 
compunction  when  shooting  holes  in  the  ten  commandments  than 
he  experiences  while  smashing  clay  pigeons. 

What  is  the  good  of  money  secured  in  this  way  and  who  can  be 
sodden  enough  to  want  it? 

A  man  once  prominent  in  business  and  whose  name  was  daily  in 
the  papers,  a  few  years  ago  made  the  remark  to  me:  "I  am  out  for 
the  stuff  and  I  will  get  it  in  some  way — any  way;  people  know  that 
is  my  game,  but  I  am  the  smarter  and  will  win." 

I  have  watched  that  man  and  it  is  true  that  he  has  won  money, 
but  he  has  no  friendly  associates.  It  is  true  that  he  has  a  brilliant 
mind,  yet  he  has  not  won  a  respected  position  in  the  business  world. 
He  can  secure  all  that  money  can  buy;  he  can  weigh  out  his  gold 
for  land,  pictures,  houses  and  automobiles,  but  he  cannot  purchase 
desirable  friends ;  he  cannot  buy  respectable  standing  in  the  business 
world.  If  his  name  were  now  connected  with  any  great  business 
enterprise  it  would  damn  it  from  the  start. 


SELLING    STOCK   WITHOUT   UNDERWRITING     417 

I  wonder  if  he  realizes,  as  the  shadows  of  the  great  unknown 
sweep  over  him,  that  he  cannot  push  them  back;  that  he  will  soon 
be  swept  into  the  great  hereafter,  for  which  he  cared  so  little  in  the 
years  gone  by.  When  he  is  alone  in  the  twilight  of  his  earthly  life, 
and  sees  the  night  approaching,  will  all  his  millions  take  the  vile  taste 
from  his  mouth,  when  he  thinks  of  the  nasty  tricks  which  won  the 
gold?  Then,  surely,  he  would  gladly  give  half  of  all  his  possessions 
in  exchange  for  his  sacrificed  character  and  manhood. 


418         MATERIALS    OF    CORPORATION    FINANCE 
STILLW ELL'S  ROAD   IS  IN   RECEIVER'S   HANDS1 

ENGLISH  BONDHOLDERS  ACT  OWING  TO  DIFFICULTY  OF  FINANCING 
MEXICAN    LINE   ABROAD 


NO    AID    FROM    WALL    STREET 


KANSAS   CITY    CAPITALISTS    INVESTED   $2,000,000    AND   FOREIGN 
INTERESTS  MORE  THAN  $5,000,000 


Special  to  The  New  York  Times 

KANSAS  CITY,  Mo.,  March  7. — Edward  Dickinson,  Vice-President 
of  the  Kansas  City;  Mexico  &  Orient  Railway  Company,  was  appointed 
receiver  for  that  railroad  in  the  Federal  Court  in  Kansas  City,  Kan., 
this  afternoon  at  5 :15  o'clock.  Another  receiver  will  be  appointed  in 
a  few  days. 

Three  corporations,  all  construction  companies,  appeared  in  court 
in  company  with  the  United  States  and  Mexican  Trust  Company, 
Trustees  in  mortgages  representing  $25,000,000. 

The  construction  companies  are  the  International  Construction  Com- 
pany of  Delaware,  which  had  claims  for  $1,300,000 ;  the  Union  Con- 
struction Company  of  Delaware,  which  had  a  claim  for  $146,000,  and 
the  Western  Tie  and  Timber  Company  of  Arkansas,  with  a  claim  of 
$18,000.  Each  of  the  claims  was  allowed,  including  the  claims  on 
the  $25,000,000  of  bonds  represented  by  the  United  States  and  Mexi- 
can Trust  Company. 

The  hearing  was  held  in  chambers  and  lasted  about  an  hour.  The 
attorneys  would  not  talk  of  the  suit  further  than  to  say  that  construc- 
tion work  on  the  road  would  continue,  and  that  the  line  would  be 
rushed  to  completion  under  the  receivership. 

Twelve  years  of  building  along  the  projected  1,629  miles  of  the 
Kansas  City,  Mexico  &  Orient  Railway  have  brought  the  system  to  this 
date  with  988  miles  of  finished  track,  in  actual  operation.  Of  that 
mileage  a  single  great  stretch  of  642  miles  lies  within  the  United  States, 
from  Wichita,  Kan.,  to  Granada,  Texas.  In  Mexico  two  separated 
stretches,  aggregating  342  miles,  are  operating;  the  longer  287  miles, 
stretching  northeast  and  southwest  from  Chihuahua,  playing  between 
Sanchez  and  Marquez,  in  Northern  Mexico,  and  the  other  150  miles 
in  length  reaching  from  Topolobampo,  the  Pacific  Coast  terminus, 
105  miles  to  the  mountains  at  La  Junta. 

i  From  Neio  fork  Times  of  March  8,  1912. 


SELLING    STOCK   WITHOUT    UNDERWRITING      419 

The  Kansas  City,  Mexico  &  Orient  Railroad  was  conceived  by  A.  E. 
Stillwell  twelve  years  ago.  The  project  has  numerous  unique  features. 
It  was  to  be  "the  shortest  route  to  the  Orient/'  It  was  to  go  through  a 
a  district  in  Mexico  rich  in  minerals  and  timber,  but  supposed  to  be 
inaccessible  for  railroads. 

Mr.  Stillwell  announced  at  the  outset  that  he  proposed  to  build  the 
road  without  the  aid  of  Wall  Street,  and  he  has  been  hard  at  work  for 
twelve  years  raising  money  wherever  he  could  obtain  it  and  building 
the  road  as  fast  as  he  could  get  funds.  He  announced  in  1900  that  he 
proposed  to  have  the  road  completed  and  trains  running  into  Kansas 
City  within  three  years. 

A  former  official  of  the  company  said  to-day  that  Kansas  City  in- 
vestments in  the  project  probably  exceeded  $2,000,000. 

No  statement  ever  has  been  published  showing  the  amount  of  money 
actually  expended  in  the  construction  of  the  road.  The  last  annual 
report  of  the  company,  for  June  30,  1911,  showed  outstanding  $12,- 
500,000  of  common  stock,  $12,500,000  of  preferred  stock,  $21,000,- 
000  of  funded  debt,  $8,500,000  of  other  liabilities. 


The  receivership  for  the  Kansas  City,  Mexico  &  Orient  was  applied 
for  at  the  instance  of  a  committee  of  English  bondholders,  according 
to  Frederick  Hurdle  of  London,  England,  who,  with  Lord  Munson, 
another  member  of  the  committee,  arrived  in  this  city  a  few  days  ago  as 
representatives  of  the  English  interests. 

Mr.  Hurdle  attributed  the  predicament  of  the  company  largely  to 
difficulties  in  financing.  He  said  the  efforts  to  place  additional  issues 
of  bonds  abroad  had  recently  failed.  It  was  proposed  to  reorganize  the 
company,  he  said,  but  at  the  present  time  no  definite  plans  in  this 
direction  had  been  decided  upon.  Upward  of  $5,000,000  of  the  bonds 
were  sold  to  English  capitalists  about  two  years  ago,  after  President 
Stillwell  had  conducted  a  party  of  them  over  the  road  on  a  special  train. 

The  International  and  Union  Construction  Companies  were  organ- 
ized by  President  Stillwell  to  construct  the  road,  and  are  holders  of 
some  of  the  company's  bonds.  The  United  States  and  Mexican  Trust 
Company,  of  which  Mr.  Stillwell  is  President,  is  trustee  of  the  bonds. 

Mr.  Stillwell's  methods  of  financing  his  road  were  not  looked  upon 
with  confidence  among  men  of  experience  in  money  matters,  and  when 
he  began  a  campaign  of  publicity  last  month  both  by  letters  to  public 
bodies  and  in  costly  advertisements  assailing  the  "money  trust,"  there 
was  many  who  predicted  that  developments  would  not  be  far  behind  and 
that  the  "Money  Trust"  would  be  a  convenient  scapegoat. 

It  was  in  connection  with  an  offering  of  $10,000,000  5  per  cent,  first 
mortgage  collateral  trust  bonds  to  stockholders  of  his  road  at  par,  that 


420         MATERIALS    OF   CORPORATION   FINANCE 

President  Stillwell  first  lauched  into  an  attack  on  the  money  trust.  He 
said  that  the  Directors  wanted  him  to  advise  stockholders  and  the  pub- 
lic of  obstacles  encountered  and  of  the  "artificial  barriers  created  by 
those  who  through  sheer  patriotism,  should  have  been  our  friends  and 
helpers."  He  told  of  bankers,  without  naming  them,  who  had  been 
told  that  their  business  would  be  ruined  if  they  attempted  to  help,  but 
concluded  "the  people  will  subscribe  for  this  issue  not  only  because  it 
is  a  splendid  investment,  but  because  they  believe  in  a  square  deal." 

In  later  letters  some  of  them  addressed  to  stock  brokers  all  over  the 
country  as  well  as  to  Legislators,  he  attacked  the  "Money  Trust"  in 
picturesque  language. 

Last  Fall  in  explaining  to  stockholders  the  many  reasons  why  the 
road  was  costing  more  than  planned  and  why  its  completion  had  been 
so  long  delayed,  he  offered  as  a  reward  of  patience  a  share  in  a  tele- 
phone patent  in  which  he  had  become  interested.  The  railway  stock- 
holders were  to  receive  49  per  cent,  interest  in  the  company  which  was 
to  be  formed  to  exploit  the  company  in  England  and  British  possessions 
and  a  like  share  in  companies  to  be  formed  in  other  foreign  countries. 

Mr.  Stillwell  is  the  author  of  several  unique  books  which  have  brought 
him  considerable  publicity.  One  published  in  1910  called  "Confidence 
or  National  Suicide"  was  written  largely  to  justify  higher  railroad 
rates. 


WALL    STREET   WAYS  421 


WALL    STREET    WAYS1 
A  GENERAL  EXPOSITION  OF  STOCK  MARKET  TRADING 

INTRODUCTION 

In  the  following  pages  we  have  endeavored  to  give  a  lucid  explana- 
tion of  the  manner  of  transacting  business  in  stocks,  touching  upon 
points  which  we  have  found  to  be  often  misunderstood  not  only  by 
the  uninitiated  but  by  the  more  experienced  traders.  We  will,  of 
course,  always  be  pleased  to  furnish  any  further  information  which 
may  be  desired  either  along  these  lines  or  regarding  any  specific 
securities  in  which  you  may  be  interested. 

PURCHASING 

There  are  two  methods  of  buying  or  selling  stocks  through  mem- 
bers of  the  New  York  Stock  Exchange,  viz:  buying  or  selling  out- 
right for  cash  and  buying  or  selling  on  margin. 

When  purchasing  stock  outright,  or  what  is  commonly  termed 
"for  cash,"  a  person  pays  the  entire  cost  of  the  stock  plus  commis- 
sion, £  of  1%,  (or  12£  cents  per  share).  For  instance,  if  one  pur- 
chased 100  shares  of  United  States  Steel  at  70  he  would  pay  $7,000 
plus  commission,  $12.50,  total  $7,012.50,  and  certificate  for  the  100 
shares  would  be  delivered.  When  stocks  are  purchased  outright  it 
is  customary  to  have  them  transferred  to  the  name  of  the  buyer, 
especially  if  the  stock  is  one  upon  which  dividends  are  paid,  same 
being  paid  to  the  party  in  whose  name  certificate  is  made  out.  At 
times,  however,  the  purchaser  desires  to  leave  the  stock  with  the 
broker  in  order  to  facilitate  sale  of  same  when  desired,  and  the  cer- 
tificate is  placed  in  an  envelope  marked  as  property  of  the  owner 
to  be  delivered  when  called  for.  In  this  case  the  stock  is  often  left  in 
the  broker's  name  and  the  customer  is  credited  with  the  dividend 
when  payable  or  check  for  that  amount  is  forwarded  to  him.  Thus 
the  buyer  receives  the  dividend  but  does  not  have  the  trouble  of  en- 
dorsing the  certificate  and  sending  it  to  the  broker  when  he  desires 
to  sell.  Non-dividend  paying  stocks  when  purchased  outright  are  also 
often  left  in  the  original  "street  name,"  as  a  certificate  endorsed  by  a 
stock  exchange  house  is  a  good  delivery  at  any  time  he  may  wish  to 
sell  and  he  has  no  trouble  about  endorsing,  witnessing,  etc. 

When  purchasing  on  margin  the  broker  buys  the  stock,  paying  for 
same  in  full,  but  loans  the  customer  a  certain  amount,  holding  the 
certificates  as  collateral  and  charging  interest  on  this  debit  balance. 

i  Pamphlet  issued  by  J.  F.  Pierson  &  Co.,  members  of  the  New  York  Stock 
Exchange. 


422         MATERIALS    OF    CORPORATION    FINANCE 

The  difference  between  the  amount  loaned  and  the  purchase  price  is 
deposited  by  the  customer,  being  what  is  commonly  termed  "margin." 
The  customer  may  at  any  time  pay  off  this  loan,  together  with  any 
interest  which  may  have  accrued  since  the  purchase,  and  take  up  the 
stock.  Ten  points,  that  is,  $10  per  share,  is  the  usual  amount  re- 
quired on  a  majority  of  stocks,  and  the  broker  will  carry  same  as 
long  as  the  market  price  is  sufficient  to  protect  him.  This  does  not 
mean  that  he  will  carry  the  stock  until  a  sale  is  made  at  the  exact 
limit  of  the  margin,  however,  as  he  might  not  be  able  to  obtain  that 
amount  if  he  attempted  to  sell.  For  instance,  if  U.  S.  Steel  were 
purchased  at  70  on  a  10  point  margin  the  broker  would  call  for  ad- 
ditional margin  when  the  market  price  was  say,  approximately  65, 
and  if  no  further  additional  margin  was  forthcoming  after  notifica- 
tion he  would  hold  same  to  within  from  one  to  two  points  of  the 
limit  or  until  whatever  time  he  might  deem  it  necessary  to  sell  for  his 
own  protection.  The  round  commission  of  \%  must  be  figured  out 
of  the  ten  points,  together  with  whatever  interest  may  have  accrued 
on  the  money  loaned.  Many  figure  that  stock  is  held  to  the  exact 
limit  of  the  margin,  but  it  must  be  remembered  that  while  there 
might  still  be  a  margin  of  a  fraction  or  even  a  point  at  the  close 
of  the  day,  the  market  might  open  off  more  than  that  the  next  morn- 
ing and  the  broker  be  unable  to  close  out  the  commitment  except  at 
a  loss  to  himself.  Many  of  the  inactive  stocks  also  have  wide  quota- 
tions and  sales  might  be  one,  two,  three  or  more  points  apart,  thus 
affording  no  opportunity  to  sell  at  the  desired  figure.  The  distance 
which  a  stock  will  be  carried  depends  to  a  great  extent  upon  the  con- 
dition of  the  market  and  the  character  of  the  stock.  Even  active 
stocks  which  in  ordinary  times  would  be  carried  to  within  from  one 
to  two  points  of  exhaustion  could  not  be  carried  over  night  on  such 
a  small  margin  in  panicky  times  when  there  is  a  chance  that  they 
might  open  off  several  points  the  following  morning.  A  customer 
is,  of  course,  always  given  every  opportunity  to  deposit  additional 
margin,  which  should  always  be  done  when  it  has  been  reduced  to 
approximately  five  points  whether  a  margin  call  is  received  or  not, 
it  being  assumed  that  a  person  either  long  or  short  of  stock  is  suffi- 
ciently interested  to  keep  track  of  market  movements.  There  is  no 
limit  to  the  length  of  time  stocks  may  be  carried  on  margin  as  long 
as  the  amount  of  margin  is  sufficient  to  protect  the  broker. 

We  have  endeavored  to  point  out  the  features  of  marginal  trading 
\vhich  ofttimes  lead  to  discussion  and  annoyance  to  both  broker  and 
customer,  but  if  a  customer  understands  marginal  requirements  fully 
it  is  often  the  most  convenient  and  profitable  manner  of  trading  if 
conservatism  is  observed.  For  instance,  one  may  believe  that  a  cer- 


WALL    STREET   WAYS  423 

tain  stock  is  due  for  an  advance  and  have  only  sufficient  funds  to 
purchase  say  50  shares,  but  is  enabled  to  take  100  shares  by  borrow- 
ing the  difference  from  the  broker.  When  the  stock  advances  he  may 
procure  just  double  the  profits  he  would  have  if  the  stock  were  pur- 
chased outright.  He  thus  has  a  50%  margin,  which  should  be  a  very 
conservative  amount  on  a  stable  stock,  and  is  in  the  same  position 
as  a  man  who  purchases  a  house  and  secures  a  mortgage  thereon. 

We  require  ten  points  ($10  per  share)  margin  on  a  majority  of 
stocks,  but  will  accept  five  points  on  some  low  priced  issues  having  a 
ready  market  for  purchase  or  sale,  although  even  more  than  ten 
points  is  often  necessary  on  some  of  the  very  high  priced  or  other 
stocks  which  have  a  very  wide  market,  that  is,  in  cases  where  the  bid 
and  asked  prices  are  far  apart  and  fluctuations  apt  to  be  abnormal. 
If  only  this  minimum  amount  be  provided  for  one  may  obtain  profits 
many  times  as  great  as  if  purchasing  the  stock  outright,  but  we 
always  endeavor  to  impress  upon  our  customers  the  advantage  of  a 
heavier  margin.  The  greater  the  number  of  points  with  which  a 
customer  fortifies  his  account  the  greater  his  protection  is  against 
possible  adverse  market  movements. 

SELLING 

In  selling  stock  held  outright  in  a  customer's  name,  customer  must 
endorse  the  certificate,  spelling  the  name  exactly  as  it  is  spelled  on 
the  face,  and  have  same  witnessed,  but  should  fill  in  none  of  the  other 
blank  spaces  on  the  back  of  the  certificate.  The  commission  for 
selling  is  the  same  as  for  buying,  £  of  1%,  with  a  minimum  charge 
of  $1  on  any  transaction,  and  in  addition  the  seller  pays  a  tax  of  2c. 
per  every  $100  par  value,  which  is  levied  by  the  State  of  New  York. 

When  selling  stock  held  on  margin  the  customer  simply  gives  the 
order  to  the  broker,  who  sells  the  stock,  delivers  the  certificate  and 
credits  the  customer's  account  with  the  proceeds,  less  commission  and 
State  tax. 

In  selling  stock  short  the  broker  sells  the  stock,  borrows  it  and 
delivers  same  on  regular  delivery  day.  The  margin  required  is  the 
same  as  when  purchasing  stock  but  is  a  protection  against  a  rise  in 
the  market  instead  of  a  decline.  If  the  market  reacts  the  customer 
may  repurchase  the  stock  at  a  lower  figure,  his  profits  being  the  dif- 
ference between  the  sale  price  and  the  purchase  price,  and  if  the  mar- 
ket advances  and  he  buys  in,  or  "covers,"  at  a  higher  figur**  his  loss 
is  also  the  difference  between  the  sale  price  and  the  purchase  price. 
This  is  simply  the  reverse  of  purchasing  stock  and  then  selling,  the 
sale  being  made  first  and  the  purchase  later  on.  When  the  stock 
is  covered  the  broker  returns  same  to  the  party  from  whom  he  origi- 


424         MATEEIALS    OF   COKPOKATION    FINANCE 

nally  borrowed  it.  No  interest  is  charged  a  customer  on  theitransaction, 
except  when  the  stock  is  loaning  at  a  premium  because  of  a  great 
scarcity;  that  is,  when  he  is  forced  to  pay  a  certain  amount  for  the 
privilege  of  borrowing  the  stock.  This,  however,  is  a  very  rare  oc- 
currence. 

DELIVERIES 

When  stock  is  bought  or  sold  the  certificate  is  not  delivered  until 
the  following  day,  at  which  time  the  purchasing  broker  pays  the  sell- 
ing broker  the  amount  due.  Stocks  or  bonds  purchased  on  Friday  or 
Saturday  are  not  deliverable  until  Monday,  as  Saturday  is  a  non- 
delivery day.  It  is  customary  for  the  broker  to  receive  from  a  cus- 
tomer at  least  a  deposit  against  the  purchase  of  the  stock  before  the 
stock  is  bought,  as  he  obligates  himself  to  take  the  stock  from  the 
other  broker  on  the  regular  delivery  day,  and  if  any  unforeseen  acci- 
dent occurs  to  the  customer  over  night  preventing  him  from  paying 
for  the  stock,  the  broker  would  have  to  take  it  himself  and  stand  any 
loss  which  might  be  incurred  by  a  possible  decline  in  the  market 
price.  When  stock  is  sold  payment  is  not  received  until  the  next  day, 
when  it  is  delivered.  It  is  customary,  however,  for  the  broker  to  have 
the  stock  in  his  possession  before  selling,  unless  it  is  a  short  trans- 
action. 

TRANSFERRING  STOCK 

When  stock  is  to  be  transferred  to  a  customer's  name  the  certificate 
received  by  the  broker  is  sent  to  the  transfer  office  of  the  company 
and  a  new  certificate  made  out,  which  may  take  two  or  three  days 
after  the  regular  delivery.  Stock  cannot  be  transferred  while  the 
books  of  the  company  are  closed  for  dividends  or  any  other  reason. 
Stock  must  be  paid  for  in  full  before  the  broker  will  have  same  trans- 
ferred to  the  customer's  name,  as  after  the  stock  is  deposited  at  the 
transfer  office  it  is  useless  to  him  until  the  customer  has  endorsed 
the  new  certificate  issued  in  place  of  the  old.  Therefore,  if  any  un- 
foreseen accident  prevented  the  purchaser  from  endorsing  the  certifi- 
cate the  broker  would  be  left  without  security  for  the  amount  loaned. 

STOP  LOSS  ORDERS 

I 

Stop  loss  orders  are  used  by  a  great  many  traders  to  limit  the 
amount  of  possible  loss  on  any  transaction  and  ofttimes  save  one 
from  losing  his  entire  margin.  A  stop  loss  order  for  the  purchase  or 
sale  of  a  stock  means  that  the  purchase  or  sale,  as  the  case  may  be, 
is  to  be  made  "at  the  market"  when  a  certain  price  is  reached.  For 
instance,  if  U.  S.  Steel  is  selling  at  70,  and  an  order  is  placed  to  sell 
100  shares  at  68  stop,  it  means  that  when  a  sale  of  100  shares  or 
more  is  made  on  the  Stock  Exchange  at  68  or  less  100  shares  are  to 


WALL    STREET   WAYS  425 

be  sold  "at  the  market,"  that  is,  at  the  best  price  obtainable.  At 
times,  however,  it  might  close  above  68  on  one  day  and  open  below  68 
the  next  morning,  or  even  during  the  day  might  break  from  a  price 
above  to  below  68  without  a  sale  at  that  figure,  in  which  case  the 
stop  loss  order  would  be  executed  as  soon  as  a  sale  was  made  under 
68.  Conversely,  if  an  order  is  given  to  buy  100  shares  at  say  72 
stop,  it  means  that  100  shares  are  to  be  purchased  "at  the  market" 
when  a  sale  of  100  shares  or  more  is  made  at  72  or  higher. 

This  method  has  often  proved  itself  of  inestimable  value  to  traders. 
Purchases  may  be  made  at  a  certain  figure  in  the  belief  that  the  mar- 
ket is  about  to  advance  but  something  occurs  to  change  the  course 
of  the  market  and  it  starts  to  break.  If  a  stop  loss  order  is  in,  how- 
ever, the  loss  is  confined  to  approximately  the  difference  between  this 
figure  and  the  price  at  which  the  stock  is  purchased,  and  if  it  breaks 
ten  points  further  one  has  been  saved  just  that  amount.  The  use  -of 
this  protection  is  also  valuable  when,  a  profit  is  shown  on  a  transac- 
tion, yet  one  believes  it  will  run  still  further.  He  may  then  place  a 
stop  loss  order  below  the  market  if  he  is  long  or  above  the  market 
if  he  is  short,  but  at  a  figure  where  a  profit  is  assured.  In  this  way 
the  transaction  may  be  allowed  to  run  with  risk  eliminated.  For  a 
person  trading  on  a  medium  sized  margin  this  method  appeals 
strongly,  especially  to  those  who  make  up  their  minds  to  take  a  cer- 
tain amount  of  profit  or  a  certain  amount  of  loss. 

COMMISSION   CHARGES 

Our  commission  charges  for  transactions  on  the  Stock  Exchange 
are  £%  for  buying  and  \%  for  selling,  which  is  equal  to  12£  cents 
per  share,  except  in  the  case  of  mining  shares  selling  below  $10  upon 
which  the  charge  is  1-16%,  but  the  minimum  charge  upon  any  trans- 
action is  $1.  The  commission  on  outside  securities  varies  according 
to  the  selling  price. 

INTEREST  .   ' 

Interest  is  charged  on  any  unpaid  balances,  the  rate  being  gov- 
erned by  the  prevailing  money  rates,  the  size  and  activity  of  the  ac- 
count, the  amount  of  margin  maintained  and  the  character  of  the 
stock  in  question,  having  ranged  from  3%  to  6%  during  the  past 
year.  We  can,  of  course,  make  more  favorable  rates  upon  stocks 
which  we  can  readily  place  in  loans  with  a  bank  than  on  those  upon 
which  we  cannot  borrow  money  and  must,  therefore,  lie  idle  in  our 
safe  deposit  vault. 

Interest  is  credited  on  daily  balances  according  to  prevailing 
money  rates  and  the  amount  involved,  and  we  furnish  check  books  as 
a  convenience  to  customers  who  may  wish  to  draw  upon  their  account. 


426 


MATEEIALS    OF    CORPORATION    FINANCE 


Aside  from  the  fact  that  we  require  a  deposit  on  all  orders,  many 
find  it  both  convenient  and  profitable  to  leave  their  funds  on  deposit 
with  us  pending  stock  or  bond  transactions  inasmuch  as  they  receive 
interest  on  daily  balances,  whereas  at  times  they  lose  interest  when 
they  have  to  withdraw  their  funds  from  a  savings  bank  where  interest 
is  allowed  only  on  money  left  until  a  certain  date. 


STATEMENTS 

Many  people  are  puzzled  by  statements  received  from  a  broker,  and 
in  the  following  we  have  endeavored  to  give  a  lucid  explanation  of 
same. 

TRADING   ON   THE   LONG   SIDE   FOR   A   RISE 

Suppose  John  Brown,  believing  that  U.  S.  Steel  would  advance 
from  75  to  80,  sent  us  a  check  for  $1,000  with  instructions  to  buy  one 
hundred  shares  of  U.  S.  Steel  at  the  market,  and  to  sell  same  at  five 
points  profit  or  stop  at  five  points  loss.  We  would  buy  for  his  account 
one  hundred  U.  S.  Steel  at  the  prevailing  market  price,  say  at  75. 
The  following  day  the  broker  from  whom  we  made  the  purchase  would 
deliver  to  us  the  certificate  for  one  hundred  shares  of  U.  S.  Steel, 
and  we  would  pay  him  $7,500,  using  the  $1,000  the  customer  had 
deposited  and  $6,500  which  we  would  loan  to  the  customer,  charging 
interest  on  same  for  the  length  of  time  we  carried  the  stock. 

Suppose  the  market  advanced  to  80  fifteen  days  after  the  purchase. 
We  would  then  sell  one  hundred  shares  of  steel  at  80,  and  at  the  end 
of  the  month  a  statement  would  be  rendered  as  per  example  below. 


John  Brown 

In  Account  with  J.  F.  PIERSON,  JR.,  &  Co.,  74  Broadway,  N.  Y. 

Debit. 


Days. 

Int. 
@  6% 

March    5th 

100  U.  S.  Steel  @ 

75 

$7,512.50 

26 

$32.55 

"       31st 

Interest  

4% 

9.06 

Balance  

1,463.94 

$8,985.50 

$32.55 

WALL    STREET    WAYS 


427 


Credit. 


Days. 

Int. 
6% 

March    5th 

By  cash  

$1,000.00 

26 

4.33 

"       20th 

100  U.  S.  Steel  @ 

80 

7,985.50 

11 

14.64 

"       31st 

Bal.  Int  

13  58 

$8,985.50 

$32.55 

March  31st        Balance 


$1,463.94 


Commission  for  buying  is  added  to  the  purchase  debit,  and 
commission  for  selling,  together  with  the  State  stamp  tax  (2c. 
per  $100  par  value  of  stock  sold),  are  deducted  from  the  selling 
credit. 

Many  are  puzzled  by  the  interest  items  appearing  on  the  statement, 
but  this  method  has  been  found  to  be  the  simplest  and  is  used  by 
practically  all  brokers  allowing  interest  on  daily  balances.  Interest 
on  each  item  is  figured  from  the  date  of  the  transaction  until  the 
day  to  which  the  statement  is  made  out.  Taking  the  above  men- 
tioned statement  for  example,  when  100  shares  of  U.  S.  Steel  were 
purchased  on  the  5th  inst.  $7,512.50  was  paid  out  of  the  account. 
The  account  was  made  up  to  March  31st,  and  the  interest  was,  there- 
fore, charged  for  tbe  twenty-six  intervening  days  and  appeared  in  the 
debit  interest  column  figured  at  6%,  $32.55.  On  the  credit  side 
$1,000  was  received  on  the  5th  inst.  and  interest  for  the  intervening 
twenty-six  days  was  figured  at  the  same  rate,  6%,  appearing  in  the 
credit  interest  column  as  $4.33.  When  100  shares  of  steel  were  sold  at 
80  on  the  20th  inst.  $7,985.50  was  taken  into  the  account  and  interest 
was  figured  up  to  the  31st  inst.,  or  for  eleven  days,  at  6%,  appearing 
in  the  credit  column  $14.64.  Thus  interest  being  charged  on  money 
paid  out  and  being  allowed  on  all  money  coming  in  from  respective 
dates  until  the  day  the  balance  is  struck,  the  balance  shows  interest 
charged  on  excess  debit  over  credit  for  the  exact  time,  or,  if  there  is 
a  credit  balance  shows  interest  allowed  on  the  excess  credit  for  the 
exact  number  of  days.  In  this  case  the  debit  balance  of  interest  at 
6%  was  $13.58.  These  interest  columns  are  used  merely  as  a  con- 
venience to  figure  the  interest  at  6%  and  are  not  considered  in  the 
final  general  balance,  as  the  interest  rates  may  vary  monthly.  In  this 
case  we  have  figured  at  a  4%  rate  and,  therefore,  the  final  debit  bal- 
ance of  interest  on  March  31st  has  been  brought  over  at  4%,  or  $9.06. 

The  credit  balance  of  $1,463.94  as  of  March  31st,  would  draw  interest 
15 


428 


MATERIALS    OF    CORPORATION    FINANCE 


from  that  date  until  John  Brown  drew  it  out  or  again  used  it  as 
margin. 

At  any  time  during  the  life  of  the  trade  any  dividends  the  U.  S. 
Steel  Company  paid  on  the  common  stock  would  be  credited  to  John 
Brown's  account  the  same  as  though  he  owned  the  stock  outright,  and 
he  could  at  any  time,  by  paying  the  balance  due,  ($6,512.50  plus  what- 
ever interest  might  have  accrued),  order  the  delivery  of  the  certificate 
to  him,  which  would  be  forwarded  by  registered  mail. 

Had  the  price  gone  down  to  70  before  reaching  80  and  John 
Brown's  stop  order  been  executed  at  that  price,  the  credit  amount  of 
$6,985.50  for  sale  would  appear  on  the  statement  instead  of  $7,985.50, 
and  the  interest  items  and  final  balance  would  have  been  changed 
accordingly. 

TRADING  ON   THE   SHORT   SIDE   FOR   A   DECLINE 

Supposing  John  Brown,  believing  that  U.  S.  Steel  would  have 
a  downward  movement  from  80  to  75,  sent  us  $1,000,  instructing  us 
to  sell  one  hundred  shares  U.  S.  Steel  at  the  market  and  to  buy  a 
five  points  profit  or  to  stop  at  five  points  loss.  We  would  then  sell  one 
hundred  shares  of  U.  S.  Steel  at  the  prevailing  market  price,  say  80. 
The  next  day  we  would  have  to  deliver  certificate  for  100  shares  TJ.  S. 
Steel  to  the  broker  to  whom  we  had  made  the  sale.  We  would  borrow 
the  stock  in  order  to  make  the  delivery,  charging  John  Brown  nothing 
for  this  borrowing  transaction,  (except  interest  in  very  rare  instances 
when  there  is  such  a  large  short  interest  in  the  market  that  stocks  are 
loaning  at  a  premium) . 

Suppose  the  price  reached  75  fifteen  days  after  the  sale  was  made. 
We  would  buy  one  hundred  shares  U.  S.  Steel  at  75  and  at  the  end  of 
the  month  would  render  a  statement  as  per  example  below. 


John  Brown 

In  Account  with  J.  F.  PIERSON,  JR.,  &  Co.,  74  Broadway,  N.  Y. 

Debit. 


Days. 

Int. 

6% 

March  20th 
"       31st 

100  U.  S.  Steel  @ 
Balance  

75 

$7,512  .  50 
1,475.89 

4.33 

$8,988.39 

4.33 

WALL   STREET   WAYS 
Credit. 


429 


Days. 

Int. 
@6% 

March  5th 

Cash  

$1,000.00 

26 

$4  33 

"     5th 

100  U.  S.  Steel  @ 
Balance  int.  at  4% 

80 

7,985.50 
2.89 

$8,988.39 

4.33 

March  31st        Balance 


$1,475.89 


Commission  for  buying  is  added  to  purchase  debit,  and  commission 
for  selling  and  State  tax  (2c.  per  $100  par  value  of  stock  sold)  are 
deducted  from  selling  credit.  No  interest  is  charged  on  short  sales 
and,  therefore,  the  only  interest  item  to  be  considered  in  this  state- 
ment would  be  the  allowance  of  interest  on  the  cash  deposit  of  $1,000. 
The  statement  being  made  up  as  of  March  31st,  this  $1,000  would 
have  been  in  the  account  for  twenty-six  days,  which,  figured  at  6%, 
would  amount  to  $4.33.  Reducing  this  to  4%,  the  final  interest  credit 
would  amount  to  $2.89.  The  credit  balance  of  $1,475.89  as  of  March 
31st,  would  draw  interest  until  John  Brown  withdrew  it  or  again 
used  it  as  margin.  If,  however,  this  "short"  transaction  were  carried 
on  to  another  statement  or  further  "short"  transactions  made,  and  the 
market  price  advanced,  thus  reducing  the  amount  of  margin,  interest 
would  be  figured  upon  the  amount  of  deposit  remaining  according  to 
the  existing  market  price  of  the  stock. 

At  any  time  during  the  life  of  the  short  trade  any  dividends  the 
U.  S.  Steel  Company  paid  on  the  common  stock  would  be  charged 
to  John  Brown's  account,  and  he  could  at  any  time  deliver  to  us  one 
hundred  shares  of  this  stock,  for  which  we  would  pay  him  $8,985.50 
plus  interest  on  his  deposit,  regardless  of  the  price  prevailing  at  the 
time  of  delivery. 

Had  the  price  gone  to  85  before  reaching  75  and  the  stop  loss  order 
been  executed  at  that  figure  the  debit  amount  $8,512.50  would  appear 
on  the  statement  instead  of  $7,512.50  and  all  other  items  would  ap- 
pear the  same  except  the  credit  balance,  which  would  be  $1,475.89. 

ADVANTAGES  OF  FRACTIONAL  LOT  TRADING 

No  one  who  is  at  all  familiar  with  the  stock  market  can  doubt  that 
since  we  conceived  the  idea  of  specializing  in  "Fractional  Lots,"  (less 
than  100  shares),  in  1907  this  class  of  trading  has  become  an  im- 
portant factor  in  the  business  transacted  on  the  New  York  Stock 
Exchange.  A  few  years  ago  a  person  of  limited  means  desiring  to 
invest  in  a  small  amount  of  stock  felt  under  obligations  to  a  New  York 


430         MATEEIALS   OF   COKPOEATION    FINANCE 

Stock  Exchange  house  that  would  execute  the  order,  and  then  have 
to  pay  a  premium  upon  the  price  for  round  amounts.  But  all  this  has 
been  changed  during  the  last  few  years  and  the  advantages  and  con- 
venience of  dealing  in  "Fractional  Lots"  are  now  becoming  generally 
realized  by  investors  and  speculators  throughout  the  country.  Any 
amount  from  one  share  upward  can  be  bought  or  sold  on  the  quotation 
of  the  100  share  unit.  For  instance,  if  the  quotation  for  100  or  more 
shares  of  United  States  Steel  is  78  bid,  offered  at  78j^$,  one  share  or 
more  can  be  sold  at  the  same  bid  of  78  or  purchased  at  the  same 
offered  price,  78^.  It  will  thus  be  seen  that  if  100  shares  are  sold 
on  the  bid  price,  78,  the  seller  has  absolutely  no  advantage  over  the 
one  who  sells  10  shares,  and  the  purchaser  of  10  shares  at  the  offered 
price  fares  as  well  as  the  one  who  takes  100  as  offered. 

Thus  the  opportunity  to  enter  the  stock  market  is  brought  within 
the  reach  of  nearly  everyone,  with  the  knowledge  that  the  size  of  the. 
commitment  will  not  militate  against  the  chances  of  securing  profits. 

To  the  investor  who  purchases  stocks  with  an  idea  of  obtaining  a 
greater  return  upon  his  money  than  the  interest  received  in  the  sav- 
ings banks,  and  who  is  not  subject  to  the  "get  rich  quick"  mania,  it 
opens  an  avenue  for  the  exercising  of  still  greater  conservatism.  While 
he  may  have  sufficient  funds  to  purchase  a  full  hundred  or  more 
shares,  he  might  ofttimes  feel  that  it  would  not  be  politic  to  "place 
all  his  eggs  in  one  basket"  and  he  could,  therefore,  purchase  ten, 
twenty  or  thirty  shares  of  several  stocks.  In  this  way  he  would  be  in 
a  much  stronger  position  to  guard  against  loss  in  case  of  adverse  de- 
velopments in  any  one  company. 

But  to  the  man  who  trades  from  a  more  speculative  standpoint  does 
this  method  especially  appeal.  Many  a  man  who  has  been  carrying 
one  hundred,  two  hundred  or  more  shares  on  what  appeared  to  be  a 
comparatively  safe  margin  has  seen  prices  suddenly  melt  away  ten  or 
twenty  points  in  a  short  while,  and  been  forced  to  close  out  with  all 
his  capital  gone.  Only  then  has  he  realized  that  had  he  been  content 
to  buy  ten,  twenty  or  fifty  shares  at  the  higher  figure,  he  would  have 
been  in  a  position  to  take  on  another  small  amount  every  few  points 
down,  thus  averaging  his  cost  price.  It  is  seldom  indeed  that  a  sharp 
rally  does  not  succeed  such  a  recession,  and  on  this  rally  he  would  be 
in  a  position  to  sell  out  with  a  profit  instead  of  being  forced  to  close 
out  his  commitment  at  the  bottom  of  the  decline,  losing  his  entire 
capital.  True,  if  the  market  goes  with  him  he  would  have  consider- 
ably greater  profits  on  the  larger  amount  of  stock,  but  is  it  not  far  bet- 
ter to  take  smaller  profits  and  risk  less,  than  to  risk  all  on  one  ven- 
ture? 

But  the  advantages  of  fractional  lot  trading  are  not  confined  to  the 


WALL   STREET   WAYS  431 

buying  of  stocks.  When  the  market  has  had  a  considerable  advance 
during  the  few  years  following  a  period  of  general  depression  declines 
are  apt  to  become  continually  more  severe  and  often.  At  such  times 
conservatism  must  be  observed  more  strictly  and  even  the  investor 
should  begin  to  realize  that  there  are  two  sides  to  the  market,  and  that 
there  will  surely  be  a  time  when  it  will  prove  advantageous  to  take 
profits  and  await  recessions  upon  which  to  repurchase.  In  fact,  by 
selling  on  bulges  and  repurchasing  on  recessions,  it  should  be  possible 
to  make  far  more  than  the  dividend  return.  Say  a  stock  pays  a 
dividend  of  5  per  cent,  per  annum.  If  sold  on  a  rise  and  repurchased 
five  points  cheaper  the  entire  year's  dividend  could  be  made  on  one 
transaction,  which  operation  might  be  repeated  several  times  during 
the  year. 

At  times,  however,  one  might  feel  that  while  the  market  had  had  a 
good  rise  it  might  go  still  further,  and,  therefore,  hesitate  to  sell  all 
his  stock.  He  could,  however,  compromise  by  selling  a  small  lot,  and, 
if  the  advance  continued,  sell  more  every  few  points  up.  In  this  way 
when  a  break  did  come  he  would  be  sure  to  have  part  of  his  stock  sold 
near  the  top,  and  be  in  a  position  to  repurchase  at  a  profit  every  few 
points  down. 

HINTS  TO  TRADERS 

In  order  to  observe  conservatism,  therefore,  it  might  appear  to  be  a 
good  plan  for  a  man  of  moderate  means  to  use  some  such  system  in 
trading  as  the  following. 

Suppose  he  is  in  a  position  to  carry  100  shares  of  stock.  Instead  of 
buying  100  shares  of  Union  Pacific  at  180,  buy  20  shares  and  on  each 
decline  of  three  points  take  20  shares  more.  Should  the  price  advance 
instead  of  recede,  he  will  be  sure  of  his  profit  on  the  20  shares.  If, 
on  the  other  hand,  an  extensive  decline  sets  in  he  will  be  continually 
adding  to  his  holdings  at  lower  figures,  and  when  the  market  has 
reacted  12  points  to  168  he  will  have  his  100  shares  at  an  average  price 
of  174  instead  of  180.  It  is  seldom  that  such  a  decline  is  not  fol- 
lowed by  a  sharp  rally,  and  as  the  price  again  rises  he  can  take  his 
profits  on  the  various  20  share  lots  as  they  appear,  and  thus  be  in  a 
position  to  repurchase  should  the  decline  again  be  resumed. 

Of  course  the  amounts  and  points  away  oh  each  purchase  can  be 
changed  to  suit  the  means  of  the  investor.  A  man  with  a  fifty  share 
limit  could  purchase  10  shares  at  a  time,  or  each  purchase  could  be 
made  at  a  two,  four,  five  or  any  other  number  of  points  recession,  thus 
regulating  the  extent  of  decline  provided  for.  Should  no  decline 
come,  the  profits  would  not,  of  course,  be  PO  great  on  a  small  as  large 
amount,  but  profits  are  surer,  and  more  could  be  bought  as  they  accu- 
mulated. 


432 

This  method  is  of  especial  advantage  to  out  of  town  customers  who 
are  not  in  constant  touch  with  the  market.  Orders  may  be  placed  for 
purchase  of  a  certain  amount  of  stock  every  few  points  down  and 
profits  taken  on  each  lot  at  a  certain  advance.  Likewise  orders  may 
be  placed  for  the  sale  of  stock  at  certain  points  above  the  market  and 
for  repurchasing  on  designated  declines. 

Do  not  be  obstinate.  Be  willing  to  change  your  position  with  con- 
ditions. Ofttimes  a  man  who  is  bullish  on  the  market  is  right  in  his 
position  for  some  time  but  sudden  adverse  developments  naturally 
change  conditions,  and  if  he  is  not  willing  to  change  his  position  he 
will  in  all  probability  lose  not  only  his  profits  but  considerably  more 
in  addition.  In  the  same  way  a  person  who  is  bearish  in  a  declining 
market  and  refuses  to  turn  to  the  long  side  when  conditions  change 
for  the  better  will  also  be  the  loser  thereby. 

The  market  always  looks  good  when  high  and  bad  when  low.  The 
stock  market  anticipates  and  discounts  good  and  bad  conditions.  In 
prosperous  times  when  business  is  in  full  swing  people  are  naturally 
bullish  and  willing  to  pay  high  prices  for  stocks.  This  is  usually  the 
time  when  the  "big  interests"  are  unloading.  When  business  condi- 
tions are  poor  the  public  is  down  in  the  mouth  and  anxious  to  dispose 
of  their  securities.  It  is  always  darkest  just  before  dawn,  however, 
and  when  the  public  is  most  anxious  to  sell  the  insiders  are  usually 
buying  in  stocks. 

Nine  times  out  of  ten  when  favorable  news,  such  as  an  increase  in 
dividend,  is  announced  the  stock  in  question  has  already  advanced 
sufficiently  to  discount  same  and  insiders  who  purchased  much  lower 
in  anticipation  take  advantage  of  the  opportunity  to  secure  profits  and 
under  this  selling  the  price  soon  recedes,  even  though  but  temporarily. 
Conversely,  when  a  cut  in  dividend  or  other  "bad"  news  on  some  stock 
is  announced  same  has  been  discounted  and  stock  sold  previously  at 
higher  prices  is  purchased  from  frightened  holders  to  whom  the  news 
is  a  surprise.  Of  course,  this  rule  would  not  apply  in  the  event  of 
adverse  developments  unexpectedly  by  even  the  controlling  interests. 

When  a  few  days  of  wild  trading  come  after  a  continual  rise  or 
decline  a  turn  is  usually  imminent.  After  a  rally  from  the  low  point 
or  decline  from  the  high  point  prices  usually  react  again  to  the  low 
or  high  as  the  case  may  be.  After  a  material  advance  stocks  usually 
react  about  midway  to  the  previous  low  and  same  holds  good  con- 
versely in  case  of  an  extensive  decline. 

As  a  general  thing  do  not  buy  stocks  after  an  advance.  Wait  for  a 
reasonable  reaction  even  though  it  comes  from  a  somewhat  higher 
figure.  Likewise  under  general  conditions  it  is  not  well  to  sell  after 
a  decline.  Wait  for  a  reasonable  rally. 


WALL   STREET   WAYS  433 

Undoubtedly  the  most  dangerous  pitfall  in  the  path  of  the  specu- 
lator is  the  tendency  to  overtrade.  A  man  who  purchases  a  conserva- 
tive amount  of  stock  and  makes  a  profit  is  very  apt  to  feel  disap- 
pointed because  he  did  not  buy  a  larger  amount  on  a  smaller  margin 
and  make  just  that  much  greater  profit.  This  would  be  all  right  when 
the  market  went  his  way,  but  if  a  break  came  his  smaller  margin 
might  be  wiped  out,  whereas  he  could  easily  have  carried  the  lighter 
load  until  the  price  again  advanced.  Furthermore,  when  a  man  be- 
comes nervous  and  begins  to  worry  over  his  commitments  he  is  prac- 
tically lost.  A  cool  head  is  necessary  for  success  in  this  as  in  any 
business  and  when  an  adverse  market  movement  finds  one  overloaded 
he  is  very  apt  to  sell  out  just  before  the  turn  comes  in  order  to  save 
a  portion  of  his  funds. 

It  has  been  truly  said  that  "a  bull  can  make  money  in  Wall  Street 
and  a  bear  can  make  money  in  Wall  Street,  but  a  hog  never  can." 
The  top  and  bottom  prices  of  a  movement  are  caught  by  only  one  or  a 
very  few  persons  out  of  a  multitude  interested  in  the  stock,  and  the 
man  who  keeps  looking  for  the  final  fraction  will  in  nearly  every  case 
find  that  he  has  lost  his  market  and  ultimately  take  a  loss  or  be  glad 
to  get  out  about  even.  Be  satisfied  to  take  a  reasonable  profit;  let 
someone  else  have  what  may  be  left  and  remember  that  the  risk  con- 
stantly becomes  greater  as  the  movement  continues. 

OPENING    AN   ACCOUNT 

In  opening  an  account  deposit  should  be  made  in  New  York  funds 
(draft,  money  order  or  check)  or,  if  the  depositor  resides  outside  of 
New  York,  money  may  be  deposited  to  our  credit  with  his  local  bank, 
and  upon  receipt  of  telegram  to  that  effect  from  the  cashier  of  the 
bank  we  will  accept  orders  against  same. 

ORDERS 

We  consider  all  orders  sent  by  mail  or  telegraph  as  "good  until 
countermanded"  unless  otherwise  instructed.  Orders  to  buy  or  sell 
may  be  cancelled  at  any  time  before  execution  and  new  orders  entered. 

Some  stocks  traded  in  on  the  New  York  Exchange,  such  as  Reading, 
Lehigh  Valley,  Pennsylvania  and  Westinghouse,  are  of  only  $50  par 
value  and  known  as  "half  stock."  The  quotations,  however,  are  for 
$100  par  value.  Thus  a  quotation  of  167  for  Reading  means  $167  for 
$100  par  value,  or  two  shares.  Therefore,  an  order  to  buy  $100  par 
value,  or  $167  worth,  would  be  for  two  shares.  An  order  to  buy  100 
shares  of  these  stocks  would  mean  50  full  shares  of  $100  each. 

Great  care  should  be  taken  in  making  orders  explicit,  as  we  simply 
follow  instructions  as  received  and  never  accept  discretionary  accounts. 


434         MATEEIALS    OF   CORPORATION   FINANCE 

Many  times  we  are  asked  to  use  our  own  judgment  in  making  a  selec- 
tion of  stocks  to  be  bought  or  sold,  and  also  as  to  price,  but  we  can- 
not use  our  discretion  in  this  as  such  a  proceeding  is  very  apt  to  result 
in  misunderstanding  and  ill  feeling  at  one  time  or  another. 

EEPOETS   AND   STATEMENTS 

Eeports  of  purchases  and  sales  are  mailed  on  the  evening  of  the  day 
on  which  the  transaction  is  made  and  statements  of  accounts  are  ren- 
dered monthly  where  there  has  been  any  change,  or  as  often  as  the 
customer  may  desire. 

All  of  the  details  of  transactions  are  looked  after  by  the  broker. 
These  include  borrowing  and  loaning  the  stock  and  borrowing  and 
loaning  money  to  carry  on  the  transaction.  All  that  is  required  of  the 
customer  is  to  deposit  the  necessary  funds  and  give  orders  to  buy  or 
sell. 

While  we  do  not  confine  our  business  to  "fractional  lot"  trading, 
we  will  be  pleased  to  accept  orders  for  the  purchase  or  sale  of  stocks 
for  cash  in  any  amount  from  one  share  upward  and  will  carry  on 
margin  stocks  traded  in  on  the  New  York  Stock  Exchange  in  lots  of 
five  shares  or  more. 


SUPPORTING   THE    MARKET 


435 


BUYING  AND  SELLING  TO  SUPPORT  THE  MARKET  > 

"EXHIBIT  NO. 

During  the  course  of  the  Pujo  investigation  at  Washington  last  De- 
cember, testimony  was  submitted  showing  the  stock  market  operations 
of  the  syndicate  that  was  formed  to  sell  $5,000,000  California  Petrole- 
um stock,  which  had  been  received  as  a  bonus.  The  following  figures 
were  taken  from  the  exhibit,  showing  the  number  of  shares  of  Califor- 
nia Petroleum  traded  in  by  the  syndicate  managers  between  October  5, 
1912,  and  October  31,  the  buying  orders  being  placed  to  support  the 

market  in  weak  spots  until  the  50,000  shares  were  unloaded : 

« 

Purchases  Sales 

October    5 6,000  11,200 

October    7 8,900  4,000 

October    8 6,500  7,100 

October    9 3,100  3,800 

October  10 13,000  17,100 

October  11 6,300  5,800 

October  14 2,300  1,900 

October  15 4,400  7,300 

October  16 10,400  13,000 

October  17 11,000  14,200 

October  18 10,400  9,300 

October  19 5,100  2,700 

October  21 7,900  8,200 

October  22 6,400  10,900 

October  23 11,000  9,400 

October  24 7,900  7,900 

October  25 5,200  5,800 

October  26 3,100  2,500 

October  28 4,300  9,800 

October  29 6,300  7,200 

October  30 9,000  8,600 

October  31 4,500  5,200 

*  From  New  York  Evening  Post  of  February  8,  1913. 


436         MATERIALS    OF    CORPORATION    FINANCE 


STOCK-POOLING  AGREEMENT 

Commenting  on  this  stock-pooling  agreement,  the  New  York  Even- 
ing World  (issue  of  January  24,  1910),  from  which  this  agreement 
is  printed,  says:  "The  Evening  World  herewith  presents  for  consid- 
eration by  the  State  Legislature  the  brokers'  agreement  in  the  Hock- 
ing Valley  pool  which  ended  in  three  failures,  carrying  liabilities  of 
upward  of  $7,000,000.  For  eleven  months  this  pool  continued  under 
the  eyes  of  the  Stock  Exchange  governors,  who  saw  a  stock  which 
has  not  paid  three  per  cent,  of  dividend  in  its  whole  corporate  ex- 
istence inflated  from  $20  to  $91.25  a  share.  How  much  further  the 
inflation  would  have  been  carried  had  one  of  the  gamblers  not  played 
traitor  to  his  pals  it  is  impossible  to  say.  That  the  expectation  of 
the  pool  was  to  jump  the  stock  to  par  is  not  denied  .  .  .  The 
number  of  shares  stated  in  the  agreement  does  not  represent  the 
actual  total  of  shares  accumulated  and  controlled  by  the  pool.  As 
a  matter  of  fact,  the  pool  bought  5,000  more  shares  of  the  .stock 
than  had  been  issued.  The  agreement  calls  for  the  termination  of 
the  pool  on  September  1,  but  it  was  extended  through  an  exchange 
of  mutual  pledges  until  March  next.  The  time  for  the  big  public 
melon  cutting  had  not  yet  arrived. 

The  Evening  World  is  enabled  to  give  the  names  of  six  of  the 
dozen  or  more  firms  in  the  combination.  They  are: 

Lathrop,  Haskins  &  Co.,  Roberts,  Hall  &  C'ris,  A.  J.  Elias  &  Co., 
J.  M.  Fiske  &  Co.,  Day,  Adams  &  Co.,  Rollins  &  Co. 

The  common  stock  of  the  Hocking  Valley  amounts  to  $6,981,100. 
On  the  basis  of  20,  when  the  pool  came  into  existence,  the  market 
value  was  $1,396,220.  By  pool  manipulation  the  value  was  inflated 
to  more  than  $5,000,000. 

Here  are  the  terms  of  the  agreement: 

The  undersigned  being  desirous  of  purchasing  at  least  20,000 
shares  of  the  common  stock  of  the  Columbus  and  Hocking  Coal  and 
Iron  Company,  do  hereby  agree  to  purchase  the  same,  or  so  much 
thereof  as  in  the  opinion  of  the  hereinafter  appointed  managers  may 
be  deemed  advisable  in  the  proportion  set  opposite  the  respective 

names  of  the  said  subscribers,  and  we  hereby  appoint 

our  agent  and  manager  to  make  such  purchases  at  such  time  or 
times  before  the  first  day  of  September,  1909,  unless  sooner  dissolved 
by  the  majority  of  the  stock  subscribed,  in  such  manner  and  amount 
and  at  such  prices  as  in  his  judgment  shall  be  to  our  mutual  ad- 
vantage. 


STOCK-POOLING    AGREEMENT  437 

Each  one  signing  this  agreement  to  pay  on  demand  for  so  much 
of  said  purchases  as  his  subscription  (as  near  as  may  be  practicable) 
bears  to  the  whole  amount  subscribed,  as  such  agent  or  manager  may 
require.  Also  to  return  the  same  amount  of  certificates  or  part  thereof 
at  any  time  when  called  for  before  the  first  day  of  September,  1909, 
on  receiving  from  the  manager  the  amount  paid  therefor,  with  inter- 
est at  5  per  cent,  per  annum.  We  further  agree  on  any  call  from 
said  manager  to  deliver  to  the  said  manager  the  same  certificates 
theretofore  delivered  to  us  by  him. 

Further  we  hereby  authorize  the  said  agent  and  manager  to  sell 
at  his  discretion  the  whole  or  any  part  of  the  certificates  purchased 
and  again  buy,  so  buying  and  selling  at  his  discretion. 

It  is  further  agreed  that  any  profits  or  losses  incurred  through 
the  purchase  and  sale  of  said  certificates  shall  be  divided  in  propor- 
tion tp  the  amount  subscribed  for  by  each  one  signing  this  agree- 
ment. No  one  signing  this  agreement  shall  have  the  right  to  call 
for  a  statement  of  accounts  growing  out  of  transactions  herein  author- 
ized except  on  the  request  in  writing  of  60  per  cent,  in  amount  of 
certificates  subscribed. 

We  hereby  agree  to  reimburse  the  said  agent  and  manager  for  any 
commissions  paid  by  him  to  such  brokers  as  he  may  deem  advisable 
to  employ  in  the  execution  of  the  herein  authorized  purchases  and 
sales  and  such  other  expenses  as  he  may  incur  and  which  to  him 
may  seem  for  the  best  interests  of  all  parties  to  this  agreement. 

This  agreement  is  not  to  be  binding  on  the  undersigned  until 
certificates  for  20,000  shares  are  subscribed,  and  thereupon  this  agree- 
ment shall  become  operative.  Subscriptions  beyond  this  amount  may 
be  received  by  the  agent  and  manager  up  to  30,000  shares. 

The  original  hereof  shall  be  signed  by  the  manager.  Counterparts 
hereof  may  be  signed  by  subscribers  and  all  shall  be  taken  together 
and  deemed  to  be  one  original  instrument,  and  upon  the  agreement 
becoming  operative  the  manager  shall  notify  the  subscribers. 

In  witness  thereof  the  parties  have  signed  this  agreement  as  of 
March  1,  1909. 

Manager. 
Subscriber.  Address.  No.  of  Shares. 


438         MATERIALS   OF   COKPOKATION   FINANCE 

PUTS  AND  CALLS1 

DEAR  SIRS: 

We  are  writing  this  letter  with  a  view  to  strongly  recommending 
the  purchase  at  this  time  of  options  (either  the  "Call"  or  the  "Put") 
on  the  various  American  stock  dealt  in  on  the  London  Stock  Exchange, 
which  option  orders  we  are  prepared  to  execute  through  the  London 
Stock  Exchange  firm  of  which  we  are  the  American  representatives. 

Broadly  speaking,  our  two  chief  reasons  for  making  this  recom- 
mendation are:  firstly,  that  we  believe  that  the  present  time  is  an 
exceptionally  propitious  one  for  the  purchase  of  options,  and  of 
which  advantage  should  now  be  taken;  and  second,  that  the  prices 
of  options  as  now  quoted  are  relatively  lower  than  they  have  been 
for  a  long  time  past. 

Judging  from  our  past  experience,  we  find  it  very  generally  the 
case — excepting  certain  important  and  shrewd  operators,  who  are 
experienced  in  the  matter — that  the  general  option  buying  public,  in 
its  eager  desire  not  to  buy  an  option  until  what  it  believes  is  the  very 
eve  of  a  market  move,  generally  misses  its  best  opportunity  and  does 
not  buy  until  the  market  quietly  slips  away  and  has  already  recorded 
a  very  substantial  advance  or  decline.  Then  the  relative  prices  of 
options  are  considerably  dearer  than  they  were  when  the  market  was 
in  a  quieter  condition,  because  very  naturally  the  seller  of  an  option 
is  largely  governed  in  the  prices  he  makes  for  the  same  by  the  degree 
of  activity  of  the  stock  on  which  the  option  is  sold. 

As  a  striking  example  of  this  situation,  we  would  merely  cite  the 
instance  that  during  our  entire  experience  in  Wall  Street,  by  far 
our  greatest  activity  in  the  purchase  of  "Calls"  on  behalf  of  clients 
was  in  U.  S.  Steel  Common,  and  occurred  in  the  last  weeks  of  the 
year  1909,  when  the  stock  was  quoted  above  90,  and  when  the  "cream" 
was  naturally  already  off  the  rise,  and  at  the  same  time  the  prices 
paid  for  these  options  were  much  higher  than  they  had  been  quoted 
shortly  before  the  big  rise  in  Steel  had  even  started.  Naturally  what 
we  say  here  refers  to  the  general  option  buying  public  and  not  to 
several  important  operators  who  were  far  seeing  enough  to  buy  their 
options  before  the  rise  was  under  real  headway  and  who  made  very 
large  profits  from  the  same. 

Equally  true  is  the  reverse  of  that  situation,  for  we  have  generally 
found  that  when  the  public  have  most  desired  to  buy  "Puts,"  instead 
of  doing  so  when  the  market  was  at  a  comparatively  high  level  and 
not  unduly  excited,  they  generally  refused  the  opportunity,  but  have 

i  Circular  Letter  issued  by  W.  &  E.  Rosenbaum,  May  8,  1912. 


PUTS   AND   CALLS  439 

been  clamorous  for  the  same  after  the  market  had  already  suffered  a 
very  great  decline,  or  was  even  in  a  panic. 

While  it  is  not  our  purpose  to  express  our  opinion  as  to  which 
option,  a  "Put"  or  a  "Call,"  may  be  more  desirable  at  the  moment 
to  buy,  this  being  naturally  left  to  one's  individual  opinion  as  to  the 
future  course  of  the  market,  still  we  do  feel  confident  that  the  present 
opportunity,  whether  one  may  feel  bullish  or  bearish  is  an  especially 
favorable  one  to  take  the  subject  under  serious  consideration. 

It  appears  to  us  that  the  remaining  eight  months  of  the  year  1912 
should  be  full  of  very  important  stock  market  influences.  Naturally, 
the  two  dominant  factors  will  be  the  political  situation  and  the  crop 
situation,  and  these  taken  in  conjunction  with  the  future  course  of 
the  money  market,  the  labor  situation,  and  other  conditions,  should 
give  plenty  of  room  for  market  activity  in  the  near  future. 

It  hardly  calls  for  argument  that  it  is  at  just  such  a  time  as  this; 
when  one  faces  an  outlook  as  uncertain  as  at  present,  that  the  pur- 
chase of  options  is  most  desirable,  and  may  be  the  means  not  only  of 
making  from  the  options  themselves  large  profits,  but  also  be  the 
means  of  insuring  against  large  stock  market  losses. 

For  the  information  of  those  who  are  not  entirely  acquainted  with 
the  general  theory  of  options  and  the  method  of  dealing  against  the 
same,  we  are  reprinting  on  another  page  of  this  letter  an  extract  from 
an  article  published  by  us  on  the  subject  some  time  ago. 

It  is  enough  here  merely  to  point  out  that  these  London  options, 
entitling  the  holder  to  either  "call"  or  "put"  a  certain  amount  of 
stock  at  some  future  time,  have  in  recent  years  found  very  great 
favor  on  this  side,  and  many  of  the  most  important  and  largest 
operators  are  frequently  purchasing  them  with  the  purpose  in  view, 
either  of  making  a  large  profit  out  of  the  "Call"  or  "Put"  itself,  or 
of  using  them  as  a  protection  against  their  long  or  short  position  in 
the  market,  as  the  case  may  be.  • 

While  naturally  options  can  be  bought  in  London  on  any  of  the 
other  active  international  stocks,  and  extending  over  any  reasonable 
period  of  time,  still  for  a  concrete  example,  and  in  order  to  point  out 
its  especial  reasonableness,  we  would  mention  a  Call  on,  say,  U.  S. 
Steel  Common,  which  could  be  bought  at  the  present  time. 

Through  the  London  firm  whom  we  represent,  we  could,  on  the  basis 
of  the  present  option  price  as  quoted,  buy  for  you  at  the  market  price, 
interest  and  commission,  a  "Call"  on  U.  S.  Steel  Common  stock  in 
any  reasonable  amount,  for  the  end  of  June  settlement,  for  about 


This  Call,  if  exercised  fit  its  maturity,  would  carry  with  it  the  divi- 
dend of  \\%  which  comes  off  during  the  month  of  June,  and  which, 


440         MATERIALS    OF   CORPORATION    FINANCE 

offsetting  by  say  £%  the  interest  charges  of  about  f  %,  would  really 
give  you  a  Call  standing  in  net  about  If  %  over  the  current  market 
price  of  the  stock  at  the  time  when  the  option  was  bought,  and  every- 
thing above  this  figure  would  be  clear  profit. 

Thus,  if  U.  S.  Steel  Common  at  the  time  of  the  purchase  of  the 
option  were  quoted  here  at  say  67,  you  would  have  a  Call  which 
would  figure  out,  including  everything  at  about  68f,  and  all  above 
this  price  would  be  clear  profit. 

In  view  of  the  fact  that  this  option  would  include  the  period  cov- 
ered by  the  National  Conventions,  and  the  probable  attendant  activity 
of  the  market,  it  would  seem  to  us  that  it  is  extremely  reasonable, 
and  may  offer  opportunities  for  large  profits,  and  we  strongly  recom- 
mend to  the  consideration  of  our  clients  the  purchase  of  the  same. 

We  are  enclosing  herewith  a  general  list  of  the  most  recent  option 
prices  quoted  by  cable  to  us  by  our  London  correspondents.  They 
are  naturally  subject  from  time  to  time  to  change. 

The  only  charge  to  our  clients  for  executing  option  orders  in  London 
is  6d.  (|)  per  share,  which  is  payable  to  the  London  brokers  whom 
we  represent.  Should  you  wish  to  trade  against  your  options  in  the 
London  market,  we  have  through  our  London  offices  every  facility  at 
hand  for  doing  the  same,  and  our  London  correspondents  will  be 
pleased  to  execute  your  orders  for  the  regular  commission  of  6d.  (|) 
per  share. 

We  shall  be  very  pleased  to  have  you  avail  yourselves  of  our  services, 
and  with  the  assurance  that  your  orders  will  receive  our  best  attention, 
we  remain, 

Yours  very  truly, 

W.   &  E.    ROSENBAUM. 


PUTS   AND   CALLS  441 

(Extract  from  an  article  previously  published  by  W.  &  E.  Rosenbaum.) 

OPTIONS 

The  options  generally  dealt  in  are  Calls  and  Puts.  There  is  also 
the  double  option  termed  the  Straddle  which  is  a  combination  of  a 
Call  and  a  Put. 

The  price  paid  for  an  option  is  termed  the  Premium. 

A  Call  is  an  option  giving  its  purchaser  the  right  to  call  from  the 
seller  of  the  same  a  certain  amount  of  stock  at  a  fixed  time  and  at  a 
stated  price.  For  this  right  he  pays  a  stipulated  price  (premium) 
which,  of  course,  is  governed  by  and  varies  in  accordance  with  the 
character  of  the  stock,  the  state  of  the  market  and  the  time  for  which 
the  option  has  to  run. 

In  the  absence  of  an  order  with  a  fixed  limit,  an  order  to  purchase 
a  Call  would  be  executed  based  on  the  current  market  price  of  the 
stock  at  the  time  in  London  and  for  the  current  premium. 

The  call  price  is  arrived  at  by  taking  the  market  price  of  the  stock 
in  London  and  adding  thereto  interest  at  a  fair  rate  for  the  time  the 
option  has  to  run. 

For  example,  if  an  order  is  given  to  buy  a  Call  on  a  stock  for  a 
period  covering  four  months,  and  the  stock  at  the  time  in  London  is 
say  34,  the  call  price  of  the  option  would  be  about  34£  (34  plus  £%, 
which  would  be  the  amount  of  interest  on  a  stock  selling  at  34  for 
four  months  at  about  5%  per  annum). 

A  Put  is  just  the  reverse  of  a  Call — in  other  words,  it  gives  the 
purchaser  the  right  to  put  (deliver)  to  the  seller  of  the  Put  a  certain 
amount  of  stock  at  a  certain  fixed  time  and  at  a  certain  fixed  price, 
in  consideration  of  which  the  purchaser  of  the  same  pays  a  certain 
price  (premium).  In  the  case  of  a  Put,  interest  will  be  allowed  to 
the  purchaser  in  the  same  manner  at  a  fair  rate. 

All  option  contracts  are  subject  to  the  rules  of  the  London  Stock 
Exchange,  and  an  option  bought  for  the  settlement  at  the  end  of  a 
certain  month  is  understood  to  mature  and  must  be  declared  on  the 
day  preceding  the  Contango  or  Making  Up  Day  of  the  settlement  for 
that  month  and  which  usually  comes  from  three  to  six  days  before 
the  last  day  of  the  month,  this  being  arranged  by  the  London  Stock 
Exchange. 

In  the  case  of  a  Call,  the  holder  thereof  is  entitled  to  all  dividends 
and  rights  which  become  due  during  its  pendency,  while  on  the  other 
hand,  in  the  case  of  a  Put  he  must  allow  them. 

There  are  many  arguments  in  favor  of  the  purchase  of  options, 
and  it  is  now  very  generally  appreciated  by  the  largest  operators  over 


442          MATERIALS    OF    CORPORATION    FINANCE 

here  that  at  certain  times  and  under  certain  conditions  it  is  very 
advantageous  to  buy  options  in  preference  to  dealing  firm  (buying 
or  selling)  in  stocks. 

'With  the  purchase  of  an  option,  the  buyer  knows  exactly  where  he 
stands,  and  his  possible  loss  is  in  any  event,  irrespective  of  the  future 
course  of  the  market,  absolutely  limited  to  the  amount  which  he  pays 
for  his  option,  while  on  the  other  hand  his  profits  on  the  same  may 
be  very  much  greater  than  he  had  formed  any  estimate  of  or  antici- 
pated. 

Thus,  for  an  approximate  example,  if  a  Call  is  purchased,  we  will 
say,  on  1,000  shares  of  a  stock  for  four  months  at  34£  for  3%,  the 
total  cost  and  liability  for  this  option  is  limited  to  the  $3',000  (or  to 
be  exact  £600),  which  is  paid  for  the  same,  and  it  makes  no  differ- 
ence what  the  course  of  the  market  may  be  during  the  next  ensuing 
four  months,  the  owner  of  the  option  has  at  its  maturity  the  right 
to  call  the  stock  at  34£.  The  stock  in  the  meantime  may  have  suffered 
a  very  severe  temporary  decline,  but  his  liability  would  not  at  any 
time  or  in  any  way  have  been  increased  beyond  the  original  cost  of 
his  option. 

On  the  other  hand,  should  the  stock  at  any  time  before  the  expira- 
tion of  the  Call  sell  at  so  high  a  figure  as  to  make  the  owner  believe 
that  he  is  then  justified  in  securing  his  profit,  he  may  sell  the  stock 
firm  against  his  Call  and  remain  short  of  the  same  until  the  expira- 
tion of  his  Call,  and  then  call  the  stock  if  the  same  is  above  his  call 
price,  and  deliver  the  same,  thereby  covering  his  short  sale;  or  if  the 
market  price  of  the  stock  should  at  the  expiration  of  his  Call  be  below 
the  call  price,  he  would  naturally  buy  the  stock  in  the  market  and 
thus  cover  his  short  sale,  and  merely  abandon  his  option. 

Very  often  the  owner  of  an  option  has  several  opportunities  during 
the  term  of  his  outstanding  option  to  take  advantage  of  the  fluctua- 
tions in  the  market  to  make  several  turns,  always  with  his  option 
standing  behind  him  as  a  protection. 

Should  he  not  desire  to  sell  against  his  Call  before  its  expiration, 
he  may  stand  on  the  same  until  its  maturity  and  he  then  has  any  one 
>f  three  courses  open  to  him  if  the  stock  at  the  time  is  above  the  call 
price:  (1)  He  may  exercise  his  option  by  calling  the  stock,  and  then 
sell  the  same  out  in  London  at  the  market,  thus  securing  his  profit; 
or  (2)  He  may  call  the  stock  and  remain  long  of  the  same  in  Lon- 
don; or  (3)  He  may  call  the  stock  and  have  the  same  shipped  to  him 
over  here. 

Of  course  in  the  case  of  a  Put  just  the  reverse  of  all  of  the  above 
illustrations  would  apply. 


PUTS   AND    CALLS  443 

Then  again  with  the  fact  in  view,  that  the  purchase  price  of  an 
option  absolutely  measures  its  owner's  liability,  options  are  very  often 
purchased,  one  might  say,  as  a  sort  of  insurance,  using  a  Put  as  a 
protection  when  one  is  bullish  on  the  market  and  has,  or  intends 
taking,  a  long  position,  and  a  Call  to  protect  one  when  he  is  bearish 
on  the  market  and  has,  or  intends  taking,  a  short  position. 

Thus,  for  example,  if  one  is  short,  we  will  say,  1,000  Southern 
Pacific,  he  may  buy  a  Call  on  1,000  shares  of  Southern  Pacific  at  the 
existing  market  price  and  he  can  thus  feel  secure  that  his  loss  on  the 
short  side  of  the  market  will  be  at  the  most  limited,  as  long  as  his 
Call  runs,  to  the  amount  (the  premium),  which  he  paid  for  the  same. 
The  reverse  also  applies,  namely,  if  he  is  bullish  on  say  Southern 
Pacific  and  is  carrying  say  1,000  shares,  he  may  purchase  a  Put  on 
1,000  shares  against  his  long  position,  and  his  loss  on  the  long  side 
of  the  market  is  limited,  as  long  as  his  Put  runs,  to  the  premium 
which  he  pays  for  the  same. 

There  is  also  another  phase  to  be  considered :  very  often  one  may 
have  been  bullish  on  the  market,  and  have  secured  a  large  profit  in 
his  operations  on  the  long  side,  and,  while  he  feels  that  the  market 
may  go  still  higher  and  would  not  wish  to  part  with  his  stock  and 
thereby  maybe  lose  his  market,  still  quite  possibly  he  may  not  wish 
to  run  the  chance  of  a  severe  reaction  in  the  market  and  thus  lose  his 
profits  already  made. 

Under  such  circumstances  it  is  very  advantageous  to  buy  a  Put 
covering  a  specific  future  time,  and  the  premium  paid  for  this  pro- 
tection is  seldom  begrudged,  as  it  enables  him  to  still  remain  long  for 
a  further  period,  without  having  to  part  with  his  stock.  Or  if  he 
wishes,  even  though  he  may  see  a  further  rise  ahead,  he  could  sell 
out  his  long  stock  and  buy  a  Call  and  thus  feel  that  even  if  his  ideas 
of  a  further  rise  should  not  materialize,  still  it  has  at  the  most  but 
cost  him  the  price  paid  for  his  Call,  while  on  the  other  hand,  if  his 
ideas  turn  out  to  be  correct  and  the  stock  still  further  advances,  his 
Call  will  enable  him  to  secure  the  additional  profit. 

Naturally  in  the  case  of  one  being  bearish  on  the  market  the  reverse 
of  the  above  proposition  would  equally  apply. 

To  the  operator  who  has  strong  reason  to  believe  that  a  certain 
stock  is  within  a  certain  time  going  to  have  a  large  move,  and  wishes 
to  take  advantage  of  this  belief  or  information  to  make  a  very  large 
profit,  there  is  a  special  advantage  in  the  purchase  of  options. 

It  is  quite  possible  that  he  may  not  be  in  a  position  or  may  not 
desire  to  carry  or  sell  short  an  unusually  large  line  of  stock  with  the 
attendant  risk  that  if  his  ideas  are  not  realized  and  the  market  should 
go  against  him,  he  would  suffer  a  very  serious  or  even  perhaps  a  dis- 


444         MATERIALS    OF   CORPORATION   FINANCE 

astrous  loss.  If,  however,  he  purchases  a  Call  or  a  Put  as  the  case 
may  be,  on  a  block  of  stock,  he  knows  that  he  can  rest  assured  that  if 
he  is  wrong  his  greatest  possible  loss,  as  before  pointed  out,  is  abso- 
lutely limited  to  the  amount  which  he  has  paid  for  his  option,  while 
if  he  is  right,  his  profits,  less  the  price  paid  for  his  option,  will  be  the 
same  as  if  he  had  taken  a  firm  position  in  the  market. 

The  foregoing  are  probably  the  chief  advantages  which  recommend 
the  purchase  of  options,  and  the  more  that  people  over  here  in  recent 
years  have  become  educated  and  accustomed  to  dealing  in  them,  the 
more  it  is  generally  acknowledged  that  the  arguments  in  their  favor 
are  sound  and  that  by  means  of  their  use  a  very  much  safer  way  is 
found  to  speculate  in  the  market. 


PUTS   AND    CALLS1 

THIRTY-SIX- YEAR-OLD  "CALL"  BY  JAY  GOULD — WALL  STREET 
MEMORIES  REVIVED 

"Put"  Sold  by  Daniel  Drew  in  1874  Also  Unearthed,  Recalling  Early 

Trading  Days 

Reminiscences  of  Wall  Street's  "good  old  days"  were  revived  yes- 
terday with  the  unearthing  of  two  "privileges,"  one  sold  by  Jay 
Gould  and  the  other  by  Daniel  Drew.  The  New  York  American  was 
handed  these  interesting  documents  for  reproduction. 

Puts  and  calls  often  play  a  prominent  part  in  campaigns  in  stocks. 
18,  1874,  and  expired  in  sixty  days,  which  was  January  17,  1875. 
The  same  stock  was  traded  in  at  144  yesterday,  a  rise  of  more  than 

The  privilege  sold  by  Jay  Gould  was  a  "call"  on  200  shares  of 
Western  Union  Telegraph  Company  stock  at  74.     It  was  dated  Feb- 
ruary 21,  1876,  and  expired  at  1:45  P.M.  March  22.     Last  night 
Western  Union  closed  at  83|. 
100  points. 

The  other  privilege  was  a  "put"  sold  by  Daniel  Drew  on  100  shares 
of  Chicago  &  Northwestern  stock  at  40^.  It  was  dated  November 

i  From  New  York  American,  April  5,  1912. 


PUTS   AND   CALLS  445 

Russell  Sage  made  millions  out  of  the  sale  of  these  privileges.  It  is 
the  general  belief  in  Wall  Street  that  Jay  Gould  carried  on  his  cam- 
paigns in  the  Gould  shares  without  the  use  of  puts  and  calls,  but  the 
call  on  Western  Union  shows  that  he  sold  them  at  times. 


flrSk 


NEW 

*« 

'/^ 

JnttiM* 

anytime 
rom  date. 

'he  "bearer  it  entiiltd,  to  a2l  dividend*  or  extra,  dividttul*  &<l*red 

4 


GOULD  USED  TO   "MAKE      MARKET 

One  of  the  oldest  market  operators  in  the  Street,  upon  being  shown 
the  privileges  here  photographed,  said: 

"Mr.  Gould  very  rarely  did  anything  in  puts  and  calls  except  as 
part  of  a  campaign  in  the  stock  market.  When  he  was  conducting 
his  campaign  in  Union  Pacific  he  sold  probably  the  largest  number 
of  puts  that  were  ever  sold  on  any  stock  in  Wall  Street.  He  did  this 
to  encourage  trading  in  the  shares,  and  at  one  time  the  number  of 
puts  he  had  outstanding  was  estimated  to  equal  the  total  amount  of 
the  capital  stock  of  the  company. 

"During  his  campaign  in  Union  Pacific  he  sold  so  many  puts  that 
the  number  of  people  trading  in  the  issue  increased  materially.  These 
puts  insured  possible  buyers  of  Union  Pacific  against  heavy  losses, 
and  because  of  this  resulted  in  the  greatest  market  Union  Pacific 
ever  had.  It  also  caused  a  very  big  rise  in  the  price  of  the  stock." 

Jay  Gould  at  one  time  bought  Union  Pacific  as  low  as  14  cents 
on  the  dollar.  The  Union  Pacific  puts  were  issued  after  Gould  had 
consolidated  the  road  with  others  and  began  the  boom  in  its  securi- 
ties, which  increased  his  wealth  by  many  millions. 

The  call  on  Western  Union  is  believed  to  have  been  issued  shortly 
after  Gould  acquired  that  company  and  was  making  a  market  for  its 
securities.  The  amount  of  privileges  sold  by  Gould  on  Western  Union 


446         MATERIALS    OF    CORPORATION    FINANCE 


is  said  to  have  been  very  small  compared  with  the  volume  put  out 
on  Union  Pacific. 


New  York, 


Received,  the  Bearer  may  DELIVER  ME 


at  J?3>2^ 


Shares  of  the  Stock  of  the 


i  I  road  Company, 

cent,,  any  tima 


X        r  x*  ^.i 

L^.Z.5fe-!S^-.-day8  from  datr.   The-  U ndereigned 

'is  entitled  to  : l"  the  dividend*  or  extra  dividend*  declared  dur- 
ing 


DREW   AND   ERIE   MANIPULATION 

The  put  issued  by  Daniel  Drew  on  Chicago  &  Northwestern  is 
believed  to  have  been  sold  by  him  at  the  time  he  received  a  bad 
"squeezing"  in  the  stock.  The  actual  signature  of  Drew  also  caused 
the  followers  of  the  tape  to  remember  him  as  an  example  of  how  a 
man  can  succeed  with  practically  no  education.  Drew  was  con- 
sidered one  of  the  shrewdest  stock  market  operators  in  Wall  Street, 
and  at  one  time  was  estimated  to  be  worth  about  $13,000.000.  He 
was  known  as  "Uncle  Daniel/'  and  made  most  of  his  money  out  of 
his  manipulation  of  Erie  stock. 

Just  about  the  time  Jay  Gould  began  climbing  the  ladder  of  fame 
Daniel  Drew  began  descending,  and  kept  going  down  until  he  died 
ruined  and  broken  hearted. 

Russell  Sage  was  the  largest  seller  of  puts  and  calls  that  Wall 
Street  has  ever  known.  He  made  his  fortune  out  of  these  privileges, 
and  since  his  death  no  one  has  taken  his  place. 

Conditions  existing  in  Wall  Street  when  Jay  Gould  and  Daniel 
Drew  were  breaking  stock  markets  are  fully  described  in  Henry 
Clews's  book,  "Fifty  Years  in  Wall  Street/' 


LEGAL  INVESTMENTS  FOR  TRUSTEES     447 


LEGAL  INVESTMENTS  FOR  TRUSTEES1 

A  trustee  or  other  person  holding  trust  funds  for  investment  may 
invest  the  same  in  the  same  kind  of  securities  as  those  in  which 
savings  banks  of  this  State  are  by  law  authorized  to  invest  the  money 
deposited  therein,  and  the  income  derived  therefrom,  and  in  bonds 
and  mortgages  on  unencumbered  real  property  in  this  State  worth 
fifty  per  centum  more  than  the  amount  loaned  thereon.  A  trustee 
or  other  person  holding  trust  fund;,  may  require  such  personal  bonds 
or  guaranties  of  payment  to  accompany  investments  as  may  seem 
prudent,  and  all  premiums  paid  on  such  guaranties  may  be  charged 
to  or  paid  out  of  income,  providing  that  such  charge  or  payment  be 
not  more  than  at  the  rate  of  one-half  of  one  per  centum  per  annum 
on  the  par  value  of  such  investments.  But  no  trustee  shall  purchase 
securities  hereunder  from  himself. 

Investment  of  Trust  Funds.2 — All  investments  of  money  received 
by  any  such  corporation,  and  by  any  trust  company  chartered  by 
special  act,  prior  to  May  18,  1892,  as  executor,  administrator, 
guardian,  personal  or  testamentary  trustee,  receiver,  committee  or 
depositary,  shall  be  absolutely  liable,  unless  the  investments  are  such 
as  are  proper  when  made  by  an  individual  acting  as  trustee,  executor, 
administrator,  guardian,  receiver,  committee,  depositary,  or  such  as 
are  permitted  in  and  by  the  instrument  or  words  creating  or  defining 
the  trust. 

Interest. — On  all  sums  of  money  not  less  than  one  hundred  dol- 
lars, which  shall  be  collected  and  received  by  a  trust  company  acting 
as  executor,  administrator,  guardian,  trustee,  receiver  or  committee 
under  the  appointment  of  any  court  or  officer,  or  in  any  fiduciary 
capacity  under  such  appointment,  or  as  a  depositary  of  moneys  paid 
into  court,  interest  shall  be  allowed  by  such  trust  company  at  not 
less  than  the  rate  of  two  per  centum  per  annum  until  the  moneys  so 
received  shall  be  duly  expended  or  distributed.  If  such  interest 
moneys,  or  any  part  thereof,  shall  not  annually  be  expended  or  dis- 
tributed pursuant  to  the  terms  or  provisions  of  the  trust  under  which 
puch  moneys  are  held,  the  amount  thereof  not  so  expended  or  dis- 
tributed shall  be  accumulated  by  such  trust  company  for  the  benefit 
of  the  parties  interested  in  such  trust  fund,  and  shall  be  added  to 
the  principal  to  constitute  a  new  principal  upon  which  interest  shall 
thereafter  be  computed. 

i  From  the  New  York  Personal  Property  Lnw,  Section  21. 
a  From  the  New  York  Thinking  Law  of  1014. 


448 

SAVINGS    BANKS  1 

Since  all  trustees  may  invest  in  securities  which  are  legal  for  sav- 
ings banks,  it  is  necessary  to  set  forth  the  provisions  of  the  new 
banking  law  relating  to  investment  by  such  banks. 

Investments  of  Deposits  and  Guaranty  Funds  and  Restrictions 
Thereon. — A  savings  bank  may  invest  the  moneys  deposited  therein, 
the  sums  credited  to  the  guaranty  fund  thereof  and  the  income  de- 
rived therefrom,  subject  to  the  following  restrictions: 

1.  The  stocks  or  bonds  or  interest-bearing  notes  or  obligations  of 
the  United  States,  or  those  for  which  the  faith  of  the  United  States 
is  pledged  to  provide  for  the  payment  of  the  interest  and  principal, 
including  the  bonds  of  the  District  of  Columbia. 

2.  The  stocks  or  bonds  or  interest-bearing  obligations  of  this  state, 
issued  pursuant  to  the  authority  of  any  law  of  the  state. 

3.  The  stocks,  bonds  or  interest-bearing  obligations  of  any  state 
of  the  United  States,  upon  which  there  is  no  default  and  upon  which 
there  has  been  no  default  for  more  than  ninety  days;  provided  that 
within  ten  years  immediately  preceding  the  investment  such  state 
has  not  been  in  default  for  more  than  ninety  days  in  the  payment  of 
any  part  of  principal  or  interest  of  any  debt  duly  authorized  by  the 
legislature  of  such  state  to  be  contracted  by  such  state  since  the  first 
day  of  January,  eighteen  hundred  and  seventy-eight. 

4.  The  stocks,  bonds,  interest-bearing  obligations,  or  revenue  note? 
sold  at  a  discount,  of  any  city,  county,  town,  village,  school  district, 
union  free  school  district  or  poor  district  in  this  state,  provided  that 
they  were  issued  pursuant  to  law  and  that  the  faith  and  credit  of  the 
municipality   or   district   that   issued   them    are   pledged   for   their 
payment. 

5.  The  stocks  or  bonds  of  any  incorporated  city  situated  in  one 
of  the  states  of  the  United  States  which  was  admitted  to  statehood 
prior  to  January  first,  eighteen  hundred  and  ninety-six,  and  which 
since  January  first,  eighteen  hundred  and  sixty-one,  has  not  repudi- 
ated or  defaulted  in  the  payment  of  any  part  of  the  principal  or 
interest  of  any  debt  authorized  by  the  legislature  of  any  such  state 
to  be  contracted,  provided  said  city  has  a  population,  as  shown  by 
the  federal  census  next  preceding  said  investment,  of  not  less  than 
forty-five  thousand  inhabitants,  and  was  incorporated  as  a  city  at 
least  twenty-five  years  prior  to  the  making  of  said  investment,  and 
has  not,  since  January  first,  eighteen  hundred  seventy-eight,  defaulted 
for  more  than  ninety  days  in  the  payment  of  any  part  either  of  prin- 
cipal or  interest,  of  any  bond,  note  or  other  evidence  of  indebtedness, 

i  Quoted  from  New  York  Banking  Law  by  Frank  C.  McKinney  in  his  Legal 
Investments  for  Trust 


LEGAL  INVESTMENTS  FOR  TRUSTEES     449 

or  effected  any  compromise  of  any  kind  with  the  holders  thereof. 
But  if,  after  such  default  on  the  part  of  any  such  state  or  city,  the 
debt  or  security,  in  the  payment  of  the  principal  or  interest  of  which 
such  default  occurred,  has  been  fully  paid,  refunded  or  comprised, 
by  the  issue  of  new  securities,  then  the  date  of  the  first  failure  to 
pay  principal  or  interest,  when  due,  upon  such  debt  or  security,  shall 
be  taken  to  be  the  date  of  such  default,  within  the  provisions  of  this 
subdivision,  and  subsequent  failures  to  pay  installments  of  principal 
or  interest,  upon  such  debt  or  security,  prior  to  the  refunding  or 
final  payment  of  the  same,  shall  not  be  held  to  continue  said  default 
or  to  fix  the  time  thereof,  within  the  meaning  of  this  subdivision, 
at  a  date  later  than  the  date  of  said  first  failure  in  payment.  If  at 
any  time  the  indebtedness  of  any  such  city,  together  with  the  indebt- 
edness of  any  district  or  other  municipal  corporation  or  subdivision 
except  a  county,  which  is  wholly  or  in  part  included  within  the 
bounds  or  limits  of  said  city,  less  its  water  debt  and  sinking  fund, 
shall  exceed  seven  per  centum  of  the  valuation  of  said  city  for  pur- 
poses of  taxation,  its  bonds  and  stocks  shall  thereafter,  and  until  such 
indebtedness  shall  be  reduced  to  seven  per  centum  of  the  valuation 
for  the  purposes  of  taxation,  cease  to  be  an  authorized  investment 
for  the  money  of  savings  banks. 

6.  Bonds  and  mortgages  on  unincumbered  real  property  situated 
in  this  state,  to  the  extent  of  sixty-five  per  centum  of  the  appraised 
value  thereof.     Not  more  than  sixty-five  per  centum  of  the  whole 
amount  of  deposits  and  guaranty  fund  shall  be  so  loaned  or  invested. 
If  the  loan  is  on  unimproved  and  unproductive  real  property,  the 
amount  loaned  thereon  shall  not  be  more  than  forty  per  centum  of 
its  appraised  value.     No  investment  in  any  bonds  and  mortgages 
shall  be  made  by  any  savings  bank  except  upon  the  report  of  a  com- 
mittee of  its  trustees  charged  with  the  duty  of  investigating  the 
same,  who  shall  certify  to  the  value  of  the  premises  mortgaged  or  to 
be  mortgaged,  according  to  their  judgment,  and  such  report  shall  be 
filed  and  preserved  among  the  records  of  the  corporation. 

7.  The  following  bonds  of  railroad  corporations : 

(a)  The  first  mortgage  bonds  of  any  railroad  corporation  of  this 
state,  the  principal  part  of  whose  railroad  is  located  within  this 
state,  or  of  any  railroad  corporation  of  this  or  any  other  state  or 
states  connecting  with  and  controlled  and  operated  as  a  part  of  the 
system  of  any  such  railroad  corporation  of  this  state,  and  of  which 
connecting  railroad  at  least  a  majority  of  its  capital  stock  is  owned 
by  such  a  railroad  corporation  of  this  state  or  in  the  mortgage  bonds 
of  any  such  railroad  corporation  of  an  issue  to  retire  all  prior  mort- 
gage debt  of  such  railroad  companies  respectively;  provided  that  at 


450         MATERIALS    OF   CORPORATION   FINANCE 

no  time  within  five  years  next  preceding  the  date  of  any  such  invest- 
ment, such  railroad  corporation  of  this  state  or  such  connecting  rail- 
road corporation  respectively  shall  have  failed  regularly  and  punc- 
tually to  pay  the  matured  principal  and  interest  of  all  its  mortgage 
indebtedness,  and  in  addition  thereto  regularly  and  punctually  to 
have  paid  in  dividends  to  its  stockholders  during  each  of  said  five 
years  an  amount  at  least  equal  to  four  per  centum  upon  all  its 
outstanding  capital  stock;  and  provided  further,  that  at  the  date  of 
every  such  dividend  the  outstanding  capital  stock  of  such  railroad 
corporation  or  such  connecting  railroad  company  respectively  shall 
have  been  equal  to  at  least  one-third  of  the  total  mortgage  indebted- 
ness of  such  railroad  corporations  respectively,  including  all  bonds 
issued  or  to  be  issued  under  any  mortgage  securing  any  bonds  in 
which  such  investment  shall  be  made. 

(b)  The  mortgage  bonds  of  the  following  railroad  corporations: 
The  Chicago  &  Northwestern  Railroad  Company,  Chicago,  Burling- 
ton &  Quincy  Railroad  Company,  Michigan  Central  Railroad  Com- 
pany, Illinois  Central  Railroad  Company,  Pennsylvania  Railroad 
Company,  Delaware  &  Hudson  Company,  Delaware,  Lackawanna  & 
Western  Railroad  Company,  New  York,  New  Haven  &  Hartford 
Railroad  Company,  Boston  &  Maine  Railroad  Company,  Maine  Cen- 
tral Railroad  Company,  the  Chicago  &  Alton  Railroad  Company, 
Morris  &  Essex  Railroad  Company,  Central  Railroad  of  New  Jersey, 
United  New  Jersey  Railroad  &  Canal  Company,  also  in  the  mortgage 
bonds  of  railroad  companies  whose  lines  are  leased  or  operated  or 
controlled  by  any  railroad  company  specified  in  this  paragraph  if 
said  bonds  be  guaranteed  both  as  to  principal  and  interest  by  the 
railroad  company  to  which  said  lines  are  leased  or  by  which  they  are 
operated  or  controlled.  Provided  that  at  the  time  of  making  invest- 
ments authorized  by  this  paragraph  the  said  railroad  corporations 
issuing  such  bonds  shall  have  earned  and  paid  regular  dividends  of 
not  less  than  four  per  centum  per  annum  in  cash  on  all  their  issues 
of  capital  stock  for  the  ten  years  next  preceding  such  investment, 
and  provided  the  capital  stock  of  any  said  railroad  corporations  shall 
equal  or  exceed  in  amount  one-third  of  the  par  value  of  all  its  bonded 
indebtedness;  and  further  provided  that  all  bonds  authorized  for 
investment  by  this  paragraph  shall  be  secured  by  a  mortgage  which 
is  a  first  mortgage  property  of  the  company  issuing  such  bonds,  or 
that  such  bonds  shall  be  mortgage  bonds  of  an  issue  to  retire  all  prior 
mortgage  debts  of  such  railroad  company;  provided,  further,  that 
the  mortgage  which  secures  the  bonds  authorized  by  this  paragraph 
is  dated,  executed  and  recorded  prior  to  January  first,  nineteen  hun- 
dred and  five. 


LEGAL  INVESTMENTS  FOR  TRUSTEES     451 

(c)  The  mortgage  bonds  of  the  Chicago,  Milwaukee  &  Saint  Paul 
Railroad  Company  and  the  Chicago,  Rock  Island  &  Pacific  Railroad 
Company,  so  long  as  they  shall  continue  to  earn  and  pay  at  least 
four  per  centum  dividends  per  annum  on  their  outstanding  capital 
stock,  and  provided  their  capital  stock  shall  equal  or  exceed  in  amount 
one-third  of  the  par  value  of  all  their  bonded  indebtedness,  and  fur- 
ther provided  that  all  bonds  of  either  of  said  companies  hereby 
authorized  mortgage  on  either  the  whole  or  some  part  of  the  railroad 
or  railroad  property  actually  in  the  possession  of  and  operated  by 
said  company,  or  that  such  bonds  shall  be  mortgage  bonds  of  an  issue 
to  retire  all  prior  debts  of  said  railroad  company;  provided,  further, 
that  the  mortgage  which  secures  the  bonds  authorized  by  this  para- 
graph is  dated,  executed  and  recorded  prior  to  January  first,  nineteen 
hundred  and  five. 

(d)  The  first  mortgage  bonds  of  the  Fonda,  Johnstown  &  Glovers- 
ville  Railroad  Company,  or  in  the  mortgage  bonds  of  said  railroad 
company  of  an  issue  to  retire  all  prior  mortgage  debts  of  said  railroad 
company  shall  equal  or  exceed  in  amount  one-third  of  the  par  value 
of  all  its  bonded  indebtedness,  and  provided  also  that  such  railroad 
be  the  standard  gauge  of  four  feet  eight  and  one-half  inches,  and  in 
the  mortgage  bonds  of  the  Buffalo  Creek  Railroad  Company  of  an 
issue  to  retire  all  prior  mortgage  debts  of  said  railroad  company, 
provided  that  the  bonds  authorized  by  this  paragraph  are  secured  by 
a  mortgage  dated,  executed  and  recorded  prior  to  January  first,  nine- 
teen hundred  and  five. 

(e)  The  mortgage  bonds  of  any  railroad  corporation  incorporated 
under  the  laws  of  the  United  States,  which  actually  owns  in  fee  not 
less  than  five  hundred  miles  of  standard  gauge  railway  exclusive  of 
siding,  within  the  United  States,  provided  that  at  no  time  within 
five  years  next  preceding  the  date  of  any  such  investment  such  rail- 
road corporation  shall  have  failed  regularly  and  punctually  to  have 
paid  in  dividends  to  its  stockholders  during  each  of  said  five  years 
an  amount  at  least  equal  to  four  per  centum  upon  all  its  outstanding 
capital  stock,  and  provided  further  that  during  said  five  years  the 
gross  earnings,  the  amount  received  directly  or  indirectly  by  said 
company  from  the  sale  of  coal  from  mines  owned  or  controlled  by  it, 
shall  not  have  been  less  in  amount  than  five  times  the  amount  neces- 
sary to  pay  the  interest  payable  during  that  year  upon  its  entire  out- 
standing indebtedness,  and  the  rentals  for  said  year  of  all  leased 
lines,  and  further  provided  that  all  bonds  authorized  for  investment 
by  this  paragraph  shall  be  secured  by  a  mortgage  which  is  at  the  time 
of  making  said  investment  or  at  the  date  of  the  execution  of  said 
mortgage  (1)   a  first  mortgage  upon  not  less  than  seventy-five  per 


452         MATERIALS    OF   CORPORATION    FINANCE 

centum  of  the  railway  owned  in  fee  by  the  company  issuing  said 
bonds  exclusive  of  sidings  at  the  date  of  said  mortgage  or  (2)  a 
refunding  mortgage  issued  to  retire  all  prior  lien  mortgage  debts  of 
said  company  outstanding  at  the  time  of  said  mortgage  investment 
and  covering  at  least  seventy-five  per  centum  of  the  railway  owned 
in  fee  by  said  company  at  the  date  of  said  mortgage.  But  no  one  of 
the  bonds  so  secured  shall  be  legal  investment  in  case  the  mortgage 
securing  the  same  shall  authorize  a  total  issue  of  bonds  which  to- 
gether with  all  outstanding  prior  debts  of  said  company,  after  de- 
ducting therefrom  in  case  of  a  refunding  mortgage,  the  bonds  reserved 
under  the  provisions  of  said  mortgage  to  retire  prior  debts  at  ma- 
turity, shall  exceed  three  times  the  outstanding  capital  stock  of  said 
company  at  the  time  of  making  said  investment.  And  no  mortgage 
is  to  be  regarded  as  a  refunding  mortgage,  under  the  provisions  of 
this  paragraph,  unless  the  bonds  which  it  secures  mature  at  a  later 
date  than  any  bond  which  it  is  given  to  refund,  nor  unless  it  covers 
a  mileage  at  least  twenty-five  per  centum  greater  than  is  covered  by 
any  one  of  the  prior  mortgages  so  to  be  refunded. 

(f)  Any  railway  mortgage  bonds  which  would  be  a  legal  invest- 
ment under  the  provisions  of  paragraph  (e)  of  this  subdivision,  except 
for  the  fact  that  the  railroad  corporation  issuing  said  bonds  actually 
owns  in  fee  less  than  five  hundred  miles  of  road,  provided  that  during 
five  years  next  preceding  the  date  of  any  such  investment  the  gross 
earnings  in  each  year  from  the  operations  of  said  corporation,  includ- 
ing the  gross  earnings  of  all  lines  leased  and  operated  or  controlled 
and  operated  by  it,  shall  not  have  been  less  than  ten  million  dollars. 

(g)  The  mortgage  bonds  of  a  railroad  corporation  described  in  the 
foregoing  paragraph  (e)  or  (f)  or  the  mortgage  bond  of  a  railroad 
owned  by  such  corporation,  assumed  or  guaranteed  by  it  by  endorse- 
ment or  said  bonds,  provided  said  bonds  are  prior  to  and  are  to  be 
refunded  by  a  general  mortgage  of  said  corporation  the  bonds  secured 
by  which  are  made  a  legal  investment  under  the  provisions  of  said 
paragraph  (e)  or  (f)  ;  and  provided,  further,  that  said  general  mort- 
gage covers  all  the  real  property  upon  which  the  mortgage  securing 
said  underlying  bonds  is  a  lien. 

(h)  Any  railway  mortgage  bonds  which  would  be  a  legal  invest- 
ment under  the  provisions  of  paragraph  (e)  or  (g)  of  this  subdivision 
except  for  the  fact  that  the  railroad  corporation  issuing  said  bonds 
actually  owns  in  fee  less  than  five  hundred  miles  of  road,  provided 
the  payment  of  principal  and  interest  of  said  bonds  is  guaranteed  by 
endorsement  thereon  by,  or  provided  said  bonds  have  been  assumed  by 
a  corporation  whose  first  mortgage  is,  or  refunding  mortgage  bonds 
are,  a  legal  investment  under  the  provisions  of  paragraph  (e)  or  (f) 


LEGAL  INVESTMENTS  FOR  TRUSTEES     453 

of  this  subdivision.  But  no  one  of  the  bonds  so  guaranteed  or  as- 
sumed shall  be  a  legal  investment  in  case  the  mortgage  securing  the 
same  shall  authorize  a  total  issue  of  bonds  which,  together  with  all 
the  outstanding  prior  debts  of  the  corporation  making  said  guaran- 
tee or  so  assuming  said  bonds,  including  therein  the  authorized 
amount  of  all  previously  guaranteed  or  assumed  bond  issues,  shall 
exceed  three  times  the  capital  stock  of  said  corporation,  at  the  time  of 
making  said  investment. 

(i)  The  first  mortgage  bonds  of  a  railroad  the  entire  capital  stock 
of  which,  except  shares  necessary  to  qualify  directors,  is  owned  by, 
and  which  is  operated  by  a  railroad  whose  last  issued  refunding  bonds 
are  a  legal  investment  under  the  provisions  of  paragraph  (a),  (e), 
or  (f)  of  this  subdivision,  provided  the  payment  of  principal  and 
interest  of  said  bonds  is  guaranteed  by  endorsement  thereon  by 
the  company  so  owning  and  operating  said  road,  and  further  pro- 
vided the  mortgage  securing  said  bonds  does  not  authorize  an  issue 
of  more  than  twenty-thousand  dollars  in  bonds  for  each  mile  of  road 
covered  thereby.  But  no  one  of  the  bonds  so  guaranteed  shall  be  a 
legal  investment  in  case  the  mortgage  securing  the  same  shall  author- 
ize a  total  issue  of  bonds  which  together  with  all  the  outstanding 
prior  debts  of  the  company  making  said  guarantee,  including  therein 
the  authorized  amount  of  all  previously  guaranteed  bond  issues,  shall 
exceed  three  times  the  capital  stock  of  said  company,  at  the  time  of 
making  said  investment. 

Bonds  which  have  been  or  shall  become  legal  investments  for  savings 
banks  under  any  of  the  provisions  of  this  section  shall  not  be  rendered 
illegal  as  investments,  though  the  property  upon  which  they  are  secured 
has  been  or  shall  be  conveyed  to  another  corporation,  and  though  the 
railroad  corporation  which  issued  or  assumed  said  bond  has  been  or 
shall  be  consolidated  with  another  railroad  corporation,  if  the  con- 
solidated or  purchasing  corporation  shall  assume  the  payment  of  said 
bonds  and  shall  continue  to  pay  regularly  interest  or  dividend  or  both 
upon  the  securities  issued  against,  in  exchange  for  or  to  acquire  the 
stock  of  the  company  consolidated  or  the  property  purchased  or  upon 
securities  subsequently  issued  in  exchange  or  substitution  therefor  to 
an  amount  at  least  equal  to  four  per  centum  per  annum  upon  the 
capital  stock  outstanding  at  the  time  of  such  consolidation  or  pur- 
chase of  said  corporation  which  has  issued  or  assumed  such  bonds. 

Not  more  than  twenty-five  per  centum  of  the  assets  of  any  savings 
bank  shall  be  loaned  or  invested  in  railroad  bonds,  and  not  more  than 
ten  per  centum  of  the  assets  of  any  savings  bank  shall  be  invested  in 
the  bonds  of  any  one  railroad  corporation  described  in  paragraph  (a) 
of  this  subdivision,  and  not  more  than  five  per  centum  of  such  assets 


454         MATERIALS    OF    CORPORATION    FINANCE 

in  the  bonds  of  any  other  railroad  corporation.  In  determining  the 
amount  of  the  assets  of  any  savings  bank  under  the  provisions  of 
this  subdivision  its  securities  shall  be  estimated  in  the  manner  pre- 
scribed for  determining  the  per  centum  of  par  value  surplus  by  sec- 
tion (257)  of  this  article. 

Street  railroad  corporations  shall  not  be  considered  railroad  cor- 
porations within  the  meaning  of  this  subdivision. 

8.  Promissory  notes  payable  to  the  order  of  the  savings  bank  upon 
demand,  secured  by  the  pledge  and  assignment,  if  necessary,  of  the 
stocks  or  bonds  or  any  of  them  enumerated  in  subdivision  one,  two, 
three,  four  and  five  of  this  section  or  by  the  railroad  bonds  or  any  of 
them  mentioned  and  described  in  subdivision  seven  of  this  section,  but 
no  such  loan  shall  exceed  ninety  per  centum  of  the  cash  market  value 
of  such  securities  so  pledged.     Should  any  of  the  securities  so  held  in 
pledge  depreciate  in  value  after  the  making  of  such  loan,  the  savings 
bank  shall  require  an  immediate  payment  of  such  loan  or  of  a  part 
thereof  or  additional  security  therefor,  so  that  the  amount  loaned 
thereon  shall  at  no  time  exceed  ninety  per  centum  of  the  market  value 
of  the  securities  so  pledged  for  such  loan. 

9.  Real  estate  as  follows : 

(a)  A  plot  whereon  there  is  or  may  be  erected  a  building  or  build- 
ings suitable  for  the  convenient  transaction  of  the  business  of  the 
savings  bank,  from  the  portions  of  which  not  required  for  its  own 
use  a  revenue  may  be  derived. 

(b)  Such  as  shall  be  conveyed  to  it  in  satisfaction  of  debts  pre- 
viously contracted  in  the  course  of  its  business. 

(c)  Such  as  it  shall  purchase  at  sales  under  judgments,  decrees  or 
mortgages  held  by  it. 

The  trustees  of  a  savings  bank  shall  not  be  held  liable  for  investing 
in  state  or  municipal  bonds  named  in  the  last  list  furnished  by  the 
Superintendent  of  Banks  pursuant  to  section  (52)  of  article  two  of 
this  chapter,  or  in  any  railroad  bonds  mentioned  in  such  list,  which 
have  been  legally  issued  and  properly  executed,  unless  such  savings 
bank  shall  have  been  notified  by  the  Superintendent  of  Banks  that, 
in  his  judgment,  such  bonds  do  not  conform  or  have  ceased  to  conform 
to  the  provisions  of  this  section. 


COST    AND    VALUE    OF    GAS    PLANT  455 


ELEMENTS  OF  THE  COST  AND  VALUE  OF  A  GAS  PLANT ' 

The  cost  of  a  gas  plant  and  of  acquiring  its  business  may  be  subdi- 
vided as  follows : 

1.  Preliminary  development,  which  includes : 

a.  Investigation  of  the  project; 

b.  Assembling  of  parties  who  may  be  willing  to  participate; 

c.  Preliminary  engineering  and  legal  advice  on  the  proposition ; 

d.  Canvass  of  territory  to  ascertain  if  sufficient  business  can  be 

obtained ; 

e.  Estimate  of  cost  of  plant  and  probable  income ; 

f.  Incorporation  of  the  company;  and 

g.  Securing  the  franchise. 

2.  Eeal  Estate, 

3.  Labor,  materials  and  sub-contracts, 

4.  General  contractor's  profit, 

5.  Engineering, 

6.  Expense  of  company  organization  during  construction, 

7.  Interest  during  construction, 

8.  Taxes  and  insurance  during  construction, 

9.  Stores,  supplies  and  working  capital, 

10.  Acquiring  or  establishing  the  business,  which  includes : 

a.  Expenses  of  canvassing  for  business; 

b.  Advertising; 

c.  Setting  meters  free  of  charge ; 

d.  Interest  on  cost  of  plant  in  excess  of  income  until  business 

becomes  self-supporting ;  and 

e.  Taxes  and  insurance  during  that  time. 

11.  Legal  expenses ; 

12.  Financing,  including  banker's  commission,  discount  on  bonds 

and  promoter's  profits. 

Many  of  these  items  are  overlooked  by  those  who  have  had  no  experi- 
ence in  the  actual  establishment  of  such  a  business,  and  that,  no 
doubt,  is  the  reason  why  the  cost  of  such  a  plant  and  establishing  such 
a  business  almost  always  largely  exceeds  the  anticipated  outlay. 

The  value  of  a  gas  property  and  business,  however,  exceeds  the  Finn 
of  the  items  I  have  mentioned,  if  the  property  is  well  located,  and  the 
property  now  in  question  is  favorably  located.  (Case,  pp.  446-453 ;  also 
pp.  1278  and  1279.)  If  such  a  plant  were  not  worth  more  than  it  cost 

iFrom  Brief  for  the  Prosecutor,  Public  Service  Ons  Company,  Prosecutor, 
vs.  Hoard  of  Public  Utility  Commissioners,  et  als.,  Defendants,  New  Jersey 
Supreme  Court. 


456         MATERIALS    OF   CORPORATION    FINANCE 

it  would  be  unwise  to  construct  it.  And  if  it  were  known  that  the  value 
of  such  a  plant  would  be  cut  down  for  rate  making  to  its  actual  cost 
less  depreciation,  capital  could  not  be  found  to  build  it. 

Actual  disbursements  in  money  for  the  construction  of  a  gas  plant 
must  be  made : 

1.  For  preliminary  development  prior  to  beginning  the  actual  work 
of  construction, 

2.  For  real  estate, 

3.  For  material  and  labor. 

These  expenses  are  sometimes  called  structural  dost.  After  con- 
struction of  the  plant  additional  disbursements  must  be  made. 

4.  For  the  development  of  the  business. 

These  four  elements  of  value  of  a  gas  plant  are  actual  disbursements 
of  money.  There  are  also  other  outlays  which  are  commonly  called 
overhead  charges,  to  which  reference  will  be  made  hereafter.  Such 
charges  are  really  a  part  of  structural  cost.  Besides,  there  are  other 
elements  of  value  of  such  a  property,  the  principal  of  which  are : 

1.  The  value  created  by  an  organization  of  pieces  of  physical  prop- 
erty into  an  income  producing  unit     This  value  was  recognized  and 
stated  in  the  case  of  Newark  v.  State  Board  of  Taxation,  37  Vr.,  466 ; 
and  has  been  repeatedly  recognized  and  asserted  by  the  courts.     Adams 
Express  Co.  v.  Ohio,  165  TJ.  S.,  194,  and  166  U.  S.,  185. 

2.  The  value  created  by  uniting  two  or  more  plants  or  properties 
engaged  in  public  service,  whereby  greater  efficiency  and  reduced  oper- 
ating expenses  produce  better  results  at  less  cost ;  Cleveland  Ry.  Co.  v. 
Backus,  154  IT.  S.  at  p.  444. 

3.  The  rights  or  special  franchises  which  confer  the  easement  in  or 
right  of  way  through  lands,  indispensable  to  the  construction  and  oper- 
ation of  the  plant,  and  which  also  confer  vitality  and  earning  power  on 
physical  property. 


ENGINEER'S   REPORT   ON   PROJECTED   RY.       457 


ENGINEER'S  PRELIMINARY  REPORT1 

INDEX   TO    CONTENTS 
CONTENTS  PAGE 

General    Proposition    457 

Principal  Features    458 

Rights  of  Way  and  Franchises 459 

Description  of  Route 459 

Schedule  of  Alignment 461 

Schedule  of  Grades  461 

Plan  of  Construction    462 

Power  Equipment  463 

Rolling  Stock  464 

Cost  of  Construction 454 

Section   0   466 

Section   1    466 

Section  2    467 

Section  3    467 

Section  4   468 

Section  5    468 

Line  Construction  469 

Buildings    469 

Power  Plant 469 

Sub-Stations   469 

Rolling  Stock    469 

Summary  of  Costs   470 

Character  and  Importance  of  Trade 470 

Lima 470 

Ken  ton    477 

Marion    481 

Passenger    Income    483 

Table  Showing  Population  Directly  on  Line 484 

Table  Showing  Population  Tributary  to  Line 485 

Summary  of  Tributary  Population 486 

Revenues — 

United  States  Mail  486 

Package   Freight   and   Express 486 

Dairy  Products   487 

Freight    487 

Statement  of  Revenue  and  Operating  Expense 489 

GENERAL  PROPOSITION 

The  Lima  Eastern  Railway  Company  was  incorporated  iinder  the 
Laws  of  the  State  of  Ohio  in  nineteen  hundred  and  five  for  the  pur- 
pose of  constructing  an  electric  railroad  from  Lima,  Ohio,  to  Marion, 
Ohio,  a  distance  of  fifty-five  miles. 

*  Prospectus  of  the  Lima-Eastern  Railway,  proposed  electric  road  connecting 
Lima-Kenton-Marion,  Ohio.  The  F.  A.  Pease  Engineering  Company,  engineers, 
Cleveland,  July,  1900. 


458         MATERIALS    OF    CORPORATION    FINANCE 

The  various  electric  lines  contemplated  and  constructed  to  the  north, 
west  and  south  from  Lima  have  been  shown  to  be  profitable  financial 
enterprises,  and  the  patronage  of  roads  in  operation  has  been  fully  up 
to  expectations.  The  lines  in  operation  extend  south  to  Springfield, 
Dayton,  Xenia  and  Cincinnati;  west  to  Fort  Wayne,  Muncie,  and 
Indianapolis,  and  north  to  Findlay,  Fostoria,  Fremont,  Tiffin  and 
Toledo.  The  projected  lines  extend  to  Ottawa  on  the  north  and 
Bellefontaine  on  the  south. 

At  Marion,  the  eastern  terminus  of  proposed  road,  lines  are  in  oper- 
ation to  Delaware,  Columbus,  Newark,  Zanesville,  Lancaster  and  Chilli- 
cothe,  while  other  lines  are  projected  north  to  Tiffin  with  Toledo  and 
Sandusky  connections;  northeasterly  to  Bucyrus,  and  east  to  Galion, 
which  will  connect  with  Mansfield  and,  by  the  lines  now  under  construc- 
tion, with  Ashland,  Creston  and  Cleveland. 

With  the  transportation  facilities,  with  which  each  of  the  terminal 
cities  is  provided  for  traffic  in  other  directions,  there  is  no  present 
connection  between  them  except  the  Erie  Railroad  which,  while  having 
four  through  trains  in  each  direction  daily,  has  but  one  train  which 
stops  at  all  local  stations.  It  is  therefore  impossible,  under  present 
conditions  of  transportation,  for  the  residents  of  local  towns  along  the 
line  to  go  to  and  return  from  either  of  the  cities  at  terminii  during 
the  same  day. 

PRINCIPAL   FEATURES 

The  construction  of  The  Lima  Eastern  Railway  would  con- 
nect three  prosperous  cities,  the  county  seat  of  Allen,  Hardin  and 
Marion  counties,  and  provide  transportation  facilities  for  an  extensive 
and  prosperous  territory.  The  western  part  of  this  territory  is  at  pres- 
ent inadequately  served  by  a  steam  road;  the  eastern  part,  although 
paralleling  the  steam  road,  is  remote  from  railroad  at  such  a  distance 
as  to  give  the  proposed  electric  line  practically  all  the  local  traffic. 
While  the  Erie  Railroad  passes  through  the  three  principal  cities  along 
proposed  electric  line,  in  every  case  the  station  is  at  such  a  distance, 
remote  from  the  business  center,  that  it  becomes  necessary  for  the 
traveling  public  to  use  the  city  cars  or  other  conveyance.  The  electric 
road  would  accommodate  passengers  at  the  most  advantageous  points, 
thereby  providing  accommodations  to  the  public  which  should  secure 
practically  all  the  through  passenger  traffic  as  well  as  local. 

The  cities  of  Lima  and  Marion  are  among  the  most  prosperous  in 
the  State  of  Ohio,  both  being  noted  for  their  extensive  manufacturing 
and  commercial  enterprises.  Allen  and  Marion  counties,  which  are 
traversed  by  proposed  road  and  in  which  are  located  the  above-named 
cities,  show  an  increase  in  population  of  eighteen  and  sixteen  per  cent. 


ENGINEER'S    REPORT    ON    PROJECTED    RY.        459 

respectively  for  the  decennial  period,  eighteen  hundred  and  nintey  to 
nineteen  hundred.  This  is  a  record  for  growth  that  is  equaled  by  but 
twelve  out  of  the  eighty-eight  counties  in  the  State. 

RIGHTS   OF   WAY   AND   FRANCHISES 

The  Lima  Eastern  Railway  Company  has  secured  a  private  right  of 
way  of  sufficient  width  to  construct  double  track  the  entire  length  of 
line.  At  terminals  and  in  municipalities  along  the  route  franchises 
have  been  secured  in  the  streets  for  the  necessary  tracks,  switches  and 
turnouts.  These  grants  are  particularly  valuable  at  Marion  and  Ken- 
ton  where  the  road  fulfils  the  requirements  of  a  city  line,  giving  local 
transportation  to  the  more  densely  populated  territory  in  addition  to 
the  through  service. 

DESCRIPTION   OF   ROUTE 

The  Lima  Eastern  Railway  cars  are  calculated  to  leave  Lima  over  the 
present  city  tracks  at  the  Public  Square,  then  out  Market  Street  and 
Bellefontaine  Avenue  to  the  Allen  County  Fairgrounds,  the  present 
limits  of  city  line.  Extending  southeasterly,  from  Fairgrounds  to 
north  line  of  Erie  Railroad  Company's  right  of  way,  three  and  four- 
tenths  miles  from  Public  Square  in  Marion,  the  line  deflects  from  high- 
way and  parallels  the  steam  road. 

Numerous  oil  wells  and  pumping  stations  are  located  along  the  line, 
but  in  such  locations  that  it  is  not  necessary  to  alter  track  alignment  to 
avoid  them.  At  a  point  one  and  one-tenth  miles  east  of  deflection  from 
Bellefontaine  Avenue,  a  cemetery  is  located  adjacent  to  Erie  right  of 
way  which  necessitates  a  deflection  to  the  north  in  passing ;  this,  how- 
ever, is  accomplished  by  means  of  two  one-degree  and  a  four-degree 
curve,  after  which  the  line  again  parallels  the  Erie. 

At  Westminster  station  another  deflection  is  made  to  overcome  an 
offset  in  the  north  line  of  steam  road  and  to  avoid  the  railroad  station 
and  other  buildings.  At  Harrods,  ten  miles  out  of  Lima,  the  location 
was  made  for  a  distance  of  sixteen  hundred  feet  in  Second  Street,  par- 
allel with  and  adjoining  the  railroad  property. 

Near  the  western  limits  of  Hardiu  County,  thirteen  miles  from  Lima, 
a  large  county  drainage  ditch,  on  north  line  of  Erie  right  of  way, 
necessitates  offsetting  the  Lima  Eastern  to  the  north,  and  a  mile  fur- 
ther along  again  deflecting  to  pass  through  Alger  on  Lee  Street. 
The  route  parallel  with  and  adjoining  steam  road  is  again  taken  up 
after  leaving  Alger  and  continued  easterly  a  distance  of  six  miles 
through  McGuffy  and  Foraker. 

At  a  distance  of  twenty  and  one-half  miles  from  Lima,  a  slight  de- 
flection is  made  to  pass  along  north  side  of  highway  paralleling. the 
16 


460  MATERIALS  OF  CORPORATION  FINANCE 

Erie.  The  location  continues  easterly,  parallel  with  highway,  to  Sta- 
tion 1,151,  then  parallel  with  Erie  Railroad  until  at  crossing  of  Sciota 
River,  a  course  is  taken,  which,  extended,  passed  along  Franklin  Street 
through  Kenton,  passing  the  station  and  crossing  the  tracks  of  Toledo 
&  Ohio  Central  and  of  the  Big  Four  at  Grade,  in  the  west  part  of  city. 

Traversing  the  main  business  thoroughfare  of  Kenton  its  entire 
length,  easterly  to  Grove  Cemetery,  a  private  right  of  way  is  followed 
along  south  side  of  highway  a  distance  of  thirteen  miles  which  is  prac- 
tically all  tangent,  there  being  but  six  hundred  fifty  feet  of  one  degree 
curve  in  the  above  distance. 

At  station  2185  the  line  crosses  to  north  side  by  a  two  degree 
reversed  curve  and  continues  east  two  and  one-half  miles  in  a  straight 
line  through  Scottown.  From  a  point  one  mile  east  of  Scottown  to 
Big  Island,  the  alignment  is  somewhat  irregular  by  reason  of  follow- 
ing line  of  highway;  it  has  been  possible,  however,  to  limit  curva- 
ture to  six  degrees,  which  will  not  materially  decrease  the  running 
time. 

From  Big  Island  to  North  Main  Street  in  Marion,  the  line  is  run 
with  very  little  curvature.  The  Hocking  Valley  Railroad  is  con- 
structed upon  an  embankment  of  sufficient  height  above  general  level 
of  ground  to  permit  an  under  crossing.  The  Pennsylvania  Railroad 
is  built  at  such  an  elevation  that  a  grade  crossing  is  necessary.  As 
this  is  a  single  track  branch  road,  there  would  be  less  objection  to  a 
grade  crossing  than  to  the  expense  of  and  conditions  created  by  an 
overhead  crossing.  The  route  along  North  Main  Street  is  straight 
south  in  centre  of  highway  to  Court  House,  the  eastern  terminus  of 
line. 

Throughout  its  entire  length  the  locations  conforms  as  nearly  as 
possible  to  a  direct  line.  The  grade  shown  on  profile  is  equal  to  any 
that  could  be  secured  throughout  the  territory  traversed.  The  line,  as 
located,  passes  through  all  cities  and  villages  along  the  route  by 
traversing  the  main  thoroughfares,  thus  making  conditions  most  ad- 
vantageous for  passenger  traffic. 

By  following  line  of  Erie  Railroad  a  most  economical  construction 
can  be  secured  and  the  shortest  possible  distance  obtained  between 
Lima  and  Kenton.  East  of  Kenton  the  location  passes  through  a 
more  densely  populated  territory  than  exists  to  the  south  along  line 
of  steam  road.  When  the  Erie  Railroad  was  projected  through  Ohio, 
the  original  location  was  made  through  Scottown,  covering  practically 
the  same  territory  as  traversed  by  proposed  electric  line ;  arter  grading 
for  roadbed,  however,  the  line  was  altered  to  present  location. 

The  following  schedules  show  data  relative  to  alignment  and  curva- 
ture for  the  entire  distance  between  terminals : 


ENGINEER'S   REPORT    ON    PROJECTED   RY.        461 


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462         MATEEIALS    OF   CORPORATION   FINANCE 

PLAN   FOE  CONSTRUCTION. 

The  Lima  Eastern  is  contemplated  as  a  single  track  line  with  suffi- 
cient turnouts  and  sidings  to  permit  running  on  fifteen-minute  sched- 
ule. While  it  is  improbable  that  such  running  time  would  be  immedi- 
ately required,  such  conditions  as  unforeseen  delays  on  sidings,  due  to 
a  car  off  schedule  or  a  work  train  on  the  line,  would  be  more  readily 
overcome  and  traffic  more  speedily  restored  to  normal  equilibrium  by 
having  siding  not  more  than  two  and  one-half  miles  apart. 

The  details  of  construction,  upon  which  estimates  are  based,  are  set 
forth  as  follows : 

Roadbed  to  be  graded  to  lines  shown  on  profiles;  all  changes  in 
grade  to  be  made  by  means  of  long  vertical  curves.  In  single  track 
work,  width  of  roadbed  to  be  14  feet  on  fills  and  18  feet  in  cuts. 

Ties  to  be  6"x  8"  spaced  24  inches  on  centres  with  four  spikes  to 
the  tie. 

Rail,  along  private  right  of  way,  to  be  70  pound  standard  tee  rail, 
joined  with  four  bolt  splice  bars.  Through  village  streets  it  is  in- 
tended to  use  9  inch  95  Ib.  girder  rail. 

No.  10  spring  frogs  and  15  foot  split  switches  are  contemplated  for 
turnouts  to  enable  cars  making  sidings  at  a  high  rate  of  speed.  The 
length  of  turnouts  is  estimated  at  500  tfeet,  point  to  point,  except 
where  passing  along  streets  at  points  of  heavy  passenger  traffic,  where 
they  are  extended  to  meet  the  requirements. 

The  ballast  to  be  broken  stone  or  gravel  to  a  depth  of  6  inches  under 
ties  and  crowned  up  to  the  center. 

The  construction  of  concrete  arches  is  planned  at  such  points  as 
will  afford  the  necessary  clearance ;  over  low  ground,  however,  concrete 
abutments  are  planned,  having  a  clear  span  of  "I"  beam  construction. 
Plate  girders  are  contemplated  where  the  spans  are  in  excess  of  limits 
of  "I"  beam  construction.  The  principal  structures  are  over  the 
Scioto  and  Little  Rivers  and  under  the  Hocking  Valley  Railroad. 

Spans  of  plate  girders  and  trusses  are  as  follows : 

SECTION  0: 

Station  754 21  feet 

SECTION  2 : 

Station  692 40  feet 

Station  1007 21    " 

Cottonwood  ditch 66    " 

Scioto  River 66    " 

SECTION  3 : 

Station  1094 30  feet 

Scioto  River 90   " 

SECTION  4 : 

Scottown..  ..60  feet 


EXGIXEER'S   REPORT    ON   PROJECTED    RY.       463 

SECTION  5 : 

Station  2431 36  feet 

Station  2480 21  " 

Station  2632 30  " 

Station  2646 66  " 

Station  2670 94  " 

Subway  at  Hocking  Valley  Railroad. 

For  line  work,  35  foot  cedar  or  chestnut  poles  are  contemplated, 
spaced  one  hundred  feet  on  tangent,  the  trolley  wire  being  carried  on 
brackets,  with  cross-arms  for  high  tension  and  feeder  wires,  and  for 
telephone  line.  In  streets  and  on  passing  switches,  double  pole  line 
and  cross  suspension  is  estimated. 

POWER  EQUIPMENT. 

After  a  careful  examination  of  the  route,  consideration  for  traffic, 
and  a  comparison  of  the  steam  roads  crossed,  it  is  found  that  the 
proper  location  for  power  house  is  at  Kenton,  along  the  Toledo  &  Ohio 
Central  Railroad. 

It  would  be  possible  to  secure  an  abundant  supply  of  water  at  this 
place,  and  by  reason  of  the  Toledo  &  Ohio  Central  being  a  coal  road,  a 
fuel  supply  at  the  lowest  possible  cost. 

This  point  is  as  near  the  centre  for  distribution  as  it  is  practical  to 
locate;  the  eastern  terminus  is  28.4  miles  distant  from  power  house, 
and  the  western  end,  connecting  with  city  line,  is  24.3  miles. 

The  power  house  is  estimated  as  concrete  block  construction  in 
walls  with  steel  trusses  and  gravel  roof. 

The  boiler  room  is  calculated  as  48'x72',  being  26  feet  from  floor  to 
roof  trusses;  the  engine  room  as  48'x72',  being  in  the  same  building 
and  separated  from  boiler  room  by  a  12  inch  fire  wall. 

For  boiler  equipment  there  is  required  5  300  H.  P.  water  tube 
boilers  connected  in  battery  so  that  any  four  might  carry  maximum 
load,  leaving  one  in  reserve. 

Two  electrical  generator  sets  of  750  K.  W.  each,  are  necessary  for 
operation  of  line.  During  light  traffic  on  one  hour  schedule,  one  of 
the  units  will  carry  the  load,  the  other  being  held  in  reserve  for  heavy 
traffic,  accidents,  or  conditions  that  may  require  its  use. 

The  units  are  alternating-current  generators  of  three-phase,  25  ;ycle 
direct  connected  type,  developing  a  current  of  600  volts,  and  being 
driven  by  steam  turbines,  condensing  being  done  by  means  of  a  jet 
condenser  connected  with  each  engine. 

The  exciter  sets  are  50  K.  W.  each,  direct  connected  and  working  in 
independent  units. 

A  rotary  converter,  located  at  power  house,  feeds  direct  current  a 
distance  of  about  5*4  miles  in  each  direction.  For  transmission  to 


464         MATERIALS    OF   CORPORATION    FINANCE 

the  rotary  converters  on  line,  the  current  is  raised  to  20,000  volts  by 
means  of  3 — 400  K.  W.  step-up  transformers. 

Each  sub-station  is  equipped  with  3 — 100  K.  W.  transformers  for 
reducing  to  line  voltage,  and  with  a  300  K.  W.  rotary  converter  with 
necessary  starters,  switch  panels,  etc. 

The  sub-station  buildings  are  designed  as  30'x40',  the  walls  being 
constructed  of  concrete  blocks  with  steel  trusses  and  gravel  roof. 

The  car  house  and  repair  shop  are  of  similar  construction,  the  car 
house  being  190'x46'  and  repair  shop  140'x24'. 

As  it  would  only  be  necessary  to  hold  but  one  or  two  cars  over  night 
at  either  terminal,  it  would  be  economy  to  shelter  them  in  barns  of  city 
railway  companies. 

ROLLING  STOCK. 

The  rolling  stock  cost  is  based  upon  eight  standard  passenger  cars, 
two  combination  passenger  and  express  cars,  and  two  package  freight 
cars,  each  having  a  200  H.  P.  motor  equipment. 

A  30  ton  locomotive,  having  300  H.  P.  motor  equipment  for  hauling 
work  trains  and  freight  cars,  and  ten  flat  cars,  are  included  in  estimate. 

COST  OF  CONSTRUCTION. 

In  the  following  estimates  the  quantities  and  costs  are  based  as 
follows  under  the  various  heads: 

(a)  Clearing   and   Grubbing:      All   cutting  of  trees   and   underbrush,   and 
removing  of  stumps  along  right  of  way. 

(b)  Excavation  and  Embankments:     All  earth  work  to  subgrade. 

(c)  Bridges:     All  plate  girders,  steel  trusses,  and  wooden  trestles. 

(d)  Concrete:     All  masonry  in  wall  or  arch  for  culverts  and  abutments 
for  steel  spans. 

(e)  Ballast:     All  cost  of  material,  loading,  transportation  and  placing. 

(f)  Rails i     All  "T"  and  girder  rails  and  special  work  in  main  track,  rid- 
ings and  switches. 

(g)  Spikes:     All  used  in  main  track,  sidings  and  switches. 

(h)   Splices  and  Bolts:     All  used  in  main  track,  sidings  and  switches. 

(i)  Ties:     All  used  in  main  track,  sidings  and  switches. 

(j)  Track  Laying  and  Bonding:  All  labor  connected  with  this  part  of 
construction. 

(k)  Fencing:  All  cost  of  one  line  on  private  right  of  way  paralleling 
roads;  two  lines  where  passing  through  a  property. 

(1)   Highway  Crossing:     All  cost  for  planking,  cattle  guards  and  fencing. 

(m)   Culvert  Pipe:     All  cost  of  cast  iron  pipe  in  place. 

(n)  Bonds  and  Cross-bonds:  All  cost  of  0000  copper  bonds  in  place  under 
splice  bar  and  cross-bonds  every  500  feet. 

(o)   Platforms  and  Shelter  Houses:     All  costs  for  stations  along  line. 

(p)  Repaying:  All  cost  for  taking  up  and  relaying  pavement  in  Kenton 
and  Marion. 


466         MATEEIALS    OF   COKPOKATION   FINANCE 

SECTION  0 
FROM  END  OP  CITY  LINE  TO  ERIE  RAILROAD 

Distance — 2.17  Miles 
Average  Grade — 0.48%  Maximum  Grade — 0.95% 

(a)  Clearing  and  Grubbing $100.00 

(b)  Excavation  and  Embankment 2,035 . 00 

(c)  Bridges 500.00 

(d)  Concrete  in  Culverts 3,300.00 

(e)  Ballast 3,630.00 

(f)  Steel  Rails  and  Special  Work 7,638.00 

(g)  Spikes 238.00 

(h)     Splices  and  Bolts 840.00 

(i)      Ties 3,724.00 

(j)      Track  Laying  and  Bonding 1,302.00 

(k)     Fencing 618.00 

(1)      Highway  Crossings 120.00 

(m)    Cast  Iron  Culvert  Pipe 215 .00 

(n)     Copper  Bonds  and  Cross  Bonds 320.00 

(o)     Platforms  and  Shelter  Houses 150.00 

Total..  $24,730.00 


SECTION  1 
BELLEFONTAINE  AVENUE  TO  EAST  LINE  OP  HARRODS 

Distance — 6.83  Miles 
Average  Grade — 0.47%  Maximum  Grade — 1.21% 

(a)  Clearing  and  Grubbing $75.00 

(b)  Excavation  and  Embankments 7,720.00 

(c)  Bridges 000.00 

(d)  Concrete  in  Culverts 2,325 .00 

(e)  Ballast 11,325 .00 

(f)  Steel  Rails  and  Special  Work 26,530.00 

(g)  Spikes 782.00 

(h)     Splices  and  Bolts 2,753 .00 

(i)      Ties 12,220.00 

(j)      Track  Laying  and  Bonding 4,266.00 

(k)     Fencing 2,424.00 

(1)      Highway  Crossings 240 . 00 

(m)    Cast  Iron  Culvert  Pipe 390 . 00 

(n)     Copper  Bonds  and  Cross  Bonds 1,035.00 

(o)     Platforms  and  Shelter  Houses 1,200.00 

Total $73,285.00 


ENGINEER'S   REPORT    ON   PROJECTED   RY.        467 

SECTION  2 
EAST  LINE  OF  HARRODS  TO  EAST  LINE  OF  FORAKER 

Distance — 10.41  Miles 
Average  Grade — 0.13%  Maximum  Grade— 0.78% 

(a)  Clearing  and  Grubbing $300 . 00 

(b)  Excavation  and  Embankments 8,868.00 

(c)  Bridges 10,700.00 

(d)  Concrete  in  Culverts 7,950 . 00 

(e)  Ballast 17,147.00 

(f)  Steel  Rails  and  Special  Work 39,130.00 

(g)  Spikes 1,175.00 

(h)     Splices  and  Bolts 415.00 

(i)      Ties 18,362.00 

(j)      Track  Laying  and  Bonding 6,414 .00 

(k)     Fencing 3,164.00 

(1)      Highway  Crossings 300.00 

(m)    Cast  Iron  Culvert  Pipe 455.00 

(n)     Copper  Bonds  and  Cross  Bonds 1,555 . 00 

(o)     Platforms  and  Shelter  Houses 1,100.00 


Total $117,035.00 

SECTION  3 
EAST  LINE  OF  FORAKER  TO  EAST  LINE  OF  KENTON 

Distance — 7.76  Miles 
Average  Grade — 0.46%  Maximum  Grade — 2.77% 

(a)  Clearing  and  Grubbing $75 .00 

(b)  Excavation  and  Embankments ; .  wVi"1      6,968 .00 

(c)  Bridges 10,000.00 

(d)  Concrete  in  Culverts 16,500.00 

(e)  Ballast 13,922.00 

(f)  Steel  Rails  and  Special  Work 35,428.00 

(g)  Spikes 888.00 

(h)     Splices  and  Bolts 3,230.00 

(i)      Ties 13,845 . 00 

(j)      Track  Laying  and  Bonding 4,842 .00 

(k)     Fencing 1,940.00 

(1)      Highway  Crossings 225.00 

(m)    Cast  Iron  Culvert  Pipe 270.00 

(n)     Copper  Bonds  and  Cross  Bonds 1,145 .00 

(o)     Platforms  and  Shelter  Houses 1,250.00 

(p)     Repaying 6,840.00 

Total $117,368.00 


468         MATERIALS    OF    CORPORATION    FINANCE 

SECTION  4 
EAST  LINE  OF  KENTON  TO  SCOT-TOWN 

Distance — 14.77  Miles 
Average  Grade — 0.35%  Maximum  Grade — 1.68% 

(a)  Clearing  and  Grubbing $200.00 

(b)  Excavation  and  Embankments 17,265 . 00 

(c)  Bridges 4,200.00 

(d)  Concrete  in  Culverts 16,500.00 

(e)  Ballast 24,460.00 

(f)  Steel  Rails  and  Special  Work 56,145.00 

(g)  Spikes 1,676.00 

(h)     Splices  and  Bolts 5,900.00 

(i)      Ties 26,162.00 

(j)      Track  Laying  and  Bonding 9,144 . 00 

(k)     Fencing 4,776.00 

(1)      Highway  Crossings 1,200.00 

(m)    Cast  Iron  Culvert  Pipe 500.00 

(n)     Copper  Bonds  and  Cross  Bonds 2,225.00 

(o)     Platforms  and  Shelter  Houses 1,350.00 

Total $171,703.00 


SECTION  5 
SCOTTOWN  TO  CENTER  STREET  IN  MARION 

Distance — 11.76  Miles 
Average  Grade — 0.35%  Maximum  Grade — 1.50% 

(a)  Clearing  and  Grubbing $200.00 

(b)  Excavation  and  Embankments 12,933.00 

(c)  Bridges 26,370.00 

(d)  Concrete  in  Culverts 10,500.00 

(e)  Ballast 20,728.00 

(f)  Steel  Rails  and  Special  Work 51,524.00 

(g)  Spikes 1,335.00 

(h)     Splices  and  Bolts 4,875.00 

(i)      Ties 20,830.00 

(j)      Track  Laying  and  Bonding 7,284.00 

(k)     Fencing 2,960.00 

(1)      Highway  Crossings 675.00 

(m)    Cast  Iron  Culvert  Pipe 540.00 

(n)     Copper  Bonds  and  Cross  Bonds 11,766 . 00 

(o)     Platforms  and  Shelter  Houses 1,500.00 

(p)     Repaving 6,480.00 


Total $170,505 .00 


ENGINEER'S   REPORT   ON   PROJECTED   RY.       469 


LINE  CONSTRUCTION 


Poles 

Brackets 

Hangers 

Span  Wire 

Insulators 

Transmission  Wire. 

Feeder  Wire 

Trolley  Wire 

Telephone  Wire — 


$168,700.00 


BUILDINGS 

The  estimate  for  buildings  includes  necessary  tracks  and  special  work,  and 
mechanical  devices  not  listed  under  power  plant. 

Power  House 

Car  House --„  ^^ 

Repair  Shop 53,300. 

Sub-Stations 

POWER  PLANT 

Mechanical  Equipment: 

5  300  H.P.  Water  Tube  Boilers 

2  10  ft.  x  8  ft.  x  12  ft.  Feed  Pumps 

Well  and  Intake  for  Water  Supply 

Steam  Pipe  and  Fittings i    9A-  Arin 

Jet  Condensers $47,400. 

Boiler  Settings 

Heaters 

Stack 

Electrical  Equipment: 

2  750  K.W.  Turbo  Alternators 

2  50  K.W.  Exciter  Sets 

3  400  K.W.  Step-up  Transformers $85,200.00 

6  Panel  Switchboards 

Foundations 

SUB-STATIONS 

6  300-K.W.  Rotary  Converters  (4  in  sub-stations,  1  in  power  house 

and  1  portable) 

15  100-K.W.  Step-down  Transformers 

6  Rotary  Switchboard  Panels \   $62,400.00 

"Wiring 

Foundations 

Car  for  Portable  Sub-station t 

ROLLING  STOCK 

8  Standard  Passenger  Cars 

2  Combination  Cars 

2  Package  Freight  Cars 

1  30-Ton  Locomotive  (300  H.P.) $107,000.00 

1  Work  Car 

10  Flat  Cars 


470         MATERIALS    OF    CORPORATION    FINANCE 

SUMMARY  OP  COSTS 

Section  0 $24,730.00 

Section  1 73,285.00 

Section  2 117,035.00 

Section  3 117,388.00 

Section  4 171,703.00 

Section  5 170,505.00 

Line  Construction 168,700.00 

Buildings. 53,300.00 

Power  Plant 132,600.00 

Sub-stations 62,400.00 

Rolling  Stock 107,000.00 


Total $1,198,626 .00 

Seven  Per  Cent,  of  Total  Cost  for  Supervision  of  Construction, 
Engineering,  Contingencies,  and  First  Year's  Carrying 
Charges 83,904.00 

Total  Estimated  Cost $1,282,530.00 

CHARACTER  AND   IMPORTANCE   OF   TRADE. 

Lima,  the  county  seat  of  Allen  County,  is  a  city  noted  as  being  the 
largest  center  for  oil  production  in  the  United  States  and  for  railroad 
and  manufacturing  interests.  It  is  situated  on  the  Ottawa  River, 
ninety-five  miles  northwest  from  Columbus,  and  has  an  elevation  of 
two  hundred  feet  above  Lake  Erie. 

The  city  is  modern  in  every  respect,  ranking  with  the  foremost  in 
Ohio  in  municipal  improvements,  street  railways,  lighting,  business 
blocks,  hotels  and  public  parks.  The  Allen  County  Court  House  is 
an  exceptionally  fine  building,  having  been  constructed  from  sandstone 
and  granite  at  a  cost  of  three  hundred  and  fifty  thousand  dollars. 

The  city  is  a  leading  railroad  center  for  steam  and  electric  lines, 
having  six  steam  and  three  electric  interurban  lines. 

For  the  past  twenty-five  years  the  Lima  field  has  produced  more  oil 
than  has  any  other  field  in  the  world,  the  veins  being  struck  at  depths 
ranging  from  twelve  to  fifteen  hundred  feet.  The  productiveness  of 
the  territory  has  created  an  industry  for  Lima  of  vast  commercial 
value. 

The  numerous  enterprises  of  the  city  are  listed  as  follows : 

MUNICIPAL: 

180  Miles  City  Streets. 

21  Miles  Electric  Street  Railways. 

57  Miles  Sewers. 
Water  Works. 
3  Fire  Department  Stations. 

3  Gas  Companies. 

4  Parks — having  an  area  of  105  acres. 
2  Cemeteries. 


ENGINEER'S    REPORT    ON    PROJECTED   RY.       471 

STEAM  RAILROADS: 

Cincinnati,  Hamilton  &  Dayton   (Shops). 

Lake  Erie  &  Western    (Shops). 

Erie. 

Pennsylvania. 

Detroit  Southern. 

Columbus  &  Lake  Michigan. 

ELECTRIC  RAILROADS: 
Western  Ohio. 
Lima,  Findlay  &  Toledo. 
Fort  Wayne,  Van  Wert  &  Lima. 
Sandusky  &  Southwestern   (under  construction). 

MANUFACTURING: 

3  Gas  Engine  Works. 

1  Gas  Well  Supply  Company. 

1  Cement  Company. 

2  Brick  Manufacturing   Companies. 

3  Cornice  Manufacturing  Companies. 

2  Railway  Shops. 

5  Iron  Works  and  Machine  Shops. 
1  Lock  and  Machine  Company. 
8  Carriage  and  Wagon  Works. 
1  Brass  Foundry. 
1  Marble  Works. 

1  Ice  Company. 

3  Breweries. 

7  Cigar  Companies. 

2  Cloak  and  Suit  Manufacturing  Companies. 
1  Mattress  Manufacturing  Company. 

1  Tannery. 

3  Carpet  Weavers. 
5  Harness  Makers. 

8  Blacksmiths. 

2  Book  Binderies. 

The  various  industries  listed  above  employ  a  total  ot  more  than  six  thou- 
sand men. 

FINANCIAL: 
7  Banks. 

4  Building  and  Loan  Associations. 

5  Trust  Companies. 
4  Brokers. 

2  Bonding  Agencies. 

3  Bonding  Companies. 

3  Foreign  Exchange  Agencies. 

EDUCATIONAL: 

2  Libraries. 

13  Public  Schools. 

3  Private  Schools. 

2  Business  Colleges. 


472         MATERIALS    OF   CORPORATION   FINANCE 

COMMERCIAL: 

4  Builders'  Supply  Companies. 
11  Coal  .Dealers. 
4  Commission  Merchants. 
2  Gas  and  Electric  Fixtures  Companies. 

Branch  of  National  Cash  Register  Company. 
26  Hotels. 

2  Telephone  Companies. 

3  Telegraph   Companies. 

40  Oil  Producing  Companies. 

4  Pipe  Line  Companies. 
3  Ice  Companies. 

29  Cigar  Stores. 

7  Express  Companies. 

3  General  Merchandise  Stores. 
3  Bottling  Works. 

3  Stationery  Stores. 
40  Barber  Shops. 

14  Druggists. 

11  Bakery  and   Confectionery  Stores. 

8  Florists. 

2  Fish  and  Game  Stores. 

11  Jewelers. 

10  Printing  Establishments. 
2  Carpet  Cleaning  Works. 
6  Bicycle  Repair  Shops. 

4  Garages. 

18  Livery  Stables. 

4  Opticians. 

9  Plumbers. 

5  Laundries. 
2  Gunsmiths. 

5  Hardware  Stores. 
13  Milliners. 

10  Shoe  Stores. 

5  Clothes  Cleaning  Companies. 
2  Funeral  Directors. 

12  Furniture  Dealers. 
17  Dry  Goods  Stores. 

11  Flour  and  Feed  Stores. 
26  Meat  Markets. 

83  Saloons  and  Liquor  Stores. 

5  Dairy  Companies. 

1  Department  Store. 
10  Clothing  Stores. 

Swift  &  Company — Meat  Dealers. 

1  Five  and  Ten  Cent  Store. 
87  Groceries. 
32  Restaurants. 


ENGINEER'S   REPORT    ON   PROJECTED   RY.       473 

AMUSEMENTS: 
2  Theaters. 

Race  Track  and  Fair  Grounds. 
2  Bowling  Alleys. 
9  Billiard  and  Pool  Rooms. 
RELIGIOUS  AND  CHARITABLE: 
35  Churches. 

1  Y.  M.  C.  A. 

2  Hospitals. 

53  Secret  Societies. 

The  train  schedules  show  fifty-nine  passenger  trains,  twenty-five 
local,  and  one  hundred  and  fifty  freight  trains  out  of  Lima  every 
twenty-four  hours. 

Forty-six  of  the  eighty-eight  counties  in  the  State  can  be  reached 
from  Lima  without  change  of  cars. 

There  is  hourly  passenger  service  on  all  interurban  lines  entering 
the  city. 

The  Western  Ohio  Railway  Company's  report  shows  that  forty-one 
thousand  six  hundred  and  eight  passengers  were  carried  in  and  out  of 
Lima  during  May,  nineteen  hundred  and  six ;  this  is  an  average  month 
for  the  year. 

The  Allen  County  Fair  attendance  is  from  twenty-five  to  thirty 
thousand. 

Moore  Brothers  &  Company,  wholesale  grocers  transact  business 
with  towns  as  far  east  as  Kenton  to  ths  amount  of  two  thousand  dol- 
lars per  month.  They  also  have  incoming  stock,  from  their  house  to 
Columbus,  to  an  amount  of  twenty-five  hundred  dollars  per  month. 
They  state  that  it  will  be  to  their  advantage  to  give  the  handling  of 
all  the  above  freight  to  The  Lima  Eastern  Railway. 

Sealts  &  Company,  producers,  have  a  trade  amounting  to  fifty  thou- 
sand dollars  per  year  with  the  towns  and  fanners  between  Lima  and 
Kenton.  They  guarantee  the  handling  of  all  their  freight  to.  this  line. 

Altschul  Brothers,  wholesale  commission  merchants,  state  that  their 
Company  transacts  a  business  of  ten  thousand  dollars  per  month  be- 
tween Lima  and  Kenton.  The  proposed  electric  railway  would  secure 
all  their  freight  business. 

Traffic  east  out  of  Lima,  for  the  month  of  May,  1906,  over  tfifi  Erie 
Railroad,  shows  as  follows : 

312  Return  Tickets  Sold  to  Marion. 
503  Return  Tickets  Sold  to  Kenton 
200  Return  Tickets  Sold  to  Other  Points. 
143  Mileage  Passengers  to  Other  Points. 

The  above  statement  may  be  taken  as  an  average  month  of  the  year. 
The  passenger  traffic  to  Lima  from  outside  points  is  shown  in  the 
following  list  of  villages : 


474         MATEEIALS    OF   CORPORATION   FINANCE 

WESTMINSTER  is  a  village  of  three  hundred  population,  located 
southeast  one  and  one-quarter  miles,  by  highway,  from  Westminster 
Station,  on  the  Erie  Railroad. 

All  merchandise  and  supplies  brought  into  this  village  come  via  the 
Erie  Railroad  to  Westminster  Station  and  are  freighted  from  there 
by  wagon. 

There  are  two  general  stores  doing  a  business  of  ten  thousand 
dollars  annually,  and  supplying  the  country  within  a  radius  of  four 
miles  on  the  north,  west  and  south  and  two  miles  east. 

The  hotel  accommodates  about  fifty  transients  per  week. 

The  enterprises  of  Westminster  are  as  follows: 

1  Drug  Store.  1  Hotel. 

2  General  Stores.  1  Restaurant. 

1  Blacksmith  Shop. 

The  village  also  has : 

A  Post  Office.  1  Graded  School. 

1  Town  Hall.  3  Churches. 

The  Erie  Railroad  is  rarely  used  by  persons  going  to  Lima ;  as  the 
trains  are  now  operated,  it  is  impossible  to  make  a  round  trip  of  seven 
miles  in  one  day. 

Westminster  Station  is  shown  at  "Mile  6"  on  the  right  of  way  map. 

HARRODS  is  an  incorporated  village  having  a  population  of  five 
hundred,  is  located  on  the  Erie  Railroad,  and  shown  at  "Mile  10"  on 
the  right  of  way  map. 

.  The  leading  general  store  has  a  trade  aggregating  fifteen  thousand 
dollars  annually,  and  the  other  ten  stores  ten  thousand  dollars  an- 
nually. 

The  hardware  store  does  an  annual  business  of  fifteen  thousand  dol- 
lars and  has  freight  bills  to  the  amount  of  four  hundred  dollars. 

The  leading  bakery  has  a  trade  of  seven  thousand  dollars  annually 
and  freight  bills  amounting  to  two  hundred  dollars. 

The  meat  market  does  a  wholesale  and  retail  business,  shipping  meat 
to  Lima. 

The  business  places  of  Harrods  are  shown  as  follows : 

1  Grist  Mill.  1  Handle  and  Stave  Factory. 

2  General  Stores.  1  Lumber  Yard  and  Planing  Mill. 
2  Grocery  Stores.  1  Livery. 

2  Hotels.  2  Bakeries. 

1  Hardware  Store.  1  Meat  Market. 

2  Blacksmith  Shops.  1  Furniture  Store. 

1  Barber  Shop. 

There  is  also  in  the  village  three  churches  and  a  first  class  graded 
school. 


ENGINEER'S    REPORT    ON   PROJECTED    RY.       475 

The  village  is  progressive,  maintaining  roads  in  excellent  condition 
and  having  cement  walks  on  all  the  principal  streets. 

The  present  travel  by  rail  and  team  is  reported  as  fifteen  to  Lima 
and  west,  and  the  same  number  to  Kenton,  Marion  and  east  daily. 

The  hotels  of  Harrods  have  two  hundred  and  fifty  transients  per 
week. 

A  round  trip  from  this  point  to  Kenton  or  east,  cannot  be  made  in 
one  day  on  the  Erie  Railroad,  and  west  only  by  returning  at  mid- 
night. 

ALGER  is  an  incorporated  village  having  a  population  of  nine  hun- 
dred, located  on  the  Erie  Railroad,  and  at  "Mile  14"  on  right  of 
way  map. 

The  general  store  has  a  trade  aggregating  twenty-six  thousand 
dollars  annually.  The  hardware  store  has  trade  amounting  to  twelve 
thousand  dollars  annually. 

The  leading  hotel  accommodates  two  hundred  and  fifty  transients 
per  week,  and  the  other  about  one  hundred  and  fifty. 

The  village  has  cement  sidewalks  on  all  its  principal  streets. 

Traffic  is  estimated  at  twenty  per  day  each  way  by  rail  and  team. 

The  business  enterprises  of  Alger  are  as  follows : 

1  Saw  Mill.  1  Brick  and  Tile  Plant. 

2  Hotels.  1  Hardware  Store 
4  General  Stores.                                   3  Restaurants. 

2  Billiard  Halls.  2  Liveries. 

2  Meat  Markets.  2  Barber  Shops. 

1  Blacksmith  Shop.  1  Elevator. 

1  Drug  Store.  1  Lumber  Yard  and  Planing  Mill. 

Telephone  Exchange.  Onion  Storage  House. 

1  Jewelry  Store. 

The  village  also  contains  two  churches  and  a  graded  school. 

A  round  trip  to  Kenton  or  east,  via.  Erie  Railroad,  cannot  be 
made  in  one  day,  and  west  only  by  returning  about  midnight. 

SCIOTO  MARSH  is  a  tract  of  comparatively  low  land  containing 
eighteen  thousand  acres  lying  between  Alger  and  Foraker  on  the  Erie 
Railroad  and  extending  about  equal  distance  north  and  south. 

The  marsh,  so-called,  was  originally  a  shallow  lake  fed  by  the 
Scioto  River  from  the  south  and  numerous  creeks  from  the  surround- 
ing higher  land.  The  outlet  was  the  Scioto  River  to  the  north.  By 
extensive  dredging  the  outlet  was  deepened  enough  to  entirely  drain 
the  lake,  and  numerous  tributary  reclamation  ditches  were  excavated, 
which,  at  the  present  time,  make  possible  the  cultivation  of  the  en- 
tire eighteen  thousand  acres.  Only  about  half  of  this  is  under  culti- 
vation, due  entirely  to  inadequate  transportation.  The  soil  is  a 


476         MATEEIALS    OF    CORPORATION    FINANCE 

comparatively  light  black  muck  and  well  adapted  to  the  raising  of 
farm  and  garden  products. 

During  the  season  1903,  a  good  year  for  the  crops,  one  thousand 
one  hundred  cars  of  onions  shipped  out  through  the  towns  of  Alger, 
McGuffey  and  Foraker;  seven  hundred  cars  in  1904  and  seven 
hundred  in  1905,  the  last  two  being  poor  years. 

The  average  shipment  of  potatoes  is  from  five  to  six  hundred  cars ; 
corn  seven  hundred  to  eight  hundred  cars,  and  miscellaneous  products 
three  hundred  to  three  hundred  and  fifty  per  year.  These  shipments 
would  be  practically  doubled  by  a  spur  line  into  the  center  of  the 
marsh. 

The  development  of  the  remainder  of  this  tract  of  land  will  be 
possible  only  by  the  construction  of  a  railroad  which  will  give  the 
required  outlet  for  its  products.  It  is  now  entirely  dependent  upon 
the  Erie  Railroad,  which  road  has  never,  in  the  past,  been  able  to 
furnish  a  sufficient  number  of  cars  for  the  territory  developed. 

The  passenger  traffic  into  the  marsh  is  worthy  of  consideration,  as 
labor  for  the  cultivation  and  harvesting  of  crops  comes  principally 
from  Lima,  Kenton,  and  other  surrounding  towns. 

McGTJFFEY  is  an  incorporated  village  of  six  hundred,  present 
population,  is  located  on  the  Erie  Railroad  at  "Mile  17.4"  on  right 
of  way  map.  It  lies  in  about  the  center  of  Scioto  Marsh. 

A  fair  proportion  of  the  products  of  this  locality  are  shipped  over 
the  Erie  Railroad  from  McGuffey. 

The  four  general  stores  are  each  doing  a  business  of  from  five  to 
seven  thousand  dollars  annually. 

The  Edwards  and  Stanbaugh  Company  own  and  cultivate  twenty- 
five  hundred  acres  of  the  Scioto  Marsh  lying  adjacent  to  the  south 
line  of  the  town  and  do  all  their  shipping  from  that  point.  Their 
principal  products  are  onions  and  potatoes. 

The  business  of  the  village  is  shown  by  the  following  statement: 

2  Meat  Markets.  2  Restaurants. 

1  Barber  Shop.  4  General  Stores. 

1  Saloon.  1  Hotel. 

1  Livery.  1  Elevator. 

1  Coal  Yard.  11  Onion  Storage  Houses. 
Telephone  Exchange.  3  Churches. 

Cement  sidewalks  are  laid  on  all  the  main  streets. 

Traffic  is  estimated  at  nine  per  day  each  way. 

The  same  conditions  prevail  here,  relative  to  return  trips  east  or 
west,  as  at  Alger  and  Harrods. 

FORAKER  is  practically  divided  into  East  and  West  Foraker; 
both  are  located  on  the  Erie  Railroad.  West  Foraker  is  at  "Mile  20" 


ENGINEER'S   REPORT    ON   PROJECTED    RY.       477 

and  East  Foraker  at  "Mile  20.5"  on  the  right  of  way  map.  Popula- 
tion is  one  hundred  and  fifty. 

This  village  lies  on  the  east  edge  of  the  Scioto  Marsh  and  has 
about  the  same  percentage  of  products  from  the  Marsh,  shipped  from 
its  station,  as  has  Alger. 

The  Erie  Railroad  station  and  sidings  are  located  at  West  Foraker. 
The  business  of  the  west  section  is  as  follows : 

2  General  Store  2  Elevators 

1  Coal  Yard.  1  Storage  House. 

East  Foraker  is  more  properly  the  center  of  the  village  when  con- 
sidered as  a  whole,  the  stores  surpassing  the  [western?]  section,  as  well 
as  being  the  religious  and  educational  center. 

The  business  is  listed  as  follows: 

2  General  Stores.  1  Blacksmith  Shop. 
1  School  House.                                      2  Churches. 

Traffic  each  way  is  estimated  at  five  per  day. 

The  conditions  here  for  return  trips  by  the  Erie  Railroad  are 
similar  to  those  at  the  stations  west. 

KENTON,  the  county  seat  of  Hardin  County,  is  fifty-six  miles 
northwest  of  Columbus  and  seventy  miles  from  Toledo.  It  is  an 
enterprising  commercial  and  manufacturing  city  and  is  an  important 
railroad  center,  being  located  on  the  main  line  of  the  Erie  Railroad 
and  traversed  north  and  south  by  the  Toledo  and  Ohio  Central  and 
Big  Four  Railroads.  The  Toledo  and  Ohio  Central  shops  are  located 
in  this  city. 

The  streets  of  the  city  are  well  paved,  and  excellent  turnpiked 
roads  radiate  into  the  surrounding  country. 

The  Kenton  and  Southern  Railway  Company  has  constructed  about 
two  miles  of  track  on  the  line  to  Bellefontaine. 

The  city  has  a  present  population  of  nine  thousand  two  hundred 
and  seventy. 

The  various  industries  are  listed  as  follows: 

MUNICIPAL: 

Fire  Department. 
Water  Works. 
Sewer  System. 
Electric  Light  Plant. 
Natural  Gas. 

STEAM  AND  ELECTRIC  RAILROADS: 
Erie  Railroad. 
Big  Four  Railroad. 
Toledo  &  Ohio  Central  Railroad. 
Kenton  and  Southern  Railway  (under  construction). 


478         MATERIALS    OF    CORPORATION    FINANCE 

MANUFACTURING: 

Toledo  and  Ohio  Central  Railway  Shops. 
3  Iron  and  Machine  Works. 
3  Planing  Mills. 
3  Gas  Engine  Manufacturing  Companies. 

3  Carriage  Manufacturing  Companies. 
1  Cigar  Manufacturing  Company. 

1  Drain  Tile  Manufacturing  Company. 

1  Ice  and  Cold  Storage  Company. 

8  Blacksmith  Shops. 

1  Rubber  Works. 

1  Tannery. 

1  Cement  Block  and  Tile  Roofing  Company. 

1  Brewery. 

1  Handle  Factory. 

1  Cracker  Factory. 

2  Flour  Mills. 
1  Dye  Works. 

FINANCIAL: 

4  Banks. 

1  Building  and  Loan  Association. 

EDUCATIONAL: 

1  Library. 

5  Public  Schools. 

COMMERCIAL: 

7  Farming  Implement  Stores. 

3  Electric  Companies. 

4  Elevators. 

Western  Union  Telegraph  Company. 

2  Telephone  Companies. 
2  Daily  Newspapers. 

5  Weekly  Newspapers. 
7  Hardware  Stores. 

7  Coal  Yards. 

1  Bottling  Works. 

2  Draying  Companies. 
2  Dining  Halls. 

7  Drug  Stores. 

4  Dry  Goods  Stores. 

5  Hotels. 

2  Hack  and  Transfer  Lines. 

8  Liveries. 

5  Clothing  Stores. 

14  Confectioneries. 

24  Grocers. 

3  Cafes. 

17  Cigar  Stores. 

4  Wagon  Shops. 
7  Feed  Stores. 


ENGINEER'S   REPORT    ON   PROJECTED   BY.       479 

5  Gent's  Furnishing  Stores. 
3  Furniture  Stores. 

1  Gunsmith. 
3  Laundries. 

8  Meat  Markets. 

9  Merchant  Tailors. 

7  Millinery  Stores. 
3  Music  Stores. 

15  Barber  Shops. 

2  Five  and  Ten  Cent  Stores. 

8  Cleaning  and  Pressing  Stores. 

2  Creameries. 

9  Restaurants. 

32  Saloons  and  Liquor  Stores. 

3  Second  Hand  Stores. 

2  Undertakers. 

4  Bakeries. 

7  Bicycle  Stores. 

3  Cloak  and  Suit  Companies. 
3  Jewelry  Stores. 

3  Book  Stores. 
2  Florists. 

AMUSEMENTS : 

Opera  House. 
1  Skating  Rink. 
1  Bowling  Alley. 
10  Billiard  Parlors. 

Race  Track  and  Fair  Grounds. 

RELIGIOUS  AND  CHARITABLE: 
1  Hospital. 
15  Churches. 
20  Secret  Societies. 

The  various  manufacturing  enterprises  in  Kenton  give  employment 
to  over  twelve  hundred  men. 

People  living  in  the  country  and  west  of  Kenton,  on  the  Erie 
Railroad,  cannot  go  to  Kenton  and  return  the  same  day  on  this  rail- 
road. This  city  has  no  interurban  or  city  car  lines. 

HEPBURN  is  located  on  the  Erie  Railroad  one  and  one-quarter 
miles  south  of  "Mile  33.3"  on  the  right  of  way  map. 

The  town  of  Hepburn  proper  has  a  population  of  one  hundred  and 
fifty,  but  the  principal  feature  is  the  park  lying  adjacent  to  the  Scioto 
River  and  a  lake  fed  by  springs. 

This  is  the  only  park  in  this  locality  and  is  greatly  patronized  by 
residents  of  Kenton,  Marion  and  the  surrounding  towns.  Excur- 
sionists are  brought  to  this  lake  over  the  Erie  Railroad,  from  places 
at  a  great  distance.  Private  parties,  to  the  number  of  twenty  or 
thirty  individuals,  drive  to  the  park  from  Kenton  on  an  average  of 


480         MATEEIALS    OF    CORPORATION    FINANCE 

two  or  three  per  week  during  the  season.  It  is  customary  for  the 
churches  to  hold  their  annual  picnics  in  this  park. 

The  park  is  equipped  with  customary  amusements,  and  affords 
boating,  bathing,  and  fishing  in  the  river  to  the  patrons. 

A  large  number  of  campers  are  located  at  the  lake  during  the 
season,  and  upon  the  grounds  may  be  purchased  all  supplies  needed. 

The  total  attendance  is  from  fifteen  to  eighteen  thousand  annually. 

A  branch  line  from  the  Lima-Eastern  could  be  built  to  this  park, 
developing  it  to  a  greater  extent  and  making  it  a  feature  of  the  road 
and  a  source  of  great  revenue. 

MARSEILLES  is  on  incorporated  village  lying  three  and  one- 
half  miles  north  of  "Mile  35.3"  on  the  right  of  way  map.  Its  present 
population  is  four  hundred. 

This  village  is  entirely  isolated  from  railway  facilities,  the  Erie 
Railroad  lying  seven  miles  to  the  south  and  the  Pennsylvania  Railroad 
eight  miles  to  the  north.  All  merchandise  and  supplies  are  freighted 
by  wagon  from  Kenton,  Marion  and  DeCliff. 

A  freight  station  built  at  "Mile  35.3."  would  provide  storage  for 
freight  that  went  into  the  products  that  came  from  Marseilles,  and 
the  Road  derive  a  revenue  from  all  the  business  done  in  the  Village. 

The  one  general  store  carries  a  full  line  of  merchandise  and 
transacts  business  to  the  amount  of  twenty  thousand  dollars  annually. 
They  would  doubtless  exceed  this  amount  with  better  transportation 
facilities.  The  surrounding  district  is  supplied  from  this  village. 

The  business  enterprises  of  this  village  are  as  follows : 

1  General  Store.  1  Barber  Shop. 

1  Meat  Market.  1   Furniture  Store. 

1  Hotel.  1  Hardware  Store. 

1  Stave  Factory. 

The  village  also  contains  two  churches,  one  graded  school,  one 
post  office. 

SCOTTOWN  is  located  at  "Mile  43.4,"  has  a  population  of  two 
hundred,  and  its  nearest  railroad  is  about  four  miles  south  of  the 
village.  All  merchandise  and  supplies  are  freighted  by  wagon  from 
Marion  or  DeCliff.  Over  two  hundred  and  fifty  tons  of  coal  were 
brought  to  the  village  in  this  manner  last  year  for  individual  use. 

The  transfer  of  cars  from  the  Toledo  and  Ohio  Central  at  Kenton, 
or  the  Columbus,  Hocking  Valley  and  Toledo  at  Marion  could  readily 
be  accomplished  on  the  electric  road,  the  reduced  cost  for  hauling 
in  the  coal  making  this  fuel  in  greater  demand. 

The  three  general  stores  handle  over  twenty-five  thousand  dollars 


ENGINEER'S   REPORT    ON   PROJECTED   RY.       481 

worth  of  merchandise  per  annum,  all  of  which  would  be  freighted 
over  the  Lima-Eastern. 

The  town  is  very  prosperous,  lying,  as  it  does,  in  the  center  of  an 
excellent  agricultural  district. 

Following  is  a  list  of  the  business  enterprises  of  this  village : 

3  General  Stores.  1  Hotel. 

1  Barber  Shop.  2  Blacksmith  Shops. 

There  is  also  in  the  village  a  church,  graded  school,  and  a  post 
office. 

BIG  ISLAND  is  a  town  having  a  population  of  about  fifty.  There 
are  no  railroads,  whatever,  running  through  this  village.  It  is  shown 
at  "Mile  48.8"  on  the  right  of  way  map.  All  supplies  are  freighted 
by  wagon  from  Marion.  It  contains  one  general  store,  a  blacksmith 
shop,  one  church  and  a  school. 

The  proposed  line  passes  through  the  center  of  the  settlement. 

MARION,  the  county  seat  of  Marion  County  is  a  thriving  railroad 
and  manufacturing  city  located  forty-four  miles  north  of  Columbus. 

The  Columbus,  Delaware  and  Marion  Railway  is  in  operation  south 
to  Columbus,  and  a  line  is  now  under  construction  north  to  Bucyrus. 
This  line  gives  excellent  passenger  and  freight  service,  having  an 
hourly  schedule  from  six  A.M.  to  nine  P.M.  to  Columbus,  and  ten  and 
eleven  P.M.  to  Stratford.  Cars  arrive  from  Stratford  at  six,  seven, 
and  eight  A.M.,  and  from  nine  A.M.  to  eleven  P.M.  from  Columbus. 
The  running  time  from  Marion  to  Columbus  is  two  hours  and  twenty- 
five  minutes,  and  from  Marion  to  Delaware  one  hour,  making  con- 
nections at  Prospect  for  Richwood  and  at  Delaware  for  Magnetic 
Springs.  The  fare  from  Marion  to  Columbus  is  seventy-five  cents, 
round  trip  one  dollar  forty-five  cents ;  from  Marion  to  Delaware  forty 
cents,  round  trip  seventy-five  cents. 

Four  railroads  pass  through  Marion — the  Big  Four,  Erie,  The 
Columbus,  Hocking  Valley  and  Toledo,  and  the  Columbus  and  San- 
dusky  branch  of  the  Pennsylvania. 

The  Erie  Railroad  freight  tonnage  at  Marion  for  last  year  was 
eight  hundred  fifty  thousand  tons;  the  passenger  earnings  at  Marion 
Station  were  eighty-five  thousand  dollars.  This  covers  out-going 
business  in  both  directions. 

The  principal  manufacturies  are  steam  shovels,  contractors'  tools 
and  harvesting  machinery.  The  limestone  quarries  have  an  enormous 
output  of  crushed  rock,  building  stone,  and  lime. 

The  growth  of  Marion  in  recent  years  has  been  phenomenal — the 
population  in  1890  was  8,327,  in  1900  11,8G2,  and  at  present  it  is 
estimated  at  17,000. 


482         MATERIALS    OP   CORPORATION   FINANCE 

The  value  of  property,  according  to  tax  duplicates  is  six  million 
seven  hundred  thousand  dollars;  actual  real  estate  values  eighteen 
million  two  hundred  fifty  thousand  dollars. 

The  industries  of  the  city  are  carried  on  by  about  fifty  manufactur- 
ing companies  giving  employment  to  more  than  five  thousand  persons 
with  an  annual  pay  roll  in  excess  of  three  million  dollars. 

The  numerous  enterprises  of  the  city  are  listed  as  follows: 

MUNICIPAL: 

18  Miles  of  Paved  Streets. 
Water  Works. 
Sewer  System. 
Garbage  Disposal  Plant. 

4  Parks. 

3  Fire  Departments. 

1  Patrol  Station. 

STEAM    RAILROADS: 
The  Big  Four. 
The  Erie. 

Columbus,  Hocking  Valley  &  Toledo. 
Columbus  &  Sandusky. 

ELECTRIC    RAILROADS: 

Columbus,  Delaware  &  Marion  Railway. 
Marion  Railway  Light  and  Power  Plant. 

MANUFACTURING: 

Marion  Steam  Shovel  Company. 
Huber  Manufacturing  Company. 

2  Brick  Manufacturing  Companies. 
2  Planing  Mills. 

2  Ice  Companies. 

3  Stone  Quarries. 
1  Brewery. 

1  Silk  Manufacturing  Company. 
3  Cigar  Manufacturing  Companies. 
1  Monumental  Works. 
3  Wagon  Manufacturing  Companies. 

8  Blacksmiths. 

FINANCIAL : 

5  Banks. 

3  Building  and  Loan  Associations. 

COMMERCIAL: 

1  Bottling  Works. 

5  Piano  Stores. 

9  Hardware  Stores. 
10  Hotels. 

10  Liveries. 

6  Jewelers. 

44  Saloon  and  Liquor  Stores. 


ENGINEER'S    REPORT    ON   PROJECTED   RY.       483 

52  Groceries. 

11  Dry  Goods  Stores. 

11  Druggists. 

3  Express  Companies. 

2  Telegraph  Companies. 
2  Telephone  Companies. 
5  Dairies. 

8  Clothiers. 

9  Wood  and  Coal  Yards. 
2  Furniture  Stores. 

5  Feed  Stores. 

19  Meat  Markets. 

4  Restaurants. 

2  Wholesale  Grocers. 

20  Barber  Shops. 

2  Daily  Newspapers. 

2  Semi-weekly  Newspapers. 

4  Weekly  Newspapers. 

22  Shoe  Dealers. 
8  Confectioners. 

8  Millinery  Stores. 

5  Cigar  Stores. 
2  Florists. 

2  Laundries. 

3  Undertakers. 

EDUCATIONAL: 

10  Public  Schools. 
1  Public  Library. 

AMUSEMENTS : 

Opera  House. 
Fair  Grounds. 

1  Skating  Rink. 

CHARITABLE   AND  RELIGIOUS: 

2  Hospitals. 

Young  Men's  Christian  Association. 

23  Churches. 

40  Secret  Societies. 


PASSENGEB  INCOME. 

The  location  of  proposed  line,  and  character  of  territory  occupied, 
makes  the  possibilities  for  passenger  traffic  particularly  attractive. 

The  proposed  road  runs  through  three  prosperous  counties,  whose 
aggregate  population  is  one  hundred  and  eighteen  thousand,  and  con- 
nects by  a  direct  line  the  three  county  seats.  In  each  city,  the  existing 
east  and  west  steam  road  has  its  station  remote  from  the  business 


484 


center,  while  the  Lima-Eastern  traverses  the  principal  streets  and 
reaches  the  center  of  each  city. 

The  three  principal  cities  on  the  line  are  traversed  north  and  south 
by  steam  roads,  and  the  terminal  cities  by  electric  roads,  creating 
transportation  facilities  for  an  east  and  west  line. 

A  comparison  of  the  United  States  census  reports  for  the  decennial 
periods  of  1890  and  1900  shows  a  rapid  increase  in  the  population  of 
Lima,  Kenton  and  Marion.  This  rate  has  been  exceeded  in  recent 
years,  and  according  to  the  most  accurate  information  available,  the 
present  population  of  Lima  is  thirty  thousand ;  Kenton,  nine  thousand, 
and  Marion,  seventeen  thousand.  Local  estimates  place  the  figures 
considerably  above  those  given  herein. 

In  estimating  passenger  income,  the  total  population  has  been  taken 
four  miles  from  located  line  for  direct  traffic. 

For  tributary  passenger  income,  an  estimate  has  been  made  of  the 
population  along  steam  and  electric  roads  out  of  Lima,  Kenton  and 
Marion  to  the  principal  city  or  village  at  a  distance  not  exceeding  fif- 
teen miles  from  the  Lima-Eastern  Railway. 


TABLE  SHOWING  POPULATION  DIRECTLY  ON  LINE 


Allen  County — 


Hardin  County . .  ( 


Wyandot .-     Marseilles. 


Township 

Census 

Percentage 

1900 

Covered 

German  

....  1,511 

50 

Shawnee  

1,493 

30 

Bath  

1,517 

60 

Perry  

1,467 

70 

Jackson  

1,931 

50 

Auglaize  

1,909 

80 

[Liberty  

.   1,410 

40 

Marion  

1,098 

90 

Round  Head  

1,331 

10 

Washington  

1,334 

10 

Cessna  

804 

90 

I  Lynn  

1,127 

60 

Pleasant  

1,418 

75 

Buck  

1,070 

80 

Goshen  

953 

80 

Dudley  

1,320 

75 

997 


Marion  County.. 


Grand 499 

Montgomery 1,325 

Salt  Rock 619 

Big  Island '. .  1,342 

Grand  Prairie 502 

Marion 1,360 

Pleasant 1,109 

Claridon 1,070 


25 

100 
80 
80 
90 
40 

100 
25 
25 


Popu- 
lation 

755 

448 
910 

1,027 
965 

1,528 

564 
988 
133 
133 
724 
676 
1,065 
856 
762 
990 

249 

499 
1,060 

495 
1,208 

201 
1,360 

277 

267 


Total 18,140 


ENGINEER'S    REPORT    ON   PROJECTED   RY.       485 


Cities  and  Villages 
Lima  

1890 
15,981 

Census 
1900 
21,723 

Estimated 
1908 
30,000 

Harrod  

269 

370 

500 

Alger  

462 

900 

McGuffey  

452 

600 

Kent  on  

5,557 

6,852 

9,000 

Scottown  

200 

Marseilles  

231 

251 

400 

Marion  

8,327 

11,862 

17,000 

Total  for  Line.. 

58,600 
76,740 


Total  population  directly  on  line,  per  mile,  1,395. 


TABLE  Seowma  POPULATION  TRIBUTARY  TO  PROPOSED  LINE  ALONG  STEAM  AND 
ELECTRIC  ROADS  CROSSING  OR  AT  TERMINALS  OP  LIMA-EASTERN 

Cities,  Villages  and  Census       Percentage        Popu- 

Townships  1900  Covered  lation 

Columbus  Grove  Village 1,935  100  1,935 

Pleasant  Township 1,466  25  366 

West  Cario  Village 338  100  338 

Monroe  Township 1,537  50  767 

Bath  Township 1,517  40  607 

Sugar  Creek  Township 1,416  50  708 

Sugar  Creek  Township 1,038  50  518 

German  Township 1,511  50  755 

DelphosCity 4,517  100  4,517 

Marion  Township 2,284  50  1,142 

Jennings  Township 1,338  25  334 

Spencerville. 1,874  100  1,874 

Lima J  Spencer  Township 1,142  50  571 

Amanda  Township 1,384  50  692 

Shawnee  Township 1,493  70  1,045 

Moulton  Township 1,286  50  643 

Logan  Township 1,473  25  368 

Cridersville 581  100  581 

Wapakoneta  Village 3,915  100  3,915 

Duchouquet  Township 1,636  50  818 

Union  Township 1,666  25  416 

Clay 1,647  25  412 

Perry  Township l,4t>7  30  440 

Beaver  Dam  Village 477  100  477 

Bluffton  Village 1.78J  100  1,873 

Richland 1,839  50  918 

Total  West  Terminal 26,940 

Dunkirk-Village..                  .  1,222  100  1,222 

Blanchard  Township 804  25  200 

Pleasant  Township 1,418  25  354 

Forest  Village 1,155  100  1,155 

Patterson  Village 219  100  219 

Jackson  Township 822  50  411 

Lynn  Township 1,127  40  450 

Kenton -I  Taylor  Creek  Township 864  50  432 

Belle  Center  Village 962  100  '.».-' 

Richland  Township 1,191  50  .V.i/i 

McDonald  Township 1,947  25  -ls.'» 

Buck  Township 1,070  20  214 

Ridgeway  Village 447  100  447 

Hale  Township 859  25  214 

Bokes  Creek  Township 90 1  50 

Total  Kenton..  7,840 


486         MATERIALS    OF   CORPORATION    FINANCE 

Cities,  Villages  and         Census      Percentage        Popu- 

Townships  1900  Covered  lation 

'  Little  Sanduskj  Village 181  100  181 

Pitt  Township 992  50  496 

Salt  Rock  Township 619  20  124 

Grand  Prairie  Township 502  60  301 

Scott  Township 549  25  137 

Dallas  Township 465  25  116 

Caledonia  Village 682  100  682 

Claridon  Township 1,070  25  267 

Marion Tully  Township 877  50  438 

Pleasant  Township 1,109  75  832 

Waldo  Village 278  100  278 

Waldo  Township 644  50  322 

Prospect  Village 983  100  983 

Prospect  Township 850  50  425 

Marlboro  Township 397  50  198 

Radnor  Township 1,133  50  566 

Green  Camp  Village 369  100  369 

Green  Camp  Township 962  25  240 

Total  East  Terminal 6,955 

SUMMARY  OP  TRIBUTARY  POPULATION 

Lima — West  Terminal 26,940 

Kenton — North  and  South  Connections 7,840 

Marion — East  Terminal 6,955 

Total 41,735 

Total  tributary  population  per  mile,  759. 

UNITED    STATES    MAIL. 

Under  conditions  of  business  and  transportation,  similar  to  those 
shown  on  proposed  line,  the  mail  business  has  been  almost  invari- 
ably secured  by  electric  roads.  This  is  due,  in  a  great  measure,  to 
frequency  of  cars,  more  rapid  handling  of  mail,  and  to  the  fact  that 
electric  cars  are  run  through  village  streets,  making  the  transfer  from 
railway  to  post  office  more  convenient  and  rapid. 

With  two  round  trips  per  day,  for  three  hundred  and  ten  days, 
the  mail  cars  will  cover  sixty-eight  thousand  two  hundred  car  miles 
during  the  year. 

This  service  will  give  a  revenue  of  not  less  than  seven  thousand  five 
hundred  dollars  per  annum. 


PACKAGE  FREIGHT  AND   EXPRESS. 

As  heretofore  shown,  there  is  a  large  business  of  this  character 
between  the  farms  and  villages  and  the  principal  cities. 

One  express  car  can  cover  the  route  both  ways  in  one  day,  handling 
the  bulk  of  shipments;  the  combination  cars  can  carry  small  con- 
signments at  two  hour  intervals. 


ENGINEER'S   REPORT   ON   PROJECTED   RY.       487 

It  is  estimated  that  five  tons  per  day  of  miscellaneous  merchandise 
can  readily  be  secured,  which,  carried  at  an  average  price  of  thirty 
cents  per  hundred,  would  be  thirty  dollars  per  day  or  nine  thousand 
three  hundred  dollars  for  three  hundred  and  ten  days. 

DAISY  PRODUCTS. 

While  Allen,  Hardin  and  Marion  counties  do  not  take  a  prominent 
lead  in  dairy  products,  there  is,  of  course,  a  possibility  of  handling 
the  milk  trade  to  terminal  cities.  The  present  condition,  as  pre- 
viously set  forth,  relative  to  present  transportation  facilities,  make 
dairy  farming  unattractive. 

The  altered  conditions,  brought  about  by  the  construction  of  a  high- 
speed interurban  road,  would  result  in  this  industry  being  followed 
more  extensively,  giving,  within  a  few  years,  an  excellent  source  of 
revenue. 

The  following  estimate,  however,  is  based  upon  trade  that  could 
be  derived  at  this  time: 

800  gal.  milk  per  day— 288,000  per  yr.  @  2c '$5,760 

Butter,  eggs,  etc.,  per  yr 1,000 

FREIGHT. 

The  territory  between  Lima  and  Kenton  is  served  by  the  Erie  Rail- 
road, but  on  account  of  infrequency  of  trains,  lack  of  cars  for  sum- 
mer and  autumn  shipments,  and  the  fact  that  a  large  part  of  the  con- 
signments are  transferred  to  other  roads,  it  will  be  possible  for  an 
electric  line  to  secure  a  fair  portion  of  this  transportation. 

Outside  the  cities  of  Lima,  Kenton  and  Marion  the  supply  of  coal 
could  be  more  economically  handled  by  the  Lima-Eastern  than  by 
the  Erie  Railroad,  as  the  rate  would  be  lower,  more  prompt  service 
assured,  and  in  the  majority  of  cases,  particularly  at  Big  Island, 
Scottown  and  Marseilles,  the  advantage  would  be  more  than  doubled. 

Farm  products  are  extensively  shipped  by  car  lots  or  teamed  to 
the  nearest  city. 

The  region,  known  as  the  Scioto  Marsh,  shows  the  greatest  industry 
in  car  shipments,  but  a  large  business  could  be  developed  for  consign- 
ments to  north  and  south  roads,  and  even  for  transfer  to  the  Erie 
Railroad,  from  points  east  of  Kenton. 

Large  quantities  of  lumber,  shingles,  brick,  cement,  lime,  and  other 
building  materials  are  constantly  being  brought  into  the  territory, 
and  in  many  instances  the  charges  for  teaming  are  from  four  to 
five  times  the  cost  of  hauling  by  electric  line. 

Such  necessities  as  harvesting  machinery,  wire  fencing,  fortili/rrs, 
and  other  farm  implements  are  also  transported  by  team,  all  of 
which  would  go  toward  making  up  an  extensive  traction  business. 


488         MATEEIALS    OF   COKPOKATION    FINANCE 

The  income  from  freight,  which  may  be  derived  from  the  terri- 
tory traversed,  is  estimated  as  follows : 

Coal,  125  cars— 3,750  tons,  @  $0.40 $1,500 

Farm  products,  600  cars,  @  $10.00 6,000 

Building  material,  farm  implements,  etc.,  20  cars,  @  $10.00. . . .        200 

REVENUE  AND  OPERATING  EXPENSE. 

Annual  Revenue 

1.  Passenger  Traffic: 

(a)  Directly  on  line,  76,740  @  $2.25 $172,665.00 

(b)  Tributary  to  line,  41,735  ©  $0.22^ 9,390.00 

(1-10  of  above  rate) 

(c)  Transfer  of  passengers  from  distant  points 

on  roads,  from  and  between  steam  and 
electric  railroads,  in  Lima,  Kenton  and 
Marion 2,500.00  $184,555.00 

2.  United  States  Mail 7,500. 00 

3.  Package  Freight  and  Express 9,300.00 

4.  Dairy  Products: 

(a)  Milk." $5,760.00 

(b)  Butter,  eggs,  etc 1,000.00          6,760.00 

5.  Freight: 

(a)  Coal $1,500.00 

(b)  Farm  products 6,000.00 

(c)  Miscellaneous 200.00          7,700.00 

Total  Estimated  Revenue $215,815.00 

Operating  Expense 

Per  Car-Mile: 

Maintenance $0. 025. 

Power  Plant  Operation 0. 030 

Operation  of  Cars 0 . 055 

Miscellaneous . .  0 . 020 


Per  Car-Mile $0. 130 

Car-Miles: 

Passenger  Service 743,200 

Express,  Freight,  Work  Trains,  etc 137,600 

Total  Car-Miles 880,800 

880,800  Car-miles @  $0. 13    $114,505.00 


Gross  Income,  Less  Operating  Expenses $101,310.00 

ESTIMATED  INCOME  FEOM  FIRST  YEARNS  OPERATION. 

Total  estimated  cost  of  construction $1,282,530 

Capitalisation— Bonds  placed  at  90 1,425,000 


Gross  earnings  less  operating  expenses $101,310 

Fixed  charges — Interest  at  5  per  cent 71,250 


Net  income   $  30,060 


PROMOTION  489 


PROMOTION 

AMENDED  BILL  AS  FURTHER  AMENDED 
(Filed  February  10,  1908.) 

IN  CHANCERY  OF  NEW  JERSEY1 

To  the  Honorable  MaJdon  Pitney,  Chancellor  of  the  State  of  New 
Jersey: 

Complaining  shows  unto  your  honor,  your  orator,  Harry  C.  Has- 
kins,  of  Seabright,  in  the  State  of  New  Jersey: 

I.  That  during  the  year  eighteen  hundred  and  ninety-eight,  eigh- 
teen hundred  and  ninety-nine,  nineteen  hundred  and  nineteen  hun- 
dred and  one,  your  orator  devoted  a  large  part  of  his  time  to  the  study 
of  the  industrial  conditions  concerning  the  output  of  pig  lead  in  the 
United  States,  and  the  manufacture  and  production  of  white  lead 
and  other  products  obtained  from  lead;  that  previous  to  that  time 
he  had  been  somewhat  interested  in,  and  had  had  some  knowledge 
of  the  production  of  white  lead,  and  was  to  some  extent  familiar  with 
the  trade  conditions,  competition  and  rivalry  in  production  of  the 
same;  that  during  the  years  above  mentioned,  he  had  made  a  diligent 
study  of  these  matters  and  had  spent  much  time  and  many  thousands 
of  dollars  in  visiting  different  plants  in  various  parts  of  the  country 
where  white  lead  was  manufactured  and  had  conceived  the  plan  of 
uniting  the  outstanding  lead  interests  and  enterprises  that  had  not 
already  become  a  part  of  the  National  Lead  Company  into  one  com- 
pany, for  the  purpose  of  either  competing  successfully  with  the  Na- 
tional Lead  Company,  or  ultimately  forming  a  combination  therewith, 
BO  that  thereby  the  consumer  might  acquire  white  lead  and  other 
similar  products  at  reduced  prices,  and  by  combination  greatly  lessen 
the  expense  of  production,  and  to  that  end  had,  from  time  to  time, 
procured  options  on  a  large  part  of  such  outstanding  lead  interests. 
Among  the  properties  that  he  had  either  thus  acquired  an  option  on, 
or  opened  negotiations  for  their  purchase,  were  those  of  the  Wetherill 
White  Lead  Company  of  Philadelphia;  W.  W.  Lawrence  and  Bailey 
&  Farrell  of  Pittsburg;  Eagle  White  Lead  Co.,  of  Cincinnati;  Ger- 
hart  White  Lead  Co.,  of  Dayton;  Hoyt  Metal  Co.,  and  American 
Shot  and  Lead  Co.,  of  St.  Louis;  the  Carter  White  Lead  Co.,  of 
Omaha;  Raymond  Lead  Co.,  of  Chicago;  E.  W.  Blatchford,  of  Chi- 
cago;  the  McDougall  Lead  Co.,  of  Buffalo;  the  Chadwick  Lead  Co., 
and  Boston  Lead  Co,  of  Boston;  Sterling  White  Lead  Co.,  of  Pitta- 

»  See  Hatkins  va.  Ryan,  75  New  Jersey  Equity  Reports,  330. 


490         MATERIALS    OF    CORPORATION    FINANCE 

burg;  Harrison  Bros.  &  Co.,  of  Philadelphia;  Pitcher  Lead  Co.,  of 
Joplin.  In  addition  to  this  he,  at  great  expense,  had  obtained  re- 
newals of  options  and  made  investigations  into  the  affairs  and  prop- 
erties of  other  lead  producers  and  estimates  of  their  value  and  -the 
probable  expense  and  power  to  purchase  or  acquire  the  same  in  ful- 
filment of  his  plans  and  scheme  of  combination. 

II.  The  results  of  the  foregoing  efforts  of  your  orator  was  such 
that  in  the  spring  of  nineteen  hundred  and  one,  he  had  crystallized 
and  formulated  a  complete  plan  for  the  combination  of  the  white 
lead  interests  in  the  United  States,  that  were  not  already  in  the  Na- 
tional Lead  Company.  While  your  orator  was  possessed  of  some 
means,  his  fortune  was  not  sufficient  to  undertake  the  enterprise  alone, 
and  he  became,  therefore,  desirous  of  interesting  other  capital  to  join 
with  him  in  the  promotion  and  advancement  of  his  said  scheme. 
With  this  in  mind,  your  orator  had  a  number  of  conferences  with  the 
then  president  of  the  American  Smelting  &  Refining  Company,  Ed- 
ward W.  Nash,  a  personal  friend  of  your  orator,  and  whose  position 
as  such  president  was  of  a  character  to  add  weight  to  your  orator's 
proposition,  and  through  his  intervention,  procured  a  letter  of  intro- 
duction from  Daniel  Guggenheim,  chairman  of  the  executive  com- 
mittee of  the  American  Smelting  &  Refining  Company,  to  Thomas 
F.  Ryan,  the  defendant  herein,  who  then  was,  and  now  is,  vice-presi- 
dent of  the  Morton  Trust  Company,  a  large  and  influential  banking 
institution  of  the  city  of  New  York,  and  was  himself  a  prominent 
financier,  interested  in  many  large  corporations  and  a  man  of  large 
means,  for  the  purpose  of  laying  your  orator's  plans  before  him,  and 
to  seek  his  co-operation,  influence  and  financial  assistance  in  the 
furtherance  of  your  orator's  plan.  As  a  result  of  such  letter  of  in- 
troduction, your  orator,  in  May,  1901,  procured  an  audience,  and 
had  a  long  conference,  with  the  said  Thomas  F.  Ryan,  and  laid  be- 
fore him  the  plan  your  orator  had  conceived,  and  sought  his  co- 
operation and  aid,  and  proposed  to  contribute  his  perfected  plans, 
scheme  of  combination,  options,  contracts  of  sale,  renewals  of  options, 
estimates  and  data,  which  he  then  owned  and  possessed  and  which  re- 
lated to  the  corporations,  firms  and  individuals  set  forth  in  the  first 
paragraph  of  this  bill  of  complaint,  and  if  necessary,  as  much  as 
two  hundred  thousand  dollars  to  the  said  project,  if  the  said  Ryan 
would  join  him  therein  and  also  contribute  enough  to  carry  the  en- 
terprise through.  Said  Ryan  became  very  much  interested  in  the 
project  as  the  same  was  laid  bare  by  your  orator  before  him,  and 
agreed  to  join  your  orator  therein,  provided  an  examination  of  your 
orator's  plans  and  papers  by  the  attorneys  of  the  said  Ryan  con- 
firmed the  statements  your  orator  made  to  him.  Your  orator  was 


PROMOTION  491 

then  referred  by  the  said  Ryan  for  the  purpose  of  such  examination 
to  William  H.  Page,  Jr.,  Esquire,  the  attorney  of  said  Ryan,  to 
whom  your  orator  submitted  a  written,  formulated,  alternative  plan 
and  scheme  of  merger  and  combination,  and  options  or  contracts  of 
sale  on  the  properties  mentioned  in  paragraph  I.  herein,  which  were 
received  by  the  attorney  of  the  said  Ryan  with  evident  interest,  and 
with  the  promise  on  his  part  to  examine  carefully  and  report  to  your 
orator  as  soon  thereafter  as  possible.  That  said  Page  did  examine 
said  plan,  options  and  papers  and  confirmed  to  said  Ryan  the  state- 
ments made  by  your  orator.  And  your  orator  further  shows  and 
charges  that  in  compliance  with  said  agreement  with  said  Ryan  in 
pursuance  thereof,  and  only  because  of  the  desire  of  the  said  Ryan 
that  his  attorney  should  have  opportunity  to  examine  them,  your 
orator  turned  over  and  submitted  to  Ryan's  said  attorney,  a  large 
part  of  his  said  options,  contracts  of  sale,  data,  estimates,  renewals  of 
options,  and  other  documents  and  papers  and  similarly  offered  to 
submit  all  the  same  which  your  orator  then  possessed,  and  the  same 
were  subsequently  wrongfully  used  and  appropriated  by  said  Ryan. 

III.  That  after  reasonable  time  had  elapsed  for  the  examinations 
of  said  papers,  your  orator  again  called  several  times  upon  the  at- 
torney of  said  Ryan,  and  was  told  by  him  that  he  had  submitted  your 
orator's  plans,  options  and  papers  to  the  said  Ryan,  and  confirmed 
your  orator's  statements,  touching  said  plan,  to  said  Ryan,  and  had 
endorsed  the  matter  as  comprehensive,  feasible,  and  attractive,  but 
that  the  said  Ryan  had  not  yet  had  time  to  take  up  the  matter  with 
him. 

IV.  That  during  a  period  of  several  months  from  the  time  of  the 
submission  to  said  Ryan  and  his  counsel  of  his  plans,  options,  esti- 
mates and  material,  and  while  your  orator  was  waiting  to  hear  from 
said  Ryan,  he  heard  rumors  that  one  Grant  Hugh  Browne,  who  was 
and  is  connected  both  with  the  said  Morton  Trust  Company  and  said 
Ryan,  and  who  your  orator  charges  is  frequently  used  by  said  Ryan 
for  similar  purposes,  was,  in  connection  with  Edward  Lauterbach,  a 
prominent  attorney  of  the  city  of  New  York,  who  was  also  one  of 
the  attorneys  of  said  Ryan,  engaged  in  obtaining  options  on  the  plants 
of  all  the  Lead  Companies,  individuals  and  firms  from  whom  your 
orator  had  obtained  options,  most  of  said  options  having  then  expired, 
and  some  of  which  would  soon  thereafter  expire,  and  from  others  with 
whom  your  orator  had  opened  negotiations  for  such  purchase,  all  of 
which  together  with  complete  details  as  to  their  rights,  properties, 
interests  and  prices,  were  named  in  the  report  your  orator  had  left 
with  the  attorney  of  said  Ryan,  and  all  of  the  details  of  which  had 
been  by  your  orator  revealed  to  the  said  Ryan  and  his  said  attorney, 


492         MATERIALS    OF    CORPORATION"    FINANCE 

at  the  several  interviews  had  with  them  or  either  of  them  pursuant 
to  the  agreement  of  said  Ryan  as  aforesaid.  Your  orator  imme- 
diately apprised  William  H.  Page,  Jr.,  the  attorney  of  said  Ryan,  to 
whom  your  orator  had  submitted  said  plans  and  property,  of  the  fact 
that  such  rumors  were  current,  and  late  in  the  fall  of  1901,  was  told 
by  him  that  said  Ryan  had  evidently  dropped  him,  the  said  Page, 
out  of  the  matter,  and  secured  the  services  of  other  attorneys,  and 
that  he,  the  said  Page,  knew  nothing  further  about  the  matter. 

V.  Your  orator  is  informed  and  verily  believes  and  charges  that 
through  the  efforts  of  the  said  Browne,  as  the  agent  of  the  said  Ryan, 
or  of  his  attorney,  Edward  Lauterbach,  Esquire,  or  both,  options, 
contracts  of  sale,  and  renewals  of  options  formerly  held  by  your  ora- 
tor and  turned  over  to  Ryan  as  heretofore  alleged,  have  been  obtained 
in  the  interests  of  said  Ryan,  upon  most,  if  not  all,  of  the  plants  and 
properties  upon  which  your  orator  had  options  as  before  stated  of 
which  the  said  Ryan  was  so  as  aforesaid  apprised  by  your  orator,  in 
pursuance  of  and  in  accordance  with  the  plan  and  scheme  of  your 
orator,  disclosed  and  presented  in  detail  to  said  Ryan  and  his  attorney 
in  manner  hereinabove  set  out  and  which  was  the  first  information 
the  said  Ryan  had  thereof;  that  subsequent  to  the  obtaining  of  said 
options  by  or  on  behalf  of  said  Ryan,  and  on  or  about  the  twentieth 
day  of  January,  nineteen  hundred  and  three,  the  United  Lead  Com- 
pany was  organized  as  a  corporation  under  the  laws  of  the  State  of 
New  Jersey,  and  under  the  direction  and  control  of  said  Thomas  F. 
Ryan  and  said  Grant  Hugh  Browne,  his  agent,  and  proceeded  to  ac- 
quire, and  naw  owns  the  interests  in  nearly  all,  if  not  all,  of  the  com- 
panies, firms  and  individuals  named  by  your  orator  in  said  statements, 
and  from  whom  your  orator  held  options,  or  with  whom  he  had 
opened  negotiations.  Said  United  Lead  Company  is  capitalized  with 
a  capital  stock  of  fifteen  million  dollars  and  has  issued  bonds  for 
seventeen  million  dollars.  Its  president  is  Barton  Sewell,  then  vice- 
president  of  the  American  Smelting  &  Refining  Company,  and  one 
of  its  vice-presidents  is  Grant  Hugh  Browne,  and  said  Ryan  is  and 
has  been  for  several  years  a  director  of  said  United  Lead  Company, 
and  your  orator  shows  and  charges  that  in  the  formation  and  exploita- 
tion of  the  said  United  Lead  Company,  the  said  Thomas  F.  Ryan 
had  made  an  enormous  profit,  both  as  promoter  and  otherwise  by  the 
sale  of  your  orator's  property,  not  as  a  mere  promoter's  profit,  but  in 
compensation  and  payment  of  your  orator's  plans,  scheme  of  com- 
bination, options,  contracts,  writing,  documents,  information,  data 
and  other  property,  turned  over  to  said  Ryan  and  his  agent  by  your 
orator,  and  held  in  trust  by  said  Ryan  in  compliance  with  and  as  part 
of  your  orator's  contribution  on  account  of  the  agreement  between 


PROMOTION  493 

your  orator  and  said  Ryan  aforesaid.  That  most  of  said  profits  were 
secret  profits,  the  amount  of  which  is  unknown  to  your  orator,  and 
although  your  orator  had  made  an  effort  to  ascertain  the  same,  the 
said  Ryan  and  his  attorneys  have  constantly  declined  to  disclose  the 
same.  All  efforts  that  your  orator  has  made  to  discover  the  exact 
connection  of  said  Thomas  F.  Ryan  with  said  United  Lead  Company, 
and  whether  or  not  the  said  Grant  Hugh  Browne  represents  him 
therein,  or  how  much  the  said  Grant  Hugh  Browne  on  account  of 
said  Ryan,  or  the  said  Ryan  himself,  has  made  in  and  by  the  promo- 
tion and  successful  exploitation  of  the  combination  of  interests  have 
been,  up  to  this  time,  utterly  futile;  that  a  combination  or  merger 
substantially  as  planned  and  proposed  by  your  orator  to  said  Ryan 
has  taken  place,  or  is  about  to  take  place,  with  the  result  of  great 
profits  to  said  Ryan.  That  by  the  holding,  appropriation  and  using  of 
the  property  of  your  orator  turned  over  by  him  in  trust  to  said  Ryan 
and  solely  in  compliance  with  the  agreement  aforesaid,  the  wrongful 
use  of  the  same  and  the  many  months  of  delay  which  elapsed  before 
your  orator  was  aware  of  said  breach  of  trust  and  wrongful  acts  of 
said  Ryan,  your  orator  was  wholly  prevented  from  joining  with  other 
capitalists  in  the  promotion  and  carrying  out  of  the  plans  and  scheme 
of  combination  aforesaid. 

That  the  amount  of  stock,  money  or  other  property  received  by  said 
Ryan  in  payment  or  compensation  for  the  property  of  your  orator  held 
in  trust  by  said  Ryan  or  by  him  wrongfully  turned  over  to  and  utilized 
for  the  United  Lead  Company,  as  aforesaid,  is  unknown  to  your  ora- 
tor, and  your  orator,  before  the  commencement  of  this  suit,  endeav- 
ored to  obtain  from  said  Ryan  information  upon  these  points,  which 
information  was  denied  by  said  Ryan. 

That  said  Ryan  is  and  was  a  man  of  great  wealth  and  did  not  need 
or  call  upon  your  orator  for  any  part  of  the  two  hundred  thousand 
dollars  agreed  to  be  contributed  by  your  orator  in  addition  to  the 
property  contributed  by  him.  Said  Ryan  did  need  and  did  use  said 
plans,  contracts,  options,  renewals  of  options,  schemes  of  combination, 
documents  in  formation,  data  and  other  property  contributed  by  your 
orator  solely  in  compliance  with  said  agreement  and  which  was  wrong- 
fully used  by  said  Ryan  as  aforesaid,  and  for  which  he  received  in 
payment  large  amounts  of  stock,  bonds  and  valuable  property,  which 
stocks  and  bonds  were  and  still  are  selling  in  the  markets  of  the  city 
of  New  York  and  elsewhere  at  high  prices.  That  the  plan  formulated 
by  your  orator  and  disclosed  to  said  Ryan  as  aforesaid  did  not  require 
nor  contemplate  that  either  of  the  parties  should  contribute  a  very 
large  amount  of  money  for  the  purpose  of  promoting  and  organizing 
a  new  company,  in  fact  only  a  few  hundred  thousand  dollars.  Under 


494         MATERIALS    OF    CORPORATION    FINANCE 

your  orator's  plan  appropriated  by  said  Ryan  as  aforesaid,  the  capital 
stock  of  the  new  company  would  be  represented  by  and  part  of  it 
given  in  payment  for  the  property,  good-will  and  cash  assets  of  the 
firms,  corporations  and  individuals  which  should  make  up  the  new 
company  and  on  whose  plants  options  had  been  obtained  by  your 
orator,  and  appropriated  by  said  Ryan  as  aforesaid.  This  plan  was 
carried  out  by  said  Ryan  and  his  agents. 

VI.  Your  orator  charges  and  shows  that  the  acts  and  doings  of 
said  Thomas  F.  Ryan  in  this  regard,  in  availing  himself  of  the  in- 
formation, options,  materials,  knowledge,  plans,  schemes,  propositions 
and  property  which  your  orator,  after  years  of  labor,  and  great  ex- 
penditure of  money,  had  collected  together,  and  had  only  disclosed 
to  said  Ryan  and  delivered  to  him  in  trust  and  upon  agreement  and 
understanding  on  the  part  of  said  Ryan  that  he  would  join  your 
orator  in  the  said  scheme  and  share  with  him  in  the  profits  arising 
therefrom,  are  contrary  to  equity  and  good  conscience,  and  that  the 
said  Ryan  should  account  to  your  orator  for  your  orator's  share  of 
any  and  all  profits  that  have  been  reaped  by  him  from  or  in  connec- 
tion with  the  promotion  and  exploitation  of  the  said  United  Lead 
Company,  and  should  be  directed  to  pay  over  to  your  orator,  your 
orator's  share  thereof. 

To  the  end  therefore  that  the  said  Thomas  F.  Ryan  may,  without 
oath,  (an  answer  under  oath  being  hereby  waived),  full,  true  and  per- 
fect answer  make  to  all  and  singular  the  matters  and  things  here- 
inbefore stated,  and  more  particularly  that  he  may  discover  and 
specifically  set  forth  whether  it  is  not  true  that  he  did,  after  listen- 
ing to  your  orator's  description  of  his  said  plan  and  proposition,  refer 
your  orator  to  William  H.  Page,  Jr.,  in  order  that  a  thorough  exam- 
ination might  be  made  of  the  project  and  whether  or  not  the  said 
Page  did  not  bring  to  his  attention  a  statement  or  plan  handed  to  him 
by  your  orator,  and  whether  or  not  the  said  Ryan  did  not,  through 
the  intervention  of  the  said  Grant  Hugh  Browne,  or  the  said  Edward 
Lauterbach,  Esquire,  or  other  agents  or  attorneys,  enter  into  negotia- 
tions with  and  procure  options  upon  the  properties  of  the  companies, 
or  business  interests  hereinabove  named,  and  others  unknown  to  your 
orator,  for  the  purpose  of  uniting  them  into  a  combination  of  lead 
interests  subsequently  known  as  the  United  Lead  Company,  and 
whether  the  United  Lead  Company  was  not  formed  at  his  inspiration, 
and  under  his  direction,  and  what  interest,  if  any,  the  said  Thomas 
F.  Ryan  has  in  the  stock  or  securities  of  the  said  United  Lead  Com- 
pany, and  how  much  he  paid  for  the  same,  and  how  much  the  same 
are  worth  in  the  market,  and  that  the  said  Thomas  F.  Ryan  may 
specifically  discover  and  set  forth  how  much  profit,  secret  and  other- 


PROMOTION  495 

wise,  he  has  made  by  his  connection  with  the  enterprise  known  as  the 
United  Lead  Company,  and  more  particularly  from  the  promotion 
and  exploitation  thereof,  and  that  an  accounting  may  be  had,  and  that 
the  said  Thomas  F.  Ryan  may  be  decreed  to  pay  over  to  your  orator, 
your  orator's  share  of  such  profits  as  joint  adventures  and  through 
the  wrongful  use  and  sale  of  your  orator's  property  as  aforesaid, 
and  that  your  orator  may  have  such  other  relief  as  to  your  honor 
shall  seem  meet  and  shall  be  agreeable  to  equity  and  good  conscience: 

May  it  please  your  honor,  the  premises  considered,  to  grant  unto 
your  orator,  the  state's  writ  or  writs  of  subpoena,  issuing  out  of  and 
under  the  seal  of  this  honorable  court,  to  be  directed  to  the  said 
Thomas  F.  Ryan,  commanding  him,  by  a  certain  day  and  under  a 
certain  penalty  therein  to  be  expressed,  to  be  and  appear  before  your 
honor  in  this  honorable  court,  then  and  there  to  answer  all  and  singu- 
lar the  said  premises,  and  to  stand  to,  abide  by,  and  perform  such 
order  and  decree  therein  as  to  your  honor  shall  seem  meet,  and  shall 
be  agreeable  to  equity  and  good  conscience. 

And  your  orator,  as  in  duty  bound,  will  ever  pray,  etc. 

McCARTER   &   ENGLISH, 
Solicitors  for  and  of  Counsel  with  Complainant. 

JOHN  C.  F.  GARDNER, 
ROBERT  H.  MCCARTER, 

Of  Counsel. 


496         MATERIALS    OF   CORPORATION    FINANCE 


STEEL  RAIL  POOL1 

The  Steel-Rail  Pool. — By  far  the  most  important  pool  organiza- 
tion in  the  steel  industry  at  this  time  was  that  in  steel  rails.  This 
pool  was  formed  on  August  2,  1887,  and,  while  it  was  dissolved  in 
1893,  it  was  speedily  renewed  and  continued  in  existence  until  the 
early  part  of  1897.  The  general  nature  of  this  pool  may  perhaps 
best  be  indicated  by  reproducing  the  following  copy  of  the  memoran- 
dum of  agreement: 

Memorandum  of  agreement,  entered  into  August  2,  1887,  by 
and  betweeen  the  North  Chicago  Rolling  Mill  Company,  the  Cam- 
bria Iron  Company,  the  Pennsylvania  Steel  Company,  the  Union 
Steel  Company,  the  Lackawanna  Iron  &  Coal  Company,  the  Joliet 
Steel  Company,  the  Western  Steel  Company,  the  Cleveland  Rolling 
Mill  Company,  Carnegie,  Phipps  &  Co.,  Limited;  the  Bethlehem 
Iron  Company,  the  Scranton  Steel  Company,  the  Troy  Steel  &  Iron 
Company,  the  Worcester  Steel  Works  and  the  Springfield  Iron  Com- 
pany. 

We,  the  before-named  companies  and  corporations,  manufactur- 
ers of  steel  rails,  hereby  mutually  agree  one  with  the  other,  that  we 
will  restrict  our  sales  and  the  product  of  steel  rails  to  50  pounds 
to  the  yard  and  upward,  applying  to  orders  taken  by  us  and  to  be 
delivered  by  us  or  from  our  respective  works  during  the  year  1888, 
as  hereinafter  allotted  and  limited;  and  we  respectively  bind  our- 
selves not  to  sell  in  excess  of  our  current  allotments,  without  first 
obtaining  the  consent  of  the  Board  of  Control  thereto — that  is  to 
say: 

It  is  agreed  there  shall  now  be  made  an  allotment  of  800,000  tons 
of  rails,  which  shall  be  divided  and  apportioned  to  and  among  the 
several  parties  hereto  to  be  sold  by  them  during  the  year  1888,  upon 
the  following  basis  of  percentages,  to  wit:  North  Chicago  Rolling 
Mill  Company,  12^  per  cent;  Pennsylvania  Steel  Company,  9  8/10 
per  cent;  Bethlehem  Iron  Company,  9  per  cent;  Carnegie  Bros.  & 
Co.,  Limited,  and  Carnegie,  Phipps  &  Co.,  Limited  (jointly),  13  5/10 
per  cent ;  Joliet  Steel  Company,  8  per  cent ;  Lackawanna  Iron  &  Coal 
Company,  8  per  cent;  Cambria  Iron  Company,  8  per  cent;  Scranton 
Steel  Company,  8  per  cent;  the  Union  Steel  Company,  8  per  cent; 
Cleveland  Rolling  Mill  Company,  48/10  per  cent;  Troy  Steel  & 
Iron  Company,  4  5/10  per  cent ;  Western  Steel  Company,  4  5/10 
per  cent;  Worcester  Steel  Works,  14/10  per  cent. 

And  in  addition  to  the  said  allotment  of  800,000  tons  of  rails 

i  Report  of  Commissioner  of  Corporations  on  the  Steel  Industry,  Washing- 
ton, 1911,  Part  I.  pp.  68-71. 


POOLING   AGREEMENT  497 

above  allotted,  an  additional  allotment  of  250,000  tons  is  hereby 
made  and  allotted  to  the  Board  of  Control,  to  be  reallotted  and  re- 
apportioned  by  it,  as  and  to  whom  it  may  deem  equitable,  in  the 
adjustment  of  any  differences  that  may  arise.  It  being  also  further 
agreed  that  all  subsequent  allotments  of  rails  hereafter  made,  to  be 
sold,  divided  and  apportioned  to  the  several  parties  hereto  in  the 
same  ratio  of  percentages  as  said  apportionment  of  800,000  tons  is 
herein  divided  and  apportioned. 

It  is  further  agreed,  that  the  Board  of  Control  shall,  from  time 
to  time,  make  such  further  allotments  as  shall  be  necessary  to  at  all 
times  keep  the  unsold  allotments  at  least  200,000  tons  in  excess  of 
the  total  current  sales,  as  shown  by  the  monthly  reports  of  sales.  This 
is  to  be  in  addition  to  the  then  unappropriated  part  of  the  250,000 
tons  hereinbefore  allotted  to  the  Board  of  Control  to  adjust  differ- 
ences. 

It  is  further  agreed,  on  the  first  day  of  April,  July  and  October 
the  Board  of  Control  are  authorized  and  directed  to  cancel  such  part 
of  the  unmade  allotments  of  the  respective  parties  hereto  as  they  the 
said  Board  of  Control  shall  determine  such  party  unable  to  make  in 
due  time,  and  all  allotments  so  canceled  the  Board  of  Control  shall 
have  the  right  to  reallot  to  any  of  the  other  parties  hereto ;  it  being 
understood  that  all  puch  cancellations  shall  apply  only  to  allotments 
standing  to  the  credit  of  the  respective  parties  hereto  on  the  dates 
above  named,  but  no  reallotment  as  aforesaid  shall  be  made  by  the 
Board  of  Control  to  any  of  the  parties  hereto  for  the  purpose  of 
enabling  them,  or  any  of  them,  to  make  and  sell  rails  from  foreign 
made  blooms. 

It  is  further  agreed,  that  all  transfers  of  parts  of  allotments  from 
one  party  to  another  shall  be  made  by  the  Board  of  Control. 

It  is  further  agreed,  that  there  shall  be  made  by  the  Board  of  Con- 
trol, consisting  of  three  members,  namely,  Orrin  W.  Potter,  Luther 
S.  Bent  and  W.  W.  Thurston,  who  shall  have  power  to  employ  a  paid 
secretary  and  treasurer. 

It  is  further  agreed,  that  the  Board  of  Control,  upon  the  written 
consent  of  75  per  cent  of  the  percentages  as  hereinbefore  named,  shall 
increase  the  allotments  for  the  year  1888,  and  such  increase  shall  be 
allotted  to  the  parties  hereto  as  hereinbefore  provided. 

It  is  further  agreed,  that  each  party  whose  name  is  hereunto 
annexed  shall  and  will  make  monthly  returns  to  the  Board  of  Con- 
trol of  all  contracts  for  delivery  of  rails  of  50  pounds  to  the  yard 
and  upward  during  the  year  1888,  and  also  of  all  shipments  of  such 
rails  made  by  them  during  the  said  year ;  a  copy  of  such  returns  shall 
be  furnished  to  each  party  hereto. 


498         MATERIALS    OF   CORPORATION    FINANCE 

It  is  further  agreed,  that  all  the  parties  hereto  shall  and  will,  on 
or  before  January  15,  1888,  make  a  written  return  to  the  Board  of 
Control  of  all  rails  of  50  pounds  to  the  yard  and  upward  (designat- 
ing the  weight),  whether  the  same  are  sold,  and  if  sold,  on  what  order 
they  apply. 

It  is  further  agreed,  that  the  Board  of  Control  shall  have  the 
right  whenever  they  deem  it  expedient  to  convene  a  meeting  of  the 
parties  hereto,  and  they  shall  give  at  least  ten  days'  previous  notice 
of  all  meetings,  and  any  business  transacted  at  such  meetings,  and 
receiving  75  per  cent  of  the  votes  present  thereat,  either  in  person 
or  by  proxy,  shall  be  binding  on  all  the  parties  hereto,  excepting  as 
to  a  change  in  percentages  as  aforesaid. 

The  Board  of  Control  shall  be  required  to  call  a  meeting  of  the 
parties  hereto  when  requested  so  to  do  in  writing,  signed  by  any  three 
of  the  contracting  parties,  but  such  request  and  such  notice  shall  state 
the  object  for  which  such  meeting  is  called. 

It  shall  be  the  duty  of  the  Board  of  Control  to  have  a  proper 
record  kept  of  all  the  returns  made  to  it,  with  power  from  time  to 
time  to  change  the  form  of  return  as  they  may  deem  expedient. 

The  Board  of  Control  shall  have  authority  to  levy  an  assessment, 
pro  rata  to  the  allotted  tonnage,  to  defray  the  actual  expenses  made 
necessary  to  carry  out  this  agreement. 

It  is  further  agreed,  that  we  will,  respectively,  immediately  make 
return  to  the  Board  of  Control  of  all  rails  of  50  pounds  to  the  yard 
and  upward  which  we  are  now  under  contract  to  deliver  during  the 
year  1888,  said  return  to  state  to  whom  such  rails  are  sold  and  when 
they  are  to  be  delivered. 

North  Chicago  Rolling  Mill  Company,  by  0.  W.  Potter,  president; 
Cambria  Iron  Company,  by  E.  Y.  Townsend,  president ;  Penn- 
sylvania Steel  Company,  by  Luther  S.  Bent,  vice-president; 
the  Union  Steel  Company,  by  H.  A.  Gray,  secretary  and  treas- 
urer; Lackawanna  Iron  &  Coal  Company,  by  B.  G.  Clarke, 
vice-president ;  Joliet  Steel  Company,  by  W.  R.  Stirling,  treas- 
urer; Western  Steel  Company,  by  A.  M.  Wilcox,  president; 
Cleveland  Rolling  Mill  Company,  by  Wm.  Chisholm,  presi- 
dent; Carnegie  Bros.,  Limited,  by  D.  A.  Stewart,  V.  C. ; 
Carnegie,  Phipps  &  Co.,  Limited,  by  John  Walker,  chair- 
man; the  Bethlehem  Iron  Company,  by  Wm.  W.  Thurs- 
ton,  vice-president;  the  Scranton  Steel  Company,  by  W.  W. 
Scranton,  president;  Troy  Steel  &  Iron  Company,  Selden  E. 
Marvin,  secretary;  Worcester  Steel  Works,  by  Samuel  D.  Nye, 
manager;  the  Springfield  Iron  Company,  by  Charles  Ridgely, 
president- 


AGREEMENT   TO   PURCHASE   ASSETS  499 

AGREEMENT  BETWEEN  DEER1NQ  HARVESTER  CO.  AND 
WILLIAM  C.  LANE,  JULY  28,  19021 

An  agreement,  made  and  entered  into  this  28th  day  of  July,  nine- 
teen hundred  and  two,  by  and  between  the  DEERING  HARVKSTER  COM- 
I'A.NY,  a  copartnership  consisting  of  Charles  Deering,  James  Deer- 
ing  and  Richard  F.Howe  (hereinafter  called  the  "Vendor"),  party 
of  the  first  part,  and  WILLIAM  C.  LANE  (hereinafter  called  the  "Pur- 
chaser"), party  of  the  second  part. 

Whereas,  the  Vendor  owns  certain  manufacturing  properties  located 
at  Chicago,  Illinois,  and  in  Canada,  and  employed  in  the  maufacture 
of  harvesting  machinery  and  other  properties  intended  for  use  in  con- 
nection therewith;  and, 

Whereas,  the  Purchaser  desires  to  acquire  said  properties  and  in- 
tends, upon  the  acquisition  of  said  properties,  to  sell,  convey  and 
transfer  the  same  to  a  corpora. ion  now  existing  or  hereafter  to  be 
organized  under  the  laws  of  the  state  of  Illinois  or  other  state  (here- 
inafter called  the  "Purchasing  Company"),  with  capital  stock  as 
hereinafter  provided: 

Now,  this  agreement  witnesseth,  that  the  parties  hereto  have  agreed 
and  covenanted  as  follows: 

First.  The  Vendor  agrees,  for  the  considerations  and  upon  the 
terms  hereinafter  stated,  to  sell,  assign,  transfer,  convey  and  deliver 
unto  the  Purchaser,  his  nominee  or  assign,  by  good  and  indefeasible 
title  free  and  clear  of  incumbrances,  indebtedness  and  liabilities,  ex- 
cept as  herein  stated,  and  the  Purchaser  agrees  to  purchase,  all  and 
singular  the  real  estate,  factories,  plants,  buildings,  improvements, 
machinery,  patterns,  tools,  apparatus,  fixtures  and  appliances  of  the 
Vendor  and  all  the  patents,  inventions,  devices,  patent  rights,  licenses, 
trade-marks,  trade-names  and  good-will  of  all  and  singular  said 
property  as  a  going  concern,  and  also  all  of  the  products  manufactured 
and  in  process  of  manufacture,  materials,  supplies  and  merchandise 
on  hand  at  the  time  of  closing  said  sale  and  all  and  singular  its 
then  pending  contracts  for  the  purchase  of  property  or  materials 
or  the  sale  of  product ;  also  all  other  property  of  the  Vendor  apper- 
taining to  the  Vendor's  business  aforesaid.  There  shall  also  be  sold 
and  purchased  with  said  properties  $16,000,000  (at  face  value  and 
accrued  interest)  of  bills  and  accounts  receivable  representing  sales 
made  by  the  Vendor.  Such  bills  and  accounts  receivable  are  to  ma- 
ture prior  to  March  1,  1905,  and  are  to  be  guaranteed  as  hereinafter 

i  From  Report  of  Bureau  of  Corporations  on  the  International  Harvester 
Company. 


500         MATERIALS    OF    CORPORATION    FINANCE 

provided.  Cash  may  be  substituted  for  the  whole  or  any  part  of 
such  accounts  and  bills  receivable  at  the  option  of  the  Vendor. 

Second.  The  Vendor  agrees  that,  as  soon  as  practicable  after  the 
execution  of  this  instrument,  it  will  duly  execute  and  acknowledge, 
and  cause  to  be  forthwith  deposited  with  J.  P.  Morgan  &  Co.,  or  a 
trust  company  designated  by  them,  as  depositary,  proper  deeds  and 
other  instruments  of  conveyance  and  sale  for  the  granting,  conveying 
and  transferring  as  aforesaid  unto  the  Purchaser  and  his  assigns,  all 
the  property  hereinbefore  recited.  Such  depositary  shall  hold  the 
said  deeds  and  other  instruments  in  escrow  and  deliver  the  same  to 
the  Purchaser  or  upon  his  order  only  upon  receiving  for  account  of 
the  Vendor  the  consideration  hereinafter  provided,  and  upon  the 
performance  by  the  Purchaser  of  the  provisions  hereof. 

Third.  The  Vendor  agrees  to  deliver  to  said  depositary  as  soon  as 
practicable  full  statements  in  respect  of  its  property  and  its  assets 
and  liabilities,  its  contracts  for  the  purchase  of  materials  and  other 
property  and  for  the  sale  of  its  manufactured  products  and  otherwise 
relating  to  its  property  and  business.  The  Vendor  agrees  that,  pend- 
ing the  performance  of  and  while  this  contract  is  in  force,  it  will  not, 
without  the  written  consent  of  the  Purchaser,  or  of  said  Purchasing 
Company,  enter  into  any  new  contracts  or  assume  any  new  obliga- 
tions or  make  any  purchases  or  sales  except  such  as  are  necessary  and 
customary  in  the  ordinary  conduct  of  its  regular  business  or  to  main- 
tain it  as  a  going  concern  and  except  such  as  may  be  necessary  for 
the  performance  of  agreements  already  entered  into;  nor  make  pay- 
ments in  advance  of  their  maturity  on  pending  contracts.  The  Ven- 
dor further  agrees  that  during  and  while  this  contract  is  in  force, 
no  new  capital  shall  be  employed  in  its  business  and  no  bonds  issued, 
and  that  no  mortgage,  lease  or  conveyance  shall  be  made  upon  or  in 
respect  of  its  real  estate  or  plant  without  the  written  consent  of  the 
Purchaser;  and  also  that  in  case  of  any  difference  of  opinion  between 
the  Vendor  and  the  Purchaser  in  relation  to  the  conduct  of  the  busi- 
ness of  the  Vendor,  such  difference  shall  be  decided  by  J.  P.  Morgan 
or  George  W.  Perkins,  whose  decision  shall  be  final.  All  service  con- 
tracts of  the  Vendor  taken  over  by  the  Purchasing  Company  shall  be 
terminable  on  sixty  days'  notice  unless  in  specific  cases  otherwise  de- 
termined by  said  Purchasing  Company;  and  the  Vendor  shall  indem- 
nify the 'Purchasing  Company  against  any  claims  under  profit  sharing 
contracts.  In  the  case  of  any  property  delivered  to  the  Purchaser 
by  the  Vendor  which  is  subject  to  incumbrance,  the  amount  of  the 
incumbrance  shall  be  deducted  in  determining  the  value  thereof. 

Fourth.  The  Purchaser  and  said  Purchasing  Company  and  his  or 
its  nominees,  the  appraisers,  accountants  and  counsel  shall  have  the 


AGREEMENT   TO    PURCHASE   ASSETS  501 

right  to  examine  the  deeds  and  other  instruments  of  conveyance  and 
transfer  so  to  be  deposited  by  the  Vendor  with  the  depositary  as 
aforesaid,  and  shall,  if  the  Purchaser  shall  so  require,  be  furnished 
with  abstracts  of  title,  title  deeds  and  surveys  which  may  facilitate 
the  examination  of  the  title  to  the  property  to  be  conveyed  or  trans- 
ferred, and  shall  have  free  access  to  all  the  deeds,  contracts,  books 
and  records  of  the  Vendor  for  the  purpose  of  examining  and  verify- 
ing the  statements  made  with  respect  to  its  property,  business,  assets, 
liabilities  and  status. 

Fifth.  The  purchase  price  to  be  paid  by  the  Purchaser  to  the 
Vendor  for  all  and  singular  said  property  shall  be  the  aggregate  of 
the  several  appraisals  and  valuations  hereinafter  provided  for  and 
of  said  accounts  and  bills  receivable  and  cash,  if  any,  and  shall  be 
payable  in  full  paid  and  non-assessable  shares  of  the  capital  stock  of 
the  said  Purchasing  Company  taken  at  par. 

In  order  to  make  such  appraisals  and  fix  and  determine  such  valu- 
ations, the  property  of  the  Vendor  shall  be  classified  as  follows: 

(1)  Real    estate,   buildings,   factories,   warehouses,   fixtures,   ma- 
chinery, tools,  patterns,   drawings,  moulds  and   all  other  personal 
property  used  in  connection  with  or  appertaining  to  the  Vendor's 
business  and  which  is  not  intended  for  sale  in  the  ordinary  course  of 
business  or  to  form  part  of  or  to  be  consumed  in  the  manufacture  of 
the  Vendor's  products,   and  including  pending  contracts  for  pur- 
chase of  real  property  and  for  construction  of  buildings  or  fixtures, 
but  not  including  the  property  and  contracts  otherwise  classified. 
The  assets  of  this  class  are  hereinafter  collectively  designated  as 
"Plant." 

(2)  All  materials  on  hand,  manufactured,  unmanufactured  or  in 
process  of  manufacture,  including  any  and  all  articles  intended  to 
form  part  of  or  to  be  used  in  manufacturing  the  Vendor's  product. 
The  assets  of  this  class  are  hereinafter  collectively  designated  as 
"Materials  on  hand." 

(3)  Unexecuted  contracts  or  orders  for  the  sale  of  the  Vendor's 
manufactured  products,  but  not  including  contracts  or  orders  for 
deliveries  after  the  year  1902,  for  which  latter  contracts  and  orders 
(although  to  be  transferred)  no  allowance  shall  be  made.     No  allow- 
ance shall  be  made  for  contracts  or  orders  for  delivery  prior  to  Janu- 
ary 1,  1903,  unless  the  material  necessary  for  the  completion  of  the 
machines  or  other  manufactured  products  shall  be  in  the  possession 
of  the  Vendor  and  upon  its  plant  at  the  time  of  the  appraisal.    Such 
contracts  are  hereinafter  collectively  designated  as  "Pending  Sales." 

(4)  All  contracts  heretofore  entered  into  by  the  Vendor  for  the 
purchase  of  materials  to  be  used  in  the  manufacture  of  its  product. 


SANTA  BARBARA  STATE  COLLEGE 


502         MATERIALS    OF   CORPORATION   FINANCE 

Such  contracts  are  hereinafter  collectively  designated  as  "Material 
Contracts." 

(5)  The  coal,  iron  and  steel  properties  of  the  Vendor,  including  its 
coal  and  iron  lands,  steel  plant  and  blast  furnaces,  such  property  be- 
ing hereinafter  referred  to  as  the  "Deering  Iron,  Coal  and  Steel  Prop- 
erties." 

(6)  Patents,  patent  rights,   devices,   inventions,   licenses,    trade- 
marks, trade-names  and  good-will,  including  the  value  of  the  estab- 
lished business,  name,  standing  in  the  trade,  stability  of  business, 
organization,  trade  and  custom  as  a  going  concern.     Such  assets  are 
hereinafter  collectively  designated  as  "Patents,  Good- Will,"  etc. 

The  value  of  the  plant,  as  above  defined,  shall  be  ascertained  and 
determined  by  three  appraisers,  who  shall  fix  the  present  value  of 
such  plant  as  a  going  concern.  One  of  such  appraisers  shall  be  nomi- 
nated and  appointed  by  the  Vendor,  and  the  other  two  by  J.  P. 
Morgan  &  Co. 

The  present  value  to  a  going  concern  of  said  materials  on  hand, 
of  the  said  pending  sales,  and  of  the  said  material  contracts,  as  above 
defined,  shall  similarly  be  determined  by  three  appraisers,  one  to 
be  nominated  and  appointed  by  the  Vendor  and  two  by  J.  P.  Morgan 
&  Co.  Such  appraisers  shall  make  allowance  in  their  judgment  for 
unprofitable  contracts. 

The  value  of  the  Deering  Iron,  Coal  and  Steel  properties  to  a  go- 
ing concern,  as  above  defined,  shall  be  determined  by  J.  P.  Morgan 
or  George  W.  Perkins. 

The  value  of  the  patents  and  good-will  shall,  for  the  purposes  of 
this  contract,  be  a  sum  equal  to  the  net  profits  of  the  Vendor  during 
the  two  years  ending  November  30,  1902,  as  ascertained  in  the  ma'n- 
ner  hereinafter  provided,  plus  ten  per  cent,  thereof;  and  to  such 
amount  shall  be  added  the  value  of  the  name,  standing  in  the  trade, 
stability  of  business,  organization,  trade,  custom,  etc.,  of  the  Vendor 
as  a  going  concern,  which  value  shall  be  fixed  by  J.  P.  Morgan  or 
George  W.  Perkins  in  his  sole  discretion. 

The  profits  for  said  two  years  shall  be  ascertained  and  reported 
to  J.  P.  Morgan  &  Co.  by  three  accountants,  one  of  whom  shall  be 
nominated  by  the  Vendor  and' the  other  two  by  J.  P.  Morgan  &  Co. 
In  calculating  the  net  profits  of  the  business,  there  shall  be  excluded 
all  allowance  for  interest  on  bills  and  accounts  receivable  as  well  as 
the  cost  of  collecting  bills  and  accounts  receivable,  and  all  interest 
paid  or  payable  on  moneys  used  by  the  Vendor  but  belonging  to  any 
of  the  members  of  the  Vendor  or  William  Deering  &  Co.  or  William 
Deering  or  any  member  of  his  family.  Said  accountants,  in  calcu- 
lating the  net  profits  for  said  two  years,  shall  make  allowance  for  de- 


AGREEMENT   TO    PURCHASE    ASSETS  503 

preciation  or  loss,  if  any,  on  bills  and  accounts  receivable,  for  depre- 
ciation or  loss,  if  any,  on  materials  on  hand,  and  for  depreciation, 
if  any,  of  the  said  plant  from  wear  and  tear  or  otherwise.  In  each 
case  hereinbefore  enumerated  the  decision,  appraisal  or  report  of  a 
majority  of  the  appraisers  or  accountants  or  the  decision  of  J.  P. 
Morgan  or  George  W.  Perkins  (if  sole  arbitrator  or  appraiser),  as 
the  case  may  be,  shall  be  binding  and  conclusive  upon  the  parties 
hereto. 

Sixth.  Payment  of  the  amount  of  all  contracts  or  orders  for  sales 
of  manufactured  products  included  as  assets  of  the  Vendor  as  afore- 
said and  transferred  under  this  contract,  shall  be  guaranteed  to  the 
satisfaction  of  J.  P.  Morgan  &  Co.  by  the  Vendor  and  the  net  value 
thereof  shall  be  appraised  on  that  basis.  Any  and  all  accounts  and 
bills  receivable  transferred  by  the  Vendor  hereunder  shall  be  taken 
at  their  face  value  and  accrued  interest  to  date  of  transfer,  but  the 
Vendor  shall  guarantee  and  hereby  does  guarantee  that  the  Pur- 
chaser or  the  Purchasing  Company  shall  realize  thereon  such  face 
value  and  interest  accrued  and  to  accrue  and  that  said  principal  and 
interest  shall  all  be  received  on  or  prior  to  the  first  day  of  March, 
1905.  The  collections  shall  be  made  by  the  Purchasing  Company, 
but  the  expenses  of  collections  shall  be  borne  by  the  Vendor.  Pend- 
ing such  collections,  the  Vendor  agrees  to  advance  and  pay  to  the 
Purchasing  Company  on  demand,  from  time  to  time,  on  account  of 
such  guaranty  such  amounts  as  the  board  of  directors  of  the  Purchas- 
ing Company  may  determine  to  be  necessary  or  convenient  for  the 
conduct  of  its  business,  but  not  in  excess  of  such  amounts  as  J.  P. 
Morgan  &  Co.  may  from  time  to  time  approve.  If  such  advance 
payments  be  made  by  the  Vendor,  then  the  Purchasing  Company  shall 
transfer  to  the  Vendor  or  their  nominees  an  equal  amount  in  prin- 
cipal and  accrued  interest  of  uncollected  accounts  or  bills  receivable 
of  the  earliest  maturities.  The  Purchasing  Company  may  take  such 
measures  as  to  it  may  seem  wise,  for  the  collection  of  the  accounts 
and  bills  receivable  and  grant  extensions  and  indulgences  to  debtors 
by  whom  the  same  are  payable  without  release  of  or  prejudice  to 
such  guaranty  or  extension  or  change  of  the  obligation  of  the  Vendor 
to  make  payments  as  aforesaid.  The  Purchasing  Company  shall 
from  time  to  time,  on  demand,  furnish  the  Vendor  a  full  statement 
showing  what  accounts  and  bills  receivable  remain  unpaid,  and 
what,  if  any  disposition  has  been  made  in  regard  thereto  or  steps 
taken  to  enforce  the  collection  thereof. 

The  Vendor  shall  secure  the  guaranties  in  this  article  provided,  by 
collateral  or  otherwise,  to  the  satisfaction  of  J.  P.  Morgan  &  Co.  in 
their  discretion. 


504         MATERIALS    OP    CORPORATION    FINANCE 

Seventh.  The  Purchasing  Company  shall  have  such  corporate  title, 
capital  stock,  organization,  by-laws,  directors  and  committees  as  may 
be  approved  by  J.  P.  Morgan  &  Co.  and  shall  have,  in  addition,  to 
materials  on  hand  and  inventories,  a  working  capital  of  $60,000,000 
to  be  represented  by  cash  or  bills  and  accounts  receivable  guaranteed 
as  aforesaid. 

Eighth.  The  amount  and  the  classes  (if  there  be  more  than  one 
class)  of  the  capital  stock  of  the  Purchasing  Company  shall  be  de- 
termined after  the  ascertainment  of  the  aggregate  value  of  all  its 
assets  and  properties,  but  such  amount  and  such  classes  shall  sever- 
ally be  satisfactory  to  J.  P.  Morgan  &  Co.  If,  however,  there  be 
only  one  class  of  stock,  the  capital  stock  shall  not  exceed  $120,000,000 
par  value,  even  though  the  aggregate  value  of  the  assets  and  proper- 
ties of  the  Purchasing  Company  be  in  excess  thereof.  If  there  be 
both  preferred  stock  and  common  stock,  the  preferred  stock  shall 
not  exceed  $120,000,000  par  value  and  shall  entitle  the  holders  to 
cumulative  preferential  dividends  at  the  rate  of  but  not  to  exceed 
six  per  cent,  per  annum,  with  preference  as  to  principal  and  accumu- 
lated dividends  on  dissolution  or  liquidation;  and  the  common  stock 
shall  not  exceed  the  remaining  value  of  the  corporate  assets  and  prop- 
erties as  so  determined,  which  value  may  be  ascertained  and  deter- 
mined irrespective  of  the  special  appraisals  which  are  to  be  made  under 
this  agreement. 

If  there  shall  be  two  classes  of  stock,  then  and  in  that  event  the 
Vendor  shall  be  entitled  to  receive  as  additional  purchase  price  under 
this  agreement  common  stock  to  an  amount  that  shall  bear  to  the 
total  issue  thereof  the  same  proportion  that  the  preferred  stock  to 
be  received  by  the  Vendor  under  this  agreement  shall  bear  to  the 
total  issue  of  preferred  stock. 

Ninth.  The  purchase  provided  for  in  this  contract  shall  take  effect 
as  of  such  day  in  September,  1902,  as  shall  be  designated  by  the 
Purchaser  with  the  approval  of  J.  P.  Morgan  &  Co.;  the  appraisals 
shall  be  made  as  of  such  date  as  nearly  as  practicable,  and  the  per- 
formance of  the  contract  shall  be  completed  prior  to  January  1,  1903. 

Tenth.  The  charter  or  certificate  of  incorporation  or  organization 
of  the  Purchasing  Company  shall  provide,  among  other  things,  that 
the  capital  stock  of  the  corporation  shall  not  be  increased  or  dimin- 
ished except  upon  the  affirmative  vote  or  consent  of  'the  holders  of 
at  least  two-thirds  of  each  class  of  the  outstanding  capital  stock  of 
the  company.  Said  charter  or  certificate  may  also  provide  that  the 
stockholders  may  enter  into  a  voting  trust  of  their  stock  for  a  limited 
period.  The  charter  or  certificate  shall  likewise  provide  that  no 
mortgage  m*  lien  upon  the  real  property,  plants,  tools  or  machinery 


AGEEEMENT   TO    PURCHASE   ASSETS  505 

of  the  Purchasing  Company  shall  be  created  without  the  affirmative 
vote  or  the  written  consent  of  the  holders  of  at  least  two-thirds  of 
each  class  of  the  outstanding  capital  stock. 

Eleventh.  The  Vendor  undertakes  and  agrees  that  it  or  the  hold- 
ers of  the  stock  of  the  Purchasing  Company  so  to  be  issued  in  pay- 
ment for  the  property  to  be  transferred  and  conveyed  under  thi-J 
agreement,  shall  deposit  their  stock  with  J.  P.  Morgan  &  Co.  or  a 
trust  company  to  be  designated  by  them,  as  depositary,  upon  a  voting 
trust,  which  shall  provide,  among  other  things,  for  the  appointment 
of  three  voting  trustees,  one  of  whom  shall  be  J.  P.  Morgan  or  George 
W.  Perkins  and  the  other  two  shall  be  persons  appointed  by  J.  P. 
Morgan  &  Co.  The  voting  trust  agreement  shall  be  for  the  period 
of  ten  years  with  provision,  however,  that  it  may  be  terminated  at 
any  time  after  the  expiration  of  five  years  upon  ninety  days'  notice, 
if  a  majority  of  the  voting  trustees  shall  so  decide.  The  capital  stock 
of  the  Purchasing  Company  shall  be  transferred  to  such  voting  trus- 
tees, who  shall  issue  transferable  certificates  of  beneficial  interest  en- 
titling the  holder  to  any  dividends,  distribution  of  profits  and  sub- 
scription rights  which  may  accrue  in  respect  of  the  stock  so  held  by 
the  voting  trustees,  and  upon  the  termination  of  the  voting  trust 
entitling  the  holder  to  a  porportionate  amount  of  the  stock  so  trans- 
ferred to  the  voting  trustees.  The  form,  terms  and  provisions  of  the 
voting  trust  agreement  shall  be  subject  to  the  approval  of  J.  P  Mor- 
gan &  Co.  The  voting  trust  agreement  shall  contain  adequate  re- 
strictions upon  the  voting  power  of  the  voting  trustees  in  respect  of 
an  increase  or  diminution  of  capital  stock,  or  the  creation  of  any 
mortgage  as  aforesaid,  so  that  any  vote  or  consent  by  .the  voting 
trustees  for  any  such  increase  or  diminution,  or  mortgage,  shall  be 
given  only  upon  the  affirmative  vote  or  written  consent  of  the  owners 
of  a  corresponding  amount  of  the  voting  trust  certificates  of  interest 
outstanding. 

The  Vendor  shall  further  agree  with  J.  P.  Morgan  &  Co.  that  dur- 
ing the  first  year  after  the  issue  of  such  stock  or  voting  trust  certifi- 
cates, the  Vendor  shall  own,  and  shall  refrain  from  selling  or  other- 
wise disposing  of  at  least  eighty  per  cent,  of  the  original  holdings 
acquired  under  this  agreement  or  otherwise;  during  the  second  year 
at  least  sixty  per  cent,  of  such  original  holdings;  during  the  third 
year  at  least  forty  per  cent,  of  such  original  holdings;  and  thereafter, 
and  during  the  existence  of  the  voting  trust,  at  least  one-third  of  such 
original  holdings;  provided,  however,  that  Vendor  may  at  any  time 
after  the  expiration  of  the  fourth  year  withdraw  from  the  custody 
of  J.  P.  Morgan  &  Co.  and  sell  or  otherwise  dispose  of  the  remaining 
one-third  of  said  original  holdings,  or  any  part  thereof,  but  in  such 


506         MATEEIALS    OF    CORPOPtATION    FINANCE 

case  any  voting  trustee  representing  such  holdings  shall  immediately 
resign  as  trustee  if  desired  by  the  two  remaining  trustees.  A  suc- 
cessor shall  thereupon  be  appointed  by  the  other  two  trustees. 

As  guaranty  for  the  performance  of  the  foregoing  covenant  not  to 
sell  or  otherwise  dispose  of  stock  or  voting  trust  certificates,  the  Ven- 
dor shall  severally  pledge  with  J.  P.  Morgan  &  Co.  an  amount  of 
stock  or  voting  trust  certificates  equal  to  the  proportion  which  they 
have  agreed  to  continue  to  own,  which  stock  shall  be  released  and 
delivered  to  them  or  upon  their  order  from  time  to  time  as  they  may 
become  entitled  to  sell ;  but,  except  as  herein  otherwise  provided,  one- 
third  of  the  total  original  holdings  as  aforesaid  shall  remain  pledged 
with  J.  P.  Morgan  &  Co.  during  the  existence  of  the  voting  trust. 

In  case  during  the  first  year  after  the  issue  of  said  stock  by  the 
Purchasing  Company  the  Vendor  shall  desire  to  sell  any  of  the  stock 
or  voting  trust  certificates  which  it  is  free  to  sell  under  the  provisions 
hereof,  it  shall  offer  the  stock  to  J.  P.  Morgan  &  Co.  by  notice  in 
writing,  specifying  the  amount  of  the  stock  and  the  price  at  which 
the  same  is  offered,  and  the  Vendor  shall  be  entitled  to  sell  such  stock 
to  others  only  in  case  J.  P.  Morgan  &  Co.  shall  not  within  twenty 
days  thereafter  purchase  said  stock  at  the  price  named  in  the  notice 
or  at  a  price  satisfactory  to  the  Vendor. 

Twelfth.  This  contract,  or  any  part  thereof,  may  be  transferred  by 
the  Purchaser  to  the  Purchasing  Company,  and  such  Purchasing 
Company  may  thereupon  enforce  all  and  singular  its  terms  and  con- 
ditions as  fully  to  all  intents  and  purposes  as  if  it  were  a  party 
thereto.  The  place  of  performance  of  this  contract  shall  be  at  the 
office  of  the  Hudson  Trust  Company,  Hoboken,  New  Jersey. 

Thirteenth.  The  individual  members  of  the  Vendor  shall  jointly 
and  severally  guarantee  the  performance  of  this  contract. 

Fourteenth.  The  Purchaser  undertakes  to  duly  secure  by  contract 
the  appointment  of  J.  P.  Morgan  &  Co.  as  the  fiscal  agents  of  the 
Purchasing  Company  and  their  acceptance  of  such  appointment,  in 
order  that  the  Purchasing  Company  may  secure  and  have  the  benefit 
and  advantage  of  the  advice  of  said  firm  in  the  management  of  its 
financial  affairs. 

If  any  dispute  should  arise  under  this  contract  as  to  its  true  intent 
or  meaning,  or  in  respect  of  the  performance  of  any  part  thereof, 
whether  between  the  parties  hereto  or  between  the  Vendor  and  the 
Purchasing  Company,  the  matter  in  dispute  in  each  and  every  case 
shall  be  left  to  J.  P.  Morgan  or  George  "W.  Perkins  as  sole  arbitrator, 
and  the  decision  of  such  arbitrator  shall  be  binding  and  conclusive 
upon  the  parties. 

Fifteenth.     In  case  any  appraiser,  arbitrator,  accountant  or  voting 


AGREEMENT   TO    PURCHASE   ASSETS  507 

trustee  shall  for  any  reason  fail  or  cease  to  serve,  then  and  in  said 
event  another  or  a  successor  shall  be  nominated  and  appointed  in  his 
place  by  the  Vendor  or  by  J.  P.  Morgan  &  Co.  respectively  as  the 
case  may  be,  subject,  however,  in  the  case  of  voting  trustees  to  the 
provisions  of  the  voting  trust  agreement. 

Reference  in  this  agreement  to  J.  P.  Morgan  &  Co.  shall  apply  to 
that  firm  as  now  or  hereafter  constituted. 

In  witness  viiereof.  the  party  of  the  first  part  and  the  party  of  the 
second  part  have  hereunto  set  their  hands  and  seals  the  day  and  year 
first  above  written. 

DEERING  HARVESTER  COMPANY, 

CHARLES  DEERING,         [SEAL.] 
JAMES   DEERING,  [SEAL.] 

By   CHARLES  DEERING, 

Attorney-in-fact. 

JAMES  DEERING, 
RICHARD  F.  HOWE,        [SEAL.] 
WM.  C.  LANE.  [SEAL.] 


503         MATERIALS    OF   CORPORATION    FINANCE 


SUPPLEMENTAL  AGREEMENT  BETWEEN  DEEEING  HAR- 
VESTER CO.  AND  WILLIAM  C.  LANE,  AUGUST  11,  1902. 

Supplemental  agreement,  made  and  entered  into  this  llth  day  of 
August,  1902,  by  and  between  the  DEERING  HARVESTER  COMPANY 
(hereinafter  called  the  "Vendor"),  party  of  the  first  part,  and 
WILLIAM  C.  LANE  (hereinafter  called  the  "Purchaser"),  party  of 
the  second  part. 

The  parties  hereto  have  entered  into  an  agreement,  dated  July  28, 
1902,  (hereinafter  called  the  "Original  Agreement"),  providing  for 
the  sale  by  the  Vendor  to  the  Purchaser  of  the  property  of  the  Vendor 
as  therein  described.  The  parties  hereto  have  agreed  that  said 
property  shall  be  conveyed  and  transferred  by  the  Vendor  to  the 
Purchaser  forthwith  and  in  advance  of  the  determination  of  the  exact 
purchase  price  of  said  property  as  in  said  Original  Agreement  pro- 
vided. 

Now,  in  consideration  of  the  premises,  the  parties  hereto  have 
agreed  and  covenanted  as  follows: 

First.  The  Vendor  shall  forthwith  convey  and  transfer  to  the  Pur- 
chaser all  of  the  property  described  in  the  Original  Agreement  by 
instruments  of  conveyance  which  shall  contain  covenants  of  warranty 
and  further  assurance.  The  Vendor  shall  also  forthwith  assign  and 
transfer  to  the  Purchaser  all  of  its  accounts  and  bills  receivable,  and 
the  same  shall  be  subject  to  the  provisions  of  the  Original  Agreement 
respecting  the  accounts  and  bills  receivable  to  be  transferred  by  the 
Vendor  to  the  Purchaser  as  therein  provided,  but  the  Vendor  shall 
be  entitled  to  substitute  cash  in  place  of  any  such  accounts  and  bills 
receivable. 

Second.  The  Purchaser  shall  cause  to  be  prepared,  as  soon  as  prac- 
ticable, a  statement  of  the  accounts  and  bills  receivable  assigned  by 
the  Vendor  as  herein  provided,  including  such  as  may  be  received 
prior  to  the  date  in  September  which  shall  be  fixed  by  the  Purchaser 
with  the  approval  of  J  P.  Morgan  &  Co.  for  the  adjustment  of  the 
purchase  price  payable  to  the  Vendor.  If  the  aggregate  of  such  ac- 
counts and  bills  receivable,  at  their  face  value  and  accrued  interest, 
shall  exceed  the  sum  of  sixteen  million  dollars  ($16,000,000),  then 
the  excess  shall  be  held  for  the  account  of  the  Vendor,  and  shall  be 
available  to  be  applied  by  the  Vendor  towards  any  other  payments 
that  may  be  due  by  the  Vendor  to  the  Purchaser,  or  in  such  other 
manner  as  the  Vendor  shall  direct. 

Third.  The  capital  stock  of  the  purchasing  company  provided  for 
in  said  contract  shall  be  one  hundred  and  twenty  million  dollars 


AGREEMENT   TO    PURCHASE   ASSETS  509 

($120,000,000),  but,  prior  to  January  1,  1903,  capital  stock  shall  not 
be  issued  to  an  amount  exceeding  sixty-two  and  one-half  (62£)  per 
cent,  of  the  aggregate  amount  of  the  money  and  cash  assets  acquired 
by  said  company  and  of  the  value  of  the  other  property  acquired  by 
said  company,  as  such  value  shall  be  ascertained  and  fixed  by  the 
board  of  directors  of  the  company  at  the  time  of  the  acquisition  of 
such  property. 

Fourth.  Forthwith  upon  the  conveyance  of  said  property  by  the 
Vendor  to  the  Purchaser,  the  Purchaser  shall  deliver  to  J.  P.  Morgan 
&  Co.  stock  trust  certificates  for  such  an  amount  of  the  capital  stock 
of  the  purchasing  company  as  shall,  in  the  opinion  of  J.  P.  Morgan 
&  Co.,  be  required  to  provide  the  amount  of  stock  trust  certificates 
necessary  for  ultimate  delivery  to  the  Vendor  in  payment  for  the 
property,  accounts  and  bills  receivable  and  cash  to  be  transferred 
and  paid  by  it  as  herein  and  in  the  Original  Agreement  provided. 
J.  P.  Morgan  &  Co.  are  hereby  authorized  to  deliver  to  the  Vendor, 
from  time  to  time,  such  amounts  of  the  stock  trust  certificates  so 
delivered  as,  in  their  opinion,  it  is  proper  to  deliver  to  the  Vendor. 
If  after  the  final  ascertainment  of  the  amount  of  stock  trust  certifi- 
cates to  be  delivered  to  the  Vendor,  as  herein  and  in  the  Original 
Agreement  provided,  and  after  the  delivery  to  the  Vendor  of  such 
stock  trust  certificates,  any  of  said  deposited  stock  trust  certificates 
shall  remain  on  deposit  with  J.  P.  Morgan  &  Co.,  the  same  shall  be 
returned  to  the  Purchaser,  but  if  the  stock  trust  certificates  on  de- 
posit with  J.  P.  Morgan  &  Co.  shall  not  be  sufficient  for  the  purpose 
of  such  delivery,  then  the  deficiency  shall  be  forthwith  supplied  by 
the  Purchaser. 

Fifth.  The  purchase  price  to  be  paid  by  the  Purchaser  to  the 
Vendor  for  said  property  shall  be  ascertained  as  provided  in  tho 
Original  Agreement,  and  notwithstanding  the  immediate  transfer 
and  delivery  of  the  property  of  the  Vendor,  the  purchase  shall,  so  far 
as  the  adjustment  of  the  purchase  price  is  concerned,  be  considered  as 
taking  effect  as  of  such  day  in  September,  1902,  as  shall  be  designated 
by  the  Purchaser,  with  the  approval  of  J.  P.  Morgan  &  Co. ;  and,  for 
the  purposes  of  this  contract  and  of  the  Original  Agreement,  the 
profits  of  the  Vendor  for  the  two  years  ending  November  30,  1902, 
shall  be  ascertained  in  accordance  with  the  provisions  of  the  Original 
Agreement.  The  Purchaser  shall  cause  separate  accounts  of  the 
business  of  the  Vendor,  when  transferred  to  the  purchasing  company, 
to  be  kept  so  long  as  may  be  necessary  for  the  purpose  of  ascertain- 
ing the  profits  thereof  for  the  year  ending  November  30,  1902,  and 
for  the  purpose  of  determining  and  apportioning  the  profits  in  ac- 
cordance with  the  Original  Agreement. 


510         MATEKIALS    OF   CORPORATION    FINANCE 

Sixth.  The  Origin*!  Agreement  shall  continue  in  force  except  as 
herein  modified,  and  any  questions  arising  under  this  Supplemental 
Agreement  shall  be  determined  by  J.  P.  Morgan  &  Co.  as  sole  arbi- 
trators. 

In  witness  whereof  the  Vendor  has  caused  this  agreement  to  be 
duly  signed  in  the  name  of  said  firm,  and  the  Purchaser  has  signed 
his  name  and  affixed  his  seal  hereto  the  day  and  year  first  above 
written. 

In  presence  of: 

JOSEPH  P.  COTTON, 
TEMPLE  BOWDOIN. 
WM  C.  LANE. 

DEERING  HARVESTER  COMPANY, 
CHARLES  DEERING, 
JAMES  DEERING, 
By  CHARLES  DEERING, 

A  ttorney-in-fact. 
RICHARD  F.  HOWE, 
By  CHARLES  DEERING, 

A  ttorney-in-fact. 
JAMES  DEERING. 


AGREEMENT    PRELIMINARY   TO    PROMOTION     511 


AGREEMENT   PRELIMINARY    TO    THE   FORMATION    OP 
THE   AMERICAN   SNUFF   COMPANY.1 

Memorandum  of  agreement  made  this  15th  day  of  February,  1900, 
between  George  B.  Wilson,  Henry  D.  Moore  and  John  W.  Woodside, 
of  the  first  part;  James  B.  Duke  of  the  second  part,  and  John  B. 
Cobb  of  the  third  part: 

The  parties  of  the  first,  second  and  third  parts  agree  to  and  with 
each  other,  to  forthwith  organize  a  corporation  under  the  laws  of 
the  State  of  New  Jersey,  by  the  name  of  the  American  Snuff  Com- 
pany, or  other  name  to  be  agreed  on  by  the  parties  hereto,  with  an 
authorized  capital  stock  of  twenty-five  million  dollars  ($25,000,000), 
of  which  twelve  million  five  hundred  thousand  dollars  ($12,500,000), 
shall  be  six  per  cent,  non-cumulative  preferred  stock,  and  twelve  mil- 
lion five  hundred  thousand  dollars  ($12,500,000)  shall  be  common 
stock. 

There  shall  be  a  provision  in  the  charter  that  no  mortgages,  or 
incumbrances  of  any  kind,  shall  be  placed  upon  any  of  the  property 
of  such  proposed  corporation  as  a  prior  lien  to  such  preferred  stock, 
and  any  profits  realized  by  such  corporation  to  the  extent  of  six  per 
cent,  upon  such  preferred  stock,  or  any  part  thereof,  as  may  be  earned 
in  any  year,  shall  be  first  applicable  to  such  preferred  stock.  If  any 
profits  are  realized  by  the  corporation  in  any  one  year  beyond  the 
sum  necessary  to  pay  six  per  cent,  dividends,  such  profits  shall  be 
applicable  to  the  common  stock  only. 

The  said  parties  of  the  first  part  agree  to  undertake  to  deliver  to 
said  proposed  corporation,  in  such  manner  as  counsel  may  advise,  all 
of  the  issued  stock  of  the  Atlantic  Snuff  Company,  a  corporation  or- 
ganized under  the  laws  of  the  State  of  New  Jersey,  with  an  authorized 
capital  stock  of  ten  million  dollars,  of  which  one  million  eight  hun- 
dred and  thirty-six  thousand  five  hundred  dollars  is  preferred,  and 
seven  million  five  hundred  thousand  two  hundred  dollars,  common 
stock,  or  all  the  property  real  and  personal  (and  the  property  of  all 
corporations  owned  or  controlled  by  it),  together  with  its  or  their 
good- will,  business  and  trade-marks.  The  party  of  the  second  part 
agrees  to  undertake  to  deliver  and  have  conveyed  to  said  proposed 
corporation,  in  such  manner  as  counsel  may  advise,  the  snuff  business 
and  good-will  of  The  American  Tobacco  Company  and  Continental 
Tobacco  Company,  together  with  all  of  the  real  and  personal  prop- 
erty of  said  The  American  Tobacco  Company  and  Continental  To- 

*  From  Report  of  the  Commissioner  of  Corporations  on  the  Tobacco  Industry. 


512         MATERIALS    OF   CORPORATION    FINANCE 

bacco  Company,  used  by  them  or  either  of  them,  and  pertaining  to 
the  snuff  business  of  them  or  either  of  them,  and  the  good-will  and 
trade-marks  of  the  snuff  business  of  said  companies. 

The  party  of  the  third  part  agrees  to  undertake  and  have  conveyed 
to  said  proposed  corporation,  in  such  manner  as  counsel  may  advise, 
the  snuff  business  and  good-will  of  P.  Lorillard  Company,  together 
with  all  of  the  real  and  personal  property  of  said  P.  Lorillard  Com- 
pany, used  by  it,  and  pertaining  to  the  snuff  business  of  it,  and  the 
good-will  and  trade-marks  of  the  snuff  business  of  said  corporation. 

The  consideration  of  such  conveyance  to  such  proposed  corporation 
as  above  set  forth  by  said  parties  of  the  first  part  shall  be  seven  mil- 
lion five  hundred  thousand  dollars  ($7,500,000),  of  the  preferred 
stock  of  said  proposed  corporation,  and  two  million  five  hundred 
thousand  dollars  ($2,500,000),  of  the  common  stock  of  said  proposed 
corporation  applied  pro  rata  to  the  total  present  issue  of  preferred 
and  common  stock  of  the  Atlantic  Snuff  Company. 

The  consideration  of  such  conveyance  to  such  proposed  corporation 
as  above  set  forth  by  the  said  parties  of  the  second  and  third  parts 
shall  be  two  million  five  hundred  thousand  dollars  ($2,500,000)  of 
said  preferred  stock  of  said 'proposed  corporation  and  seven  million 
five  hundred  thousand  dollars  of  the  common  stock  of  said  proposed 
corporation  to  be  issued  to  The  American  Tobacco  Company,  Conti- 
nental Tobacco  Company  and  P.  Lorillard  Company,  in  such  pro- 
portions as  the  parties  of  the  second  and  third  parts  hereto  shall 
hereafter  notify  said  proposed  corporation. 

It  is  agreed  that  the  parties  of  the  first  part  shall  deliver  and  con- 
vey to  said  proposed  corporation  all  of  the  assets  of  the  Atlantic 
Snuff  Company,  which  (exclusive  of  good- will  and  trade-marks)  shall 
be  of  the  fair  value  of  at  least  one  million  eight  hundred  and  thirty- 
six  thousand  five  hundred  dollars  ($1,836,500),  all  of  which  shall  be 
good,  useful  and  available,  and  free  of  debts,  liens  and  liabilities. 
All  real  estate  and  machinery,  tobacco,  raw,  wrought  and  in  process, 
supplies  and  materials  are  to  be  taken  at  book  value,  not  exceeding 
cost.  The  book  accounts  included  in  such  assets  are  to  be  satisfac- 
torily guaranteed. 

It  is  agreed  that  the  parties  of  the  second  and  third  parts  shall 
deliver  and  convey  to  such  proposed  corporation  all  of  the  assets  of 
The  American  Tobacco  Company,  Continental  Tobacco  Company  and 
P.  Lorillard  Company,  pertaining  to  the  snuff  business  of  said  com- 
panies respectively,  which  said  assets,  exclusive  of  good-will  and 
trade-marks,  shall  in  the  aggregate  be  of  the  fair  value  of  at  least 
one  million  five  hundred  thousand  dollars  ($1,500,000),  all  of  which 
shall  be  good,  useful  and  available,  and  free  of  debts,  liens  and  lia- 


AGREEMENT    PRELIMINARY   TO   PROMOTION     513 

bilities.  All  real  estate  and  machinery,  tobacco,  raw,  wrought  and 
in  process,  supplies  and  materials,  are  to  be  taken  at  book  value  not 
exceeding  cost.  The  book  accounts  included  in  such  assets  are  to  be 
satisfactorily  guaranteed. 

The  deliveries  and  conveyances  herein  contemplated  shall  be  as  of 
March  1st,  1900.  Said  proposed  corporation  shall  accept  and  assume 
such  contracts  of  the  Atlantic  Snuff  Company,  The  American  Tobacco 
Company,  Continental  Tobacco  Company  and  P.  Lorillard  Company, 
as  Messrs.  Henry  D.  Moore,  George  B.  Wilson,  James  B.  Duke  and 
John  B.  Cobb  shall  agree  that  it  is  advisable  for  said  proposed  cor- 
poration to  accept  and  assume. 

If  said  proposed  corporation  shall  pay  any  money,  or  deliver  any 
article  or  thing  on  account  of  any  obligation,  by  way  of  rebate  or 
otherwise  issued  or  undertaken  by  the  Atlantic  Snuff  Company,  or 
The  American  Tobacco  Company,  or  Continental  Tobacco  Company 
or  P.  Lorillard  Company,  prior  to  March  1st,  1900,  the  amount  so 
paid  by  said  proposed  corporation,  or  the  value  of  the  article  or 
thing  so  delivered  by  said  proposed  corporation,  in  performance  of 
such  obligation,  shall  be  refunded  to  said  proposed  corporation  by 
the  corporation,  or  party,  whose  obligation  was  thus  performed  by 
said  proposed  corporation ;  though  this  shall  not  be  construed  as  bind- 
ing on  said  proposed  corporation  to  pay  any  such  obligation  unless  it 
elects  to  do  so ;  if  any  manufactured  goods  sold  by  the  Atlantic  Snuff 
Company,  The  American  Tobacco  Company,  Continental  Tobacco 
Company  or  P.  Lorillard  Company  have  to  be  taken  or  transferred 
by  said  proposed  corporation,  the  amount  of  loss  or  injury  sustained 
by  said  proposed  corporation  by  such  taking  or  transfer  shall  be  paid 
to  it  by  the  corporation  or  party  who  sold  such  goods. 

There  shall  be  a  committee  of  four  to  determine  the  available 
assets,  exclusive  of  real  estate  and  machinery,  of  the  Atlantic  Snuff 
Company,  The  American  Tobacco  Company,  P.  Lorillard  Company 
and  Continental  Tobacco  Company.  Two  members  of  this  committee 
shall  be  appointed  by  Henry  D.  Moore  and  two  by  James  B.  Duke. 
If  the  decision  of  such  committee  as  to  the  availability  of  any  such 
assets  shall  not  be  satisfactory  to  its  owner,  and  cannot  be  made  satis- 
factory within  three  days  after  the  report  of  the  committee  thereon, 
the  difference  of  opinion  shall  be  settled  by  an  arbitrator  selected  by 
said  committee,  whose  decision  shall  be  final  and  conclusive  and  shall 
be  made  within  five  days  after  the  time  of  his  selection. 

One-half  of  the  expenses  of  organization  of  said  "proposed  corpora- 
tion, which  have  to  be  paid  in  advance  of  said  organization,  shall  be 
advanced  by  the  parties  of  the  first  part  and  the  other  half  by  the 
parties  of  the  second  and  third  parts,  and  all  such  advances  shall,  im- 


514 

mediately  after  its  organization,  be  refunded  by  said  proposed  cor- 
poration. 

Said  proposed  corporation  shall  be  organized  by  and  under  the 
advice  of  the  firm  of  Jones,  Carson  &  Beeber  and  W.  W.  Fuller,  none 
of  whom  shall  make  any  charge  to  said  proposed  corporation  for  any 
services  rendered  by  them;  the  said  firm  of  Jones,  Carson  &  Beeber 
to  look  for  their  compensation  solely  to  t^c,  parties  of  the  first  part, 
and  the  said  W.  W.  Fuller  to  look  for  his  compensation  solely  to  the 
parties  of  the  second  and  third  parts.  It  is  understood,  however,  that 
the  new  corporation  shall  pay  a  fee  to  Jones,  Carson  &  Beeber,  in 
the  event  of  its  securing,  through  their  advice,  the  acquisition,  upon 
satisfactory  terms,  of  Geo.  W.  Helme  Company,  it  being  under- 
stood that  such  compensation  shall  be  twenty-five  thousand  dollars 
($25,000)  if  said  Geo.  W.  Helme  Company  agrees  to  sell  to  such  pro- 
posed corporation,  upon  satisfactory  terms  to  it,  within  60  days  here- 
after; or,  only  twelve  thousand  five  hundred  dollars  ($12,500)  if  after 
60  days,  and  within  four  months  of  this  date,  and  if  not  agreeing  so 
to  sell  within  at  least  four  months,  then  no  fee  to  be  paid  to  the  said 
Jones,  Carson  &  Beeber. 

The  parties  of  the  first,  second  and  third  parts  hereto,  respectively 
undertake  to  have  made  known  and  imparted  to  the  designated  agents 
of  said  proposed  corporation,  the  processes,  formulas  and  recipes  for 
the  preparation  and  manufacture  of  snuff,  employed  by  the  Atlantic 
Snuff  Company,  The  American  Tobacco  Company,  Continental  To- 
bacco Company  and  P.  Lorillard  Company. 

The  parties  of  the  first  part  agree  that  each  of  the  directors  of  the 
Atlantic  Snuff  Company  shall  enter  into  contracts  with  the  proposed 
corporation  not  to  go  into  the  business  of  manufacturing  snuff,  in 
the  United  States,  for  a  period  of  ten  years,  either  directly  or  indi- 
rectly, or  to  take  any  interest  in  manufacturing  snuff  in  said  country, 
during  the  said  time,  without  the  written  consent  of  the  said  pro- 
posed corporation;  and  that  similar  contracts  shall  be  entered  into  by 
The  American  Tobacco  Company,  Continental  Tobacco  Company  and 
P.  Lorillard  Company. 

It  is  agreed  that  the  property  and  business  of  the  corporation  shall 
be  managed  by  a  board  of  fifteen  directors  divided  into  classes  as  the 
committee  above  named  shall  agree.  Shares  of  preferred  and  com- 
mon stock  shall  have  equal  powers  of  voting. 

The  by-laws  shall  provide  that  the  President,  as  such,  shall,  receive 
a  salary  not  exceeding  fifteen  thousand  dollars  a  year ;  that  the  Vice- 
President  shall  receive  a  salary  not  exceeding  five  thousand  dollars 
a  year;  that  the  Treasurer  shall  receive  a  salary  not  exceeding  five 


AGREEMENT   PRELIMINARY   TO    PROMOTION     515 

thousand  dollars  a  year,  and  that  the  Secretary  shall  receive  a  salary 
not  exceeding  five  thousand  dollars  a  year. 

The  by-laws  shall  not  be  amended  except  by  at  least  two-thirds 
of  the  whole  Board  of  Directors.  A  quorum  of  said  board  shall  con- 
sist of  five  directors. 

The  by-laws  shall  provide  that  the  stock  shall  forthwith  be  listed 
on  the  New  York  Stock  Exchange. 

The  charter  shall  provide,  if  counsel  conclude  that  such  provision 
can  be  legally  introduced  into  the  same,  that  the  preferred  stock  shall 
not  be  increased  beyond  the  amount  of  twelve  million  five  hundred 
thousand  dollars  ($12,500,000)  without  the  assent  of,  at  least,  seventy 
per  cent,  of  the  preferred  stock. 

The  details  of  organizing  said  proposed  corporation,  and  the  carry- 
ing out  of  this  agreement,  shall  be  determined  by  a  committee  com- 
posed of  Henry  D.  Moore,  George  B.  Wilson,  Chas.  E.  Halliwell  and 
John  B.  Cobb.  They  shall  proceed  forthwith  to  carry  into  effect  the 
same,  and  to  prepare  by-laws  to  be  submitted  for  adoption,  and  any 
question  that  may  arise  between  the  contracting  parties  hereto,  in  the 
formation  of  the  proposed  corporation,  and  the  conveying  of  any 
property  the  settlement  for  which  is  not  provided  for  herein,  shall  be 
determined  by  the  decision  of  three-fourths  of  such  committee  after 
the  consideration  of  such  disputed  question. 

To  the  performance  of  the  agreements  hereinbefore  made,  the  par- 
ties hereto  each  pledges  his  earnest,  bona  fide  efforts,  but  it  is  to  be 
understood  that  no  signer  hereto  incurs  any  personal  liability  for 
non-performance  of  any  part  of  this  agreement. 

Witness  our  hands  and  seals,  at  the  City  of  New  York,  this  15th 
day  of  February,  1900. 

GEO.  B.  WILSON.  [SEAL.] 

HENRY  D.  MOORE.  [SEAL.] 
JOHN  W.  WOODSIDE.  [SEAL.] 
J.  B.  DUKE.  [SEAL.] 

J.  B.  COBB.  [SEAL.] 

Witness  all  signatures 

GEO.  M.  GALES. 


516 


AGREEMENT    PRELIMINARY    TO    THE   FORMATION    OF 
THE  AMERICAN   CIGAR   COMPANY.1 

This  agreement,  made  and  entered  into  this  3d  day  of  January, 
1901,  by  and  between — 

George  J.  Smith,  of  Kingston,  N".  Y.,  and  Harry  J.  Luce,  of  New 
York  City,  N.  Y.,  partners,  doing  business  under  the  name  and  style 
of  Powell,  Smith  &  Company  (hereinafter  called  "Partners")  par- 
ties of  the  first  part;  and 

The  American  Tobacco  Company,  a  corporation  organized  and  exist- 
ing under  and  by  virtue  of  the  laws  of  the  State  of  New  Jersey  (  here- 
inafter called  "American  Company")  party  of  the  second  part;  and 

Continental  Tobacco  Company,  a  corporation  organized  and  exist- 
ing under  and  by  virtue  of  the  laws  of  the  State  of  New  Jersey  (here- 
inafter called  "Continental  Company")  party  of  the  third  part: 

Witnesseth : 

That  partners,  as  an  inducement  to  the  American  Company  and 
Continental  Company,  to  enter  into  this  contract,  represent  and  war- 
rant to  them : 

1st.  That,  as  partners  in  the  business  of  manufacturing  and  selling 
cigars  under  various  brands,  they  have  for  the  past  three  years  done 
a  business,  as  follows : 

In  the  year  1898 

Number  of  cigars  sold 52,199,257 

Amount  received  for  cigars  sold $1,732,441.95 

Gross  and  manufacturing  profit 419,412.72 

Selling  expense,  excluding  advertising 164,190.18 

Advertising  expenses  57,747.42 

Net  profit $197,475.12 

In  the  year  1899 

Number  of  cigars  sold   61,036,256 

Amount  received  for  cigars  sold $2,014,242.73 

Gross  or  manufacturing  profit 455,301.93 

Selling  expense,  excluding  advertising 169,488.79 

Advertising  expenses    100,642.37 

Net  profit    $185,170.77 

In  the  year  1900 

Number  of  cigars  sold  70,046,663 

Amount  received  for  cigars  sold $2,189,919.44 

2nd.  That  Partners  own  and  have  used  without  interference  or 
adverse  claim  the  trade-mark  used  by  them,  and  that  they  will  be 

i  From  the  Report  of  the  Commissioner  of  Corporations  on  the  Tobacco 
Industry. 


AGREEMENT   PRELIMINARY   TO   PROMOTION    517 

able  to  make  the  conveyance  or  conveyances  hereinafter  set  out  and 
hereafter  contemplated,  and  that  said  conveyance  when  so  made  will 
convey  to  the  purchaser  all  of  their  property  and  good-will  needful 
and  useful  in  the  carrying  on  of  the  business  free  from  any  debts  or 
liabilities,  and  with  full  power  and  right  in  the  purchaser  to  make  use 
of  the  brands  and  trade-marks  conveyed,  as  well  as  the  tangible 
property  and  the  trade-name  "Powell,  Smith  &  Company." 

It  is  agreed  that  the  American  Company  and  the  Continental  Com- 
pany may  send  their  expert  accountants  and  agents  to  examine  the 
books,  papers,  property  and  business  of  Partners,  in  order  to  verify 
the  representations  above  made,  and  that  Partners  will  afford  such 
experts  and  agents  full  and  unrestricted  opportunity  to  make  such 
examination. 

And  it  is  further  agreed  that  if  upon  the  completion  of  such  ex- 
amination such  experts  and  agents  of  the  American  Company  and 
the  Continental  Company  shall  agree  and  report  that  the  represen- 
tations of  Partners  above  made  are  substantially  true  then  and  in  that 
case  a  corporation  shall  be  formed  under  the  laws  of  the  State  of 
New  Jersey,  with  power  to  engage  in  the  business  of  manufacturing 
and  selling  cigars,  cheroots  and  little  cigars,  and  with  such  other 
powers  as  the  said  the  American  Company  and  the  Continental  Com- 
pany shall  desire  or  be  advised  are  desirable,  with  an  authorized 
capital  stock  of  ten  million  dollars  ($10,000,000). 

Said  new  corporation  shall  be  organized,  and  the  examinations 
hereinbefore  provided  for  and  hereinafter  provided  for  shall  be 
made  as  expeditiously  as  possible,  so  that  on  or  as  soon  as  practicable 
after  January  16,  1901,  (conveyances  and  inventories  to  be  as  of  that 
date)  Partners  shall  convey  to  said  new  corporation  their  entire 
cigar  business,  including  name,  good-will,  trade-marks,  trade-names, 
symbols,  patents  and  copy-rights  and  rights  analagous  thereto,  recipes 
of  manufacture,  and  including  also  stock  on  hand,  whether  manu- 
factured, in  process  of  manufacture,  or  fully  manufactured,  labels, 
wrapping  materials,  advertising  matter,  and  supplies,  machines  and 
appliances  suitable  and  useful  in  the  manufacture  of  cigars,  and 
such  as  have  been  used  by  Partners  in  their  manufacture  of  cigars, 
real  estate  in  Kingston,  N.  Y.,  and  in  Poughkeepsie,  N.  Y.,  suitable 
for  the  business  of  said  new  corporation,  and  all  tha  property, 
whether  herein  specially  mentioned  or  not,  owned  by  Partners, 
useful  and  available  in  the  business  of  cigar  manufacturing  (except 
cash  on  hand,  bills  receivable,  accounts  receivable  and  contracts  not 
hereinafter  scheduled  belonging  to  said  Partners,  which  cash,  bills 
and  accounts  receivable  and  contracts  not  hereinafter  scheduled  nre 
hereby  expressly  excluded  from  the  contemplated  conveyance) ;  the 


518         MATEEIALS    OF   COEPOEATION   FINANCE 

said  conveyance  is  to  be  of  the  exclusive  right  to  the  use  of  the  name 
of  the  co-partners  "Powell,  Smith  &  Company,"  as  well  as  the  name 
or  names  of  either  of  the  partners,  and  any  name  which  Partners  or 
the  co-partnership  has  a  right  to  use  on  its  labels  or  advertisements. 

Said  conveyance  is  to  contain  warranties  by  Partners,  jointly  and 
severally,  that  the  business  and  property  conveyed  are  free  from  any 
lien,  debt,  liability,  incumbrance  or  assessment  of  any  kind,  legal  or 
equitable,  including  all  taxes  of  whatever  sort  for  the  year  1900,  and 
that  the  trade-marks  conveyed  are  valid  trade-marks,  which  Partners 
have  the  right  to  convey;  and  that  they  will  jointly  and  severally 
warrant  and  defend  the  title  made  to  said  new  corporation  against  all 
claims  whatsoever  and  all  persons  whomsoever. 

At  the  time  of  said  conveyance,  and  in  the  same  instrument,  Part- 
ners shall  and  will  covenant  and  agree  each  for  himself  that  he  will 
not,  for  a  term  of  twenty  years  from  the  date  of  said  conveyance 
directly  or  indirectly  engage  in  the  manufacture  of  tobacco  into 
cigars,  or  into  any  other  of  its  forms,  or  distributing  the  same,  or  own 
stock  in  any  corporation  other  than  said  new  corporation,  and  The 
American  Tobacco  Company  and  Continental  Tobacco  Company,  so 
engaged  in  such  manufacture  or  distribution  within  the  several 
States,  colonies  or  dependencies  of  the  United  States,  or  the  several 
countries  or  nations  of  Europe  (except  the  State  of  Utah  and  the 
Territory  of  Alaska)  except  for  or  with  the  written  consent  of  said 
new  corporation,  authorized  by  a  majority  vote  of  all  its  Directors, 
and  that  they  will  not  permit  the  use  of  their  names,  or  the  name  of 
either  of  them  whether  in  connection  with  each  other  or  separately, 
or  with  or  without  other  names  or  initials  within  said  time  herein- 
before mentioned,  to  wit,  twenty  years. 

At  the  time  of  said  conveyance,  and  in  the  same  instrument,  Part- 
ners shall  each  for  himself  agree  to  enter  into  and  devote  his  whole 
time  and  best  efforts  to  the  service  of  said  new  corporation,  and,  if 
the  new  corporation  desires  so  long  to  retain  him,  to  remain  in 
said  business  for  five  years,  at  the  following  salaries,  respectively, 
all  payable  in  equal  monthly  installments,  to  wit,  George  J.  Smith 
ten  thousand  dollars  ($10,000)  per  year;  and  Harry  J.  Luce  ten 
thousand  dollars  ($10,000)  per  year.  Said  contract  of  employment 
shall  not,  however,  require  said  new  corporation  to  retain  the  service 
of  either  of  Partners  beyond  a  year  after  the  said  conveyance,  and 
after  said  first  year  term  the  new  corporation  may  at  any  time  dis- 
pense with  the  services  of  either  of  said  Partners  without  liability  to 
him  for  any  part  of  the  unexpired  term  of  five  years. 

At  the  time  of  said  conveyance,  and  in  the  same  instrument,  Part- 
ners shall  further,  each  for  himself,  agree  to  at  any  time  thereafter 


AGREEMENT    PRELIMINARY   TO   PROMOTION     519 

instruct  the  designated  agents  of  said  new  corporation  as  to  any  of 
the  formulae,  process  or  recipes  for  the  treatment  or  cure  of  tobacco 
and  manufacture  of  cigars  used  by  or  known  to  him,  and  further 
instruct  such  designated  agents  in  the  use  of  such  formulae,  recipes  or 
processes,  and  that  he  will  not  make  known  to  any  other  than  such 
designated  agents,  or  make  use  of  any  such  formulae,  processes  or 
recipes. 

In  consideration  of  the  conveyances,  covenants  and  agreements  by 
Partners  as  aforesaid,  said  new  corporation  is  to  pay  to  Partners  the 
sum  of  One  Million  two  hundred  and  fifty  thousand  dollars  ($1,250,- 
000)  in  cash,  which  said  amount  shall  be  in  full  payment  for  the 
trade-names,  good-will,  trade-marks,  symbols,  recipes,  copyrights, 
patents  and  rights  analogous  thereto  and  all  other  intangible  assets 
belonging  to  said  Partners  of  whatsoever  kind,  and  in  any  way  useful 
or  available  in  the  cigar  business,  except  book  accounts,  bills  receiv- 
able and  contracts  not  scheduled,  and  a  further  sum  for  the  tangible 
assets  useful  and  available  in  the  cigar  business,  to  be  arrived  at  as 
follows:  The  real  estate,  buildings,  unmanufactured  stock,  stock  in 
process  of  manufacture,  and  that  fully  manufactured,  at  the  cost 
thereof  to  Partners  as  shown  by  the  books  of  Partners,  if  the  same 
have  been  accurately  kept.  In  arriving  at  the  cost  of  any  such  prop- 
erty no  amount  is  to  be  allowed  for  interest  on  the  investment  made 
by  Partners,  but  in  the  case  of  stock  of  tobacco  the  actual  cost  of  car- 
riage, storage  and  insurance  is  to  be  considered.  Machinery  and  fix- 
tures, such  as  are  useful  and  available  in  the  cigar  business  is  to  be 
taken  at  its  actual  and  agreed  value,  and  in  no  case  exceeding  cost. 
Wrapping  material,  labels  and  supplies  other  than  leaf  and  manu- 
factured stock  are  to  be  taken  just  as  leaf  and  manufactured  stock, 
provided,  however,  that  none  shall  be  taken  by  said  new  corporation 
except  such  as  will  be  useful  and  available  to  it  in  its  business.  Such 
leaseholds  as  the  said  Partners  have  useful  to  said  new  corporation  in 
its  business  shall  be  turned  over  to  said  new  corporation  without 
premium.  If  Partners  have  made  advances  on  contracts  for  pur- 
chase of  leaf,  and  additional  amounts  are  due  to  the  vendors  thereof, 
the  said  new  corporation  will  upon  receipt  of  such  leaf  if  said  contract 
is  taken  by  said  new  corporation  pay  for  the  same  by  returning  to 
Partners  the  amount  advanced  by  them  without  interest,  and  settling 
with  the  vendor  for  the  balance  due  him.  No  contract  of  whatever 
sort  not  set  out  in  Schedule  A  hereto  attached  shall  be  taken  by  said 
new  corporation  unless  the  same  is  agreed  to  by  W.  R.  Harris  who  is 
the  agent  appointed  hereby  for  both  the  American  Company  and  the 
Continental  Company  to  pass  on  such  contract. 

It  is  agreed  that  said  new  corporation  shall  be  organized  under  the 


520         MATERIALS   OF   COEPOEATION    FINANCE 

direction  of  the  legal  advisers  of  the  American  Company  and  the 
Continental  Company  and  there  shall  be  no  charge  to  said  new  cor- 
poration for  legal  advice  and  services  in  its  organization.  The  ex- 
pense of  such  organization  other  than  legal  advice  and  service  shall 
be  borne  by  it,  the  said  new  corporation.  The  stock  of  said  new  cor- 
poration shall  be  issued  for  cash  as  par,  and  it  shall  be  issued  and 
paid  for  in  the  proportion  of  seven  per  cent,  to  Partners  or  their 
nominees,  forty-six  and  one-half  per  cent,  to  the  American  Company 
or  its  nominees,  and  forty-six  and  one-half  per  cent,  to  the  Continen- 
tal Company  or  its  nominees,  and  each  of  the  parties  shall  meet  any 
call  made  by  the  directors  for  cash  in  this  way;  seven  per  cent,  of  the 
amount  so  called  to  be  paid  by  Partners,  or  their  nominees ;  forty-six 
and  one-half  per  cent,  by  the  American  Company  or  its  nominees,  and 
forty-six  and  one-half  per  cent,  by  the  Continental  Company  or  its 
nominees.  Stock  shall  issue  to  the  amount  that  payments  are  made, 
and  at  the  time  such  payments  instead  of  being  credited  to  the  sub- 
scribers paying  the  same  on  their  respective  stock  subscriptions.  In 
case  the  directors  of  said  new  corporation  decide  to  purchase  any 
other  property  or  business  and  to  pay  for  the  same  in  stock  and 
not  in  cash  the  stock  necessary  and  used  in  such  purchase  shall 
be  deducted  equally  from  the  amount  that  under  this  agreement 
would  be  coming  to  the  American  Company  and  the  Continental 
Company  and  the  payments  required  by  them  shall  be  likewise 
abated. 

The  said  new  corporation  shall  be  organized  with  a  paid-up  capital 
stock  of  ten  thousand  dollars,  of  which  the  nominees  of  the  American 
Company  and  the  nominees  of  the  Continental  Company  shall  hold 
$9,300  and  Partners  and  their  nominees  shall  hold  $700,  and  these 
first  stockholders  shall  organize  and  elect  a  board  of  directors  and 
thereafter  such  board  of  directors  shall  control  the  operation  of  said 
new  corporation,  controlling  only  by  the  provisions  of  this  agree- 
ment. The  said  nominees  of  said  the  American  Company  and  the 
Continental  Company  shall  select  a  name  for  said  new  corporation 
and  fix  the  number  of  the  directors. 

In  witness  whereof,  and  of  all  the  foregoing,  the  said  Partners 
have  caused  this  instrument  to  be  signed  in  their  partnership  name 
"Powell  Smith  &  Company"  by  George  J.  Smith,  one  of  its  active 
partners,  and  they  have  individually  set  their  hands  and  seals  hereto ; 
and  the  said  party  of  the  second  part  has  caused  this  instrument  to 
be  signed  in  its  corporate  name  by  its  President,  and  its  corporate 
seal  to  be  fixed,  attested  by  its  Secretary ;  and  said  party  of  the  third 
part  has  caused  this  instrument  to  be  signed  in  its  corporate  name  by 


AGREEMENT   PRELIMINARY   TO   PROMOTION     521 

its  1st  Vice-President,  and  its  corporate  seal  to  be  affixed,  attested  by 
its  Secretary. 

All  done  in  triplicate,  the  day  and  year  first  above  written. 

POWELL  SMITH  &  COMPANY, 

By  GEO.  J.  SMITH. 
GEORGE  J.  SMITH, 
HARRY  J.  LUCE, 

THE  AMERICAN  TOBACCO  COMPANY, 
By  J.  B.  DUKE, 

President. 
[SEAL.] 
Attest: 

R.  L.  PATTERSON, 

Secretary. 

CONTINENTAL  TOBACCO  COMPANY, 

By  CHAS.  E.  HALLIWELL, 

1st  Vice-President. 
[SEAL.] 
Attest : 

W.  H.  McALISTER, 

Secretary. 


522         MATERIALS    OF   CORPORATION   FINANCE 

CONSOLIDATION  BY  SALE  OF  ASSETS 

IOWA  CENTRAL  RAILWAY  COMPANY 

THE  MINNEAPOLIS  &  ST.  Louis  RAILROAD  COMPANY 


Total  Mileage  Owned  and  Operated,  1,585  Miles. 


NEW  YORK,  December  13,  1911. 
To  the  Stockholders  of 

IOWA  CENTRAL  RAILWAY  COMPANY 

and 

• 

THE  MINNEAPOLIS  &  ST.  Louis  RAILROAD  COMPANY: 

The  Boards  of  Directors  of  the  Iowa  Central  Railway  Company  and 
of  The  Minneapolis  &  St.  Louis  Railroad  Company  have  agreed,  sub- 
ject to  the  approval  of  the  stockholders  of  said  Companies,  at  meet- 
ings to  be  held,  for  the  Iowa  Central  Railway  Company,  on  December 
19th  next,  and  for  The  Minneapolis  &  St.  Louis  Railroad  Company  on 
December  18th  next,  for  the  sale  and  conveyance  by  the  Iowa  Central 
Railway  Company  of  all  its  railroad  and  property,  subject  to  its  debts 
and  liabilities,  to  The  Minneapolis  &  St.  Louis  Railroad  Company 
and  for  the  payment  by  the  Iowa  Central  Railway  Company  to  The 
Minneapolis  &  St.  Louis  Railroad  Company  of  the  sum  of  $2,500,000, 
in  consideration  for  the  issue  and  delivery  by  The  Minneapolis  &  St. 
Louis  Railroad  Company  of  19,175  shares  of  its  preferred  stock, 
93,702  shares  of  its  common  stock  and  $2,500,000  of  an  issue  about 
to  be  made  by  it  of  Refunding  and  Extension  Mortgage  Five  Per 
Cent.  Fifty- Year  Gold  Bonds. 

Said  bonds  will  be  dated  January  1,  1912,  and  will  bear  interest 
from  February  1,  1912,  at  the  rate  of  5  per  cent,  per  annum,  payable 
quarterly  on  the  first  days  of  February,  May,  August  and  November 
in  each  year,  and  will  be  redeemable  at  105  at  any  interest  period. 
Said  bonds  will  be  part  of  an  authorized  issue  of  $75,000,000  of  bonds 
secured  by  mortgage  upon  the  railroads  and  properties  now  owned 
by  The  Minneapolis  &  St.  Louis  Railroad  Company  and  the  Iowa 
Central  Railway  Company,  subject  to  existing  liens  thereon,  and  said 
mortgage,  through  the  retirement  of  the  outstanding  $6,250,000  of 
bonds  of  the  Minnesota.  Dakota  &  Pacific  Railway  Company,  will  also 
be  a  first  lien  upon  the  railroad  and  property  of  said  Minnesota,  Da- 


CONSOLIDATION    BY    SALE   OF   ASSETS  523 

kota  &  Pacific  Railway  Company  constituting  the  recent  extension  to 
the  Missouri  River,  229.6  miles.  Said  mortgage  will  also  be  a  first 
lien  upon  the  contemplated  extensions  of  the  property  of  The  Minne- 
apolis &  St.  Louis  Railroad  Company.  The  issue  of  the  $2,500,000 
of  bonds  above  referred  to  will  not  increase  the  aggregate  indebtedness 
of  the  Companies  as  the  proceeds  are  to  be  used  to  take  up  maturing 
obligations. 

It  is  proposed  that  the  securities  to  be  received  by  the  Iowa 
Central  Railway  Company  will  be  distributed  upon  the  following 
basis : 

One  share  of  the  preferred  stock  and  nine  shares  of  the  common 
stock  of  The  Minneapolis  &  St.  Louis  Railroad  Company  will  be  ex- 
changed for  each  ten  shares  of  the  preferred  stock  of  the  Iowa  Central 
Railway  Company ;  and  one  share  of  the  common  stock  of  The  Minne- 
apolis &  St.  Louis  Railroad  Company  will  be  exchanged  for  two  shares 
of  the  common  stock  of  the  Iowa  Central  Railway  Company. 

By  an  arrangement  between  the  two  companies,  and  under  an  agree- 
ment between  the  Iowa  Central  Railway  Company  and  Messrs.  J.  S. 
Bache  &  Co.,  Bankers,  of  New  York  City,  the  Iowa  Central  Railway 
Company  has  agreed,  subject  to  the  approval  of  its  stockholders  and 
of  the  stockholders  of  The  Minneapolis  &  St.  Louis  Company,  that 
the  $2,500,000  of  Refunding  and  Extension  Mortgage  Bonds  above 
referred  to,  shall  be  offered  by  the  Iowa  Central  Railway  Company  for 
subscription  to  stockholders  of  the  two  companies  as  the  same  appear 
of  record  on  the  books  of  said  companies  at  the  close  of  business  De- 
cember 26,  1911,  pro  rata,  to  the  extent  of  10  per  cent,  of  the  par 
value  of  the  shares  of  the  stock  held  by  them  respectively,  together 
with  $1,250,000  of  the  preferred  stock  of  The  Minneapolis  &  St.  Louis 
Railroad  Company,  at  a  price  of  $1,000  for  each  $1,000  Refunding 
and  Extension  Mortgage  bond,  with  preferred  stock  of  the  par  value 
of  $500.  The  entire  amount  of  subscriptions  will  be  payable  on  or 
before  January  25,  1912.  A  syndicate  has  been  formed  by  Messrs.  J. 
S.  Bache  &  Co.  for  the  purpose  of  purchasing  so  much  of  said  $2,- 
500,000  of  bonds  and  $1,250,000  of  preferred  stock  as  shall  not  be 
subscribed  and  paid  for  on  or  before  January  25,  1912,  by  the  stock- 
holders of  the  two  companies. 

The  money  received  from  the  proceeds  of  this  transaction  will 
enable  the  properties  to  discharge  obligations  maturing  February  1, 
1912,  aggregating  $2,100,000  and  release  underlying  bonds  aggregat- 
ing $1,850,000. 

•  The  capitalization  of  The  Minneapolis  &  St.  Louis  Railroad  Com- 
pany, after  the  acquisition  by  it  of  the  properties  of  the  Iowa  Central 
Railway  Company,  will  be  less  than  the  aggregate  capitalization  of 
18 


524         MATERIALS    OF   CORPORATION   FINANCE 

the  two  separate  companies.  The  outstanding  preferred  stock  of  The 
Minneapolis  &  St.  Louis  Railroad  Company  will  be  increased  to  $5,- 
917,500,  being  about  $4,100  per  mile,  while  the  outstanding  common 
stock  will  be  at  an  average  of  about  $10,000  per  mile. 

The  Iowa  Central  Railway  Company  has  considerable  value  as  a 
feeder  to  the  Minneapolis  &  St.  Louis  Railroad  and  logically  should 
be  a  part  of  a  through  line  from  the  Missouri  River  to  the  Canadian 
border.  While  the  records  of  the  two  companies  show  that  without 
the  tonnage  concentrated  upon  its  lines  from  The  Minneapolis  &  St. 
Louis  Railroad  Company,  the  Iowa  Central  Railway  Company  would 
be  unable  properly  to  sustain  itself,  its  value  to  The  Minneapolis  & 
St.  Louis  Railroad  Company  as  a  link  in  the  connection  which  it  is 
contemplated  will  be  made  with  railroads  at  the  Canadian  border 
makes  it  desirable  that  they  should  be  united. 

The  importance  of  the  proposed  extensions  in  the  development  of 
the  properties  can  hardly  be  over-estimated.  They  should  establish 
the  property  as  one  of  the  most  important  in  the  middle  west,  giving 
to  independent  Canadian  roads  a  direct  connection  with  Minneapolis 
and  St.  Paul,  forming  a  through  direct  line  from  Canada  and  the 
Canadian  northwest  to  the  Gulf.  The  managers  of  the  respective  com- 
panies have  the  greatest  confidence  in  the  earning  power  and  success 
of  the  properties  with  these  plans  executed.  The  Minneapolis  &  St. 
Louis  Railroad  Company  earned  and  paid  dividends  consecutively  for 
fifteen  years  until  January  1,  1910,  when  it  was  met  with  a  crop  fail- 
ure in  South  Dakota  which  was  repeated  and  aggravated  in  the  pres- 
ent year.  The  conditions  in  that  State,  so  far  as  it  is  possible  to  judge 
at  this  time,  point  to  a  good  crop,  as  the  earth,  for  the  first  time  in 
three  years,  is  thoroughly  water-soaked. 

Under  the  arrangement  between  the  two  companies  and  the  agree- 
ment between  the  Iowa  Central  Railway  Company  and  Messrs.  J.  S. 
Bache  &  Co.  above  referred  to,  the  right  to  subscribe  for  $2,500,000  of 
Refunding  and  Extension  Mortgage  Bonds  and  $1,250,000  of  pre- 
ferred stock  of  The  Minneapolis  &  St.  Louis  Railroad  Company  has 
been  reserved  to  the  stockholders  of  the  two  companies,  as  indicated 
above.  In  the  event  that  the  approval  of  the  stockholders  of  the  two 
companies  to  the  foregoing  plan  is  given  at  the  special  meetings  to  be 
held  on  December  18th  and  19th  next,  subscription  certificates  will 
be  mailed  to  stockholders  on  or  about  December  26th.  Stockholders 
who  desire  to  subscribe  for  more  than  their  ratable  proportion  of  these 
bonds  and  shares  of  preferred  stock  may  indicate  their  wishes  in  a 
communication  addressed  to  Mr.  A.  C.  Doan,  the  secretary  of  the  Iowa 
Central  Railway  Company  at  his  office  No.  25  Broad  Street,  New 
York  City,  and  if  any  of  these  securities  remain  unsubscribed  for, 


CONSOLIDATION    BY    SALE    OF   ASSETS  525 

their  wishes  will  receive  consideration  by  Messrs.  J.  S.  Bache  &  Co., 
the  bankers  who  have  formed  a  syndicate  to  underwrite  the  entire 
issue. 

Respectfully  yours, 

IOWA  CENTRAL  RAILWAY  COMPANY, 

By  NEWMAN  ERB, 

President. 

THE  MINNEAPOLIS  &  ST.  LOUIS  RAILROAD  CO., 

By  EDWIN  HAWLEY, 
Chairman  of  the  Board. 


526         MATERIALS   OF   CORPORATION    FINANCE 


Confidential. 

PLAN  FOR  THE  CONSOLIDATION  OF  THE  ELECTRIC 
RAILWAY  COMPANIES,  THE  GAS  AND  ELECTRIC 
LIGHT  COMPANIES  OF  THE  CITY  OF  NEW  ORLEANS, 
LA.,  UNDER  THE  CONTROL  OF  THE  NEW  ORLEANS 
RAILWAYS  COMPANY,  A  CORPORATION  ORGANIZED 
UNDER  THE  LAWS  OF  THE  STATE  OF  NEW  JERSEY. 

It  is  proposed  to  recapitalize  the  present  New  Orleans 
Railways  Company  on  the  basis  of  an  authorized  issue 
of  fifty-year  four  and  one-half  per  cent,  gold  sinking 
fund  mortgage  bonds  to  an  amount  of  $40,000,000, 
of  which  amount  there  will  be  held  in  the  treasury 

for  existing  bonds $12,846,000 

For  future  extensions  and  improvements 7,154,000 

To  be  issued  now  for  the  purchase  of  the  securities  of 
the  present  companies 20,000,000 


$40,000,000 

Four  per  cent,  cumulative  preferred  stock $10,000,000 

Common  stock 30,000,000 


It  is  proposed  by  the  New  Orleans  Railways  Company  to  take  over 
by  exchanging  its  securities  the 
New  Orleans  Gas  Light  Company.    . 
New  Orleans  Lighting  Company. 
Edison  Electric  Company. 
Merchants'  Electric  Company. 

New  Orleans  City  Railroad  Company about  115  miles. 

New  Orleans  and  Carrollton  Railroad,  Light  and 

Power  Company "        35       " 

Orleans   Railroad   Company "        10       " 

St.  Charles  Street  Railroad  Company "       18      " 


Total  .  .   about  178  miles. 


The  Electric  Light  Companies  are  owned  by  the  New  Orleans  and 
Carrollton  Railroad,  Light  and  Power  Company,  and  the  Gas  Plant 
is  owned  by  the  New  Orleans  Gas  Light  Company,  which  is  leased 
to  and  operated  by  the  New  Orleans  Lighting  Company,  right  to  the 
control  of  all  of  which  Companies,  with  the  exception  of  the  St. 


PLAN   OF   CONSOLIDATION 


527 


Charles  Street  Eailroad  Company,  has  been  obtained  in  the  interest 
of  the  New  Orleans  Railways  Company. 

The  outstanding  mortgage  bonds  of  these  Companies  which  cannot 
be  retired  are  as  follows : 

New  Orleans  Gas  Light  Company $76,000 

New  Orleans  City  Eailroad  Company 6,521,000 

New  Orleans  and  Carrollton  Railroad,  Light  and  Power 

Company    5,549,000 

St.  Charles  Street  Railroad  Company 300,000 

Orleans  Railroad  Company 400,000 


Com.  Stock 
$5,000,000 


Total 
$14,021,000 


$12,846,000 

It  is  believed,  however,  that  a  considerable  amount  of  these  bonds 
can  be  exchanged  for  the  bonds  of  the  New  Orleans  Railways  Com- 
pany to  be  issued  under  this  Plan. 

The  bonds  and  stocks  of  the  various  companies  to  be  controlled  by 
the  New  Orleans  Railways  Company  under  this  plan  are  as  follows, 
and  at  least  a  majority  of  the  stocks  of  each  Company  (except  the 
St.  Charles  Street  Railroad  Company),  as  well  as  all  the  bonds  of  the 
New  Orleans  Lighting  Company  and  the  New  Orleans  Railways  Com- 
pany, are  controlled  by  optional  feature  or  otherwise  for  the  purposes 
of  this  plan. 

Bonds       Pfd.  Stock 

New  Orleans  City  R.  R.  Co..  .  .$6,521,000     $2,500,000 
New   Orleans  &   Carrollton    R. 

R.,  L.  &  P.  C 5,549,000       4,600,000 

New  Orleans  Gas  Light  Co 76,000 

New  Orleans  Lighting  Co 1,500,000 

Orleans   Railroad   Co 400,000 

New  Orleans  Railways  Co 2,000,000 

St.  Charles  Street  Railroad  Co.      300,000 

$42,996,000 

As  the  New  Orleans  Gas  Light  Company  has  but  $76,000  bonds 
outstanding,  of  which  $46,000  can  be  retired  April,  1903,  and  $30,- 
000  April,  1908,  the  new  bonds  will  be  practically  a  first  lien  on  the 
property  of  that  Company  when  all  of  its  stock  is  secured. 

The  stocks  and  bonds  now  controlled  or  that  may  be  acquired  for 
the  purposes  of  this  plan  are  to  be  deposited  under  the  mortgage 
given  to  secure  the  new  Fifty- Year  Four  and  One-half  Per  Cent. 
Sinking  Fund  Gold  Bonds,  and  unless  at  least  a  majority  of  the 


2,500,000 

12,649,000 

3,750,000 

3,826,000 

2,000,000 

3,500,000 

300,000 

700,000 

5,000.000 

7,000,000 

1,000,000 

1,300,000 

528         MATERIALS    OF   CORPORATION    FINANCE 

stock  of  the  St.  Charles  Street  Railroad  Company  can  be  secured  it 
will  not  be  included  in  this  plan. 

For  the  year  1901  the  receipts  of  the  various  companies  were  ap- 
proximately $3,900,000  gross,  $1,500,000  net. 

The  increase  in  gross  receipts  should  be  not  less  than  10  per  cent, 
per  annum,  based  upon  what  the  properties  have  done  in  the  past. 

Operating  expenses  can  be  reduced  by  a  consolidation  of  the  power 
houses  and  shops;  reduction  in  dead  car  mileage;  substitution  of  oil 
as  fuel,  and  reduction  in  general  expenses  about  $265,000  per  an- 
num. 

The  first  year  of  operation  under  consolidation,  based  on  the  report 
of  our  engineers,  Messrs.  Sanderson  &  Porter,  of  New  York,  whose 
letter  is  attached  hereto,  and  corroborated  by  the  above  figures,  should 
be: 

Gross  Earnings    $4,234,000 

Operating  Expenses  and  Taxes 2,117,000 


Net  earnings    $2,117,000 

INTEREST  CHARGES: 

Existing  Bonds $630,855 

New  Bonds   , 900,000 


Total   $1,530,855 


Surplus    $586,145 

Four  per  cent,  on  $10,000,000   Cumulative  Pre- 
ferred Stock 400,000 


Surplus  for  Common  Stock $186,145 

For  the  calendar  year  1903,  Surplus $719,143 

Four  per  cent,  on  the  Cumulative  Preferred  Stock  400,000 


Surplus  for  Common  Stock $319,145 

The  receipts  for  1901  as  stated  above  cannot  be  taken  as  a  basis  of 
what  the  properties  will  do  in  1902,  as  the  St.  Charles  Railroad  has 
added  about  60  per  cent,  to  its  track  mileage,  while  the  Gas  Company 
and  the  Electric  Light  Company  are  improving  and  extending  their 
plants  by  the  expenditure  of  $1,000,000,  which  should  result  in  a 
large  increase  of  business  over  and  above  the  natural  increase  from 
year  to  year. 


PLAN    OF   CONSOLIDATION  529 

In  order  that  the  management  for  five  years  may  be  controlled 
it  is  intended  that  the  scope  of  the  present  voting  trust  of  the  New 
Orleans  Railways  Company  shall  be  so  extended  as  to  cover  the  in- 
tended new  issue  of  stock,  whereby  the  stock  will  all  be  represented 
by  voting  trust  certificates,  which  certificates  will  be  delivered  to  sub- 
scribers, covering  the  amount  of  stock  to  which  they  may  be  entitled. 

Subscribers  are  to  receive  a  commission  of  5  per  cent,  in  cash  and 
10  per  cent,  in  the  Common  Stock  of  the  New  Orleans  Railways 
Company,  one-fifth  of  each  to  be  retained  by  the  Manager  as  com- 
pensation for  managing  the  Syndicate. 

The  owners  of  the  existing  securities  of  the  companies  proposed  to 
be  acquired  hereunder  are  to  be  given  the  privilege  of  accepting  the 
following  securities  of  the  New  Orleans  Railways  Company  in  lieu 
of  each  $1,000  in  cash  to  which  they  might  be  entitled: 

Four  and  One-half  Per  Cent.  Bonds  at  par $769  23 

Four  Per  Cent.  Cumulative  Preferred  Stock  at  par 384  61 

Common  Stock  at  par 769  23 

Estimating  the  value  of  the  Four  and  One-half  Per  Cent.  Bonds  at  100 

Estimating  the  value  of  the  Cumulative  Preferred  Stock  at 60 

Estimating  the  value  of  the  Common  Stock  at 15 

Holders  exchanging  will  receive  about 
77  per  cent,  of  the  option  price  of  their  holdings  in  4^  Per  Cent. 

Bonds ; 
23  per  cent,  of  the  option  price  of  their  holdings  in  4     Per  Cent 

Cum.  Pfd.  Stock; 
11  per  cent,  of  the  option  price  of  their  holdings  in  Com.  Stock; 

111  Total, 

showing  present  holders  about  $1,110  in  value  of  new  securities  in 
lieu  of  $1,000  cash  value. 

Subscribers  are  entitled  to  receive  for  the  cash  advanced  certificates 
of  the  New  York  Security  and  Trust  Company,  exchangeable  as  pro- 
vided for  the  above  securities  in  like  proportion,  in  addition  to  the 
above-named  commission.  The  securities  which  are  taken  by  the 
Syndicate  as  above  may  be  held  by  the  Manager  as  agent  of  the  Syn- 
dicate for  twelve  months  from  June  1,  1902,  and  may  be  sold  by  the 
Manager  for  the  benefit  and  account  of  the  Syndicate  at  not  less  than 
the  following  prices: 

Four  and  One-half  Per  Cent.  Bonds 100  and  interest 

Four  Per  Cent.  Cumulative  Preferred  Stock 60 

Common  Stock 15 


530         MATEEIALS    OF    CORPORATION   FINANCE 

The  Syndicate  may,  however,  be  dissolved  at  an  earlier  date  and 
the  securities  delivered  to  the  Subscribers  if  the  Managers  so  deter- 
mine. 

Twenty-five  per  cent,  of  the  subscriptions  will  be  payable  on  June 
1,  1902,  and  the  balance  when  called  for  by  the  Manager.  No  further 
single  call  will  be  made  for  more  than  25  per  cent,  of  the  subscription,, 
and  thirty  days'  notice  of  any  call  shall  be  given  to  Subscribers. 

NEW  YOBK  SECURITY  AND  TRUST  COMPANY, 

Manager. 
BY  CHARLES  S.  FAIRCHILD, 

President. 

AGREEMENT,,  made  the  fifth  day  of  May,  1902,  by  and  between  the 
NEW  YORK  SECURITY  AND  TRUST  COMPANY,  of  the  City  of  New 
York,  Manager,  party  of  the  first  part,  and  the  subscribers  hereto 
(hereinafter  called  severally  the  "Subscribers"  and  collectively  the 
"Syndicate"),  severally  parties  of  the  second  part. 

WHEREAS,  the  New  York  Security  and  Trust  Company  has  itself 
and  in  connection  with  certain  other  parties  for  whom  it  acts  as  agent, 
secured  the  right  to  the  control  of  certain  properties  in  the  City  of 
New  Orleans,  Louisiana;  and 

WHEREAS,  the  parties  hereto  desire  to  form  a  Syndicate  to  under- 
write the  securities  to  be  issued  under  a  certain  Plan  for  the  con- 
solidation of  the  Electric  Railways,  the  Gas  and  Electric  Light  Com- 
panies of  the  City  of  New  Orleans,  Louisiana : 

Now,  THEREFORE,  in  consideration  of  the  premises  and  of  the  mu- 
tual promises  herein  contained,  the  New  York  Security  and  Trust 
Company  (which  is  to  be  Manager  of  the  Syndicate)  and  the  Syndi- 
cate mutually  have  agreed,  and  do  agree  as  follows : 

First.  That  the  control  of  securities  acquired  by  the  said  "Man- 
ager" as  agent,  shall  be  vested  in  the  New  Orleans  Railways  Com- 
pany either  by  the  purchase  or  through  exchange  of  the  securities  of 
the  constituent  companies  for  the  new  securities  of  the  New  Orleans 
Railways  Company,  said  corporation  to  be  capitalized  as  stated  in 
the  plan  hereto  annexed,  which  is  to  be  taken  as  a  part  of  this  agree- 
ment. 

Second.  The  "Subscribers"  covenant  and  agree  to  pay  the  "Man- 
ager" the  amounts  set  opposite  their  respective  names  or  the  amount 
allotted  to  them  by  the  "Manager"  as  follows :  On  June  1,  1902,  25 
per  cent,  of  the  allotment;  the  remainder  whenever  called  upon  by 
the  "Manager,"  it  being  understood  that  no  single  call  shall  be  made 
for  more  than  25  per  cent,  of  the  entire  allotment,  and  that  in  each 
case  thirty  days'  notice  shall  be  given  of  any  such  call. 


PLAN   OF   CONSOLIDATION  531 

Third.  It  is  understood  that  the  "Manager"  is  to  offer,  either 
directly  or  through  the  officers  of  the  New  Orleans  Railways  Com- 
pany, to  the  present  holders  of  the  securities  of  the  constituent  com- 
panies, the  right  to  accept  the  new  securities  on  the  following  basis 
for  each  $1,000  of  purchase  price : 
In  par  value  Four  and  One-half  Per  Cent.  Gold  Sinking 

Fund  Bonds $769  23 

In  par  value  Four  Per  Cent.  Cumulative  Preferred  Stock. .     384  61 
In  par  value  Common  Stock 769  23 

All  the  securities  not  taken  as  above  by  the  holders  of  the  securities 
of  the  constituent  companies  are  to  be  held  in  escrow  for  a  period  of 
twelve  months  from  June  1,  1902,  during  which  time  the  "Manager" 
shall  have  the  right  to  sell  any  or  all  of  the  securities  so  held  at  not 
less  than  the  following  prices : 

Four  and  One-half  Per  Cent.  Bonds  at  100  and  interest; 

Four  Per  Cent.  Cumulative  Preferred  Stock  at  60; 

Common  Stock  at  15. 

Only  such  securities  belonging  to  the  Syndicate  shall  be  issued  as 
are  needed  to  secure  stocks  and  bonds  of  the  constituent  companies, 
and  such  securities  so  acquired  shall  be  deposited  with  the  Trustee 
under  the  mortgage  of  the  New  Orleans  Railways  Company. 

Until  June  1,  1903,  or  until  the  final  distribution  hereunder,  the 
New  York  Security  and  Trust  Company,  in  such  manner,  at  such 
prices,  on  such  terms  and  in  such  amounts  as  they  may  deem  ex- 
pedient, shall  have  power,  for  account  of  the  Syndicate,  to  make  pur- 
chases not  to  exceed  10  per  cent,  of  the  total  amount  of  Syndicate,  of 
the  Four  and  One-half  Per  Cent.  Gold  Bonds  and  of  the  Preferred 
and  Common  stocks  or  subscriptions  of  the  New  Orleans  Railways 
Company,  and  they  may  resell  any  such  bonds,  stocks  or  subscriptions 
which  they  may  have  purchased;  and,  in  their  discretion,  they  may 
make  any  further  undertakings  of  any  kind  with  any  persons  con- 
cerning any  such  bonds  and  stocks.  They  may  apply  towards  any 
such  purchases  any  sums  realized  from  any  sales  of  bonds,  stocks  or 
subscriptions  of  the  New  Orleans  Railways  Company  under  any  pro- 
vision of  this  agreement;  and  they  may  make  advances,  or  may  pro- 
cure loans,  and  may  secure  the  same  to  such  amounts  and  in  such 
manner  as  from  time  to  time  they  may  deem  expedient  for  any  of  the 
purposes  of  this  agreement. 

The  "Subscribers"  are  to  receive  a  cash  commission  of  5  per  cent, 
and  a  stock  commission  of  10  per  cent,  in  the  Common  Stock  of  the 
New  Orleans  Railways  Company  on  the  face  value  of  their  allotments, 
less  one-fifth  thereof  which  is  to  go  to  the  "Manager"  for  its  services. 


532         MATEEIALS    OF   CORPORATION    FINANCE 

Fourth.  The  Manager  agrees  to  issue  to  the  "Subscribers"  upon 
payment  of  their  subscriptions  herein,  negotiable  subscription  receipts 
substantially  in  the  form  as  follows: 


No $ 

PARTICIPATION  RECEIPT 

NEW  ORLEANS  RAILWAYS  COMPANY  SYNDICATE 


NEW  YORK  SECURITY  AND  TRUST  COMPANY  HEREBY  acknowledges 
receipt  from  ,  of  the  sum  of  dollars 

being  payment  of  per  cent,  upon  the  subscription  of 

dollars  to  the  Syndicate  for  underwriting  the  purchase  and  exchange 
of  the  stock  and  bonds  of  certain  Electric  Railway  Companies  the 
Gas  and  Electric  Light  Companies  of  the  City  of  New  Orleans,  under 
a  certain  plan  and  agreement  thereto  attached  bearing  date  the  Fifth 
day  of  May,  1902,  in  accordance  with  the  terms  and  conditions  of 
which  plan  and  agreement,  (they)  (he)  ha  been  allotted  a  partici- 
pation, and  to  all  terms  and  conditions  of  said  plan  and  agreement 
the  holder  hereof  fully  consents. 

When  the  bonds  and  stocks,  or  the  proceeds  of  said  bonds  if  sold, 
are  ready  for  delivery  by  us,  the  holder  hereof  to  be  entitled  upon 
surrender  of  this  certificate  to  receive  in  full,  liquidation  of  his  right 
to  participation  such  of  said  bonds  and  stock,  or  the  proceeds  of  said 
bonds,  as  have  been  allotted  (them)  (him). 

This  receipt  is  transferable  only  on  the  books  kept  for  the  purpose 
at  the  office  of  the  New  York  Security  and  Trust  Company. 

No  assignment  or  transfer  of  any  interest  hereunder  shall  release 
the  original  subscribers  from  (their)  (his)  full  liability  on  (their) 
(his)  subscriptions,  which  shall  remain  binding  until  paid  in  full. 
All  payments  must  be  evidenced  by  endorsements  hereon. 

Dated  New  York,  ,  1902. 

NEW  YORK  SECURITY  AND  TRUST  COMPANY, 

SYNDICATE  MANAGER, 
By 

Vice-President. 
Secretary. 

Fifth.  In  case  of  the  failure  of  any  Subscriber  to  perform  any  of 
his  undertakings  hereunder,  as  and  when  called  for  by  them,  the  Man- 
ager on  behalf  of  itself  and  the  Syndicate  shall  have,  and  at  its  sole 
and  exclusive  option  it  may  exercise,  the  right  to  exclude  such  Sub- 
scriber from  all  interest  in  the  Syndicate;  and  in  its  discretion,  with- 


PLAN    OF   CONSOLIDATION  533 

out  any  proceedings  at  law  or  in  equity,  and  in  such  manner  as  it  may 
see  fit,  it  may  sell  at  public  or  private  sale  the  participation  of  such 
Subscriber,  and  all  his  rights  and  interest  under  this  agreement  and 
in  or  to  any  bonds,  stocks  or  moneys  that  shall  be  received  hereunder. 
At  any  such  sale  the  Manager  or  any  party  hereto,  or  any  person,  may 
become  purchasers,  without  any  accountability;  but  notwithstanding 
any  sale,  whether  public  or  private,  such  defaulting  Subscriber  shall 
be  responsible  to  the  Manager  and  to  the  Syndicate  for  all  damages 
caused  by  any  failure  on  his  part. 

Sixth.  The  "Manager"  is  to  retain  possession  of  all  bonds,  pre- 
ferred and  common  stocks,  received  by  it  hereunder  for  account  of 
the  holders  and  "Subscribers"  herein  until  they  have  been  sold,  or 
twelve  months  from  the  date  hereof,  and  is  hereby  constituted  agent 
and  attorney  in  fact  for  "Subscribers"  to  vote  said  shares  or  to  cause 
the  same  to  be  voted  upon  at  all  corporate  meetings  of  said  companies 
as  may  be  necessary,  requisite  or  advantageous  for  the  carrying  of 
such  plan  into  full  execution. 

Seventh.  Each  and  every  "Subscriber"  shall  be  taken  as  agreeing 
that  the  enumeration  and  expression  of  the  powers  hereinbefore  ex- 
pressly conferred  upon  the  "Manager"  shall  not  be  construed  as  ex- 
cluding or  limiting  the  exercise  by  the  "Manager"  of  powers  not  ex- 
pressed herein  and  each  of  them  is  to  be  taken  as  hereby  constituting 
and  appointing  the  "Manager"  their  attorney  irrevocably  and  with 
full  power  of  substitution  in  the  premises  to  do  all  such  other  and 
additional  matters  and  things  as  in  the  sole  judgment  of  the  "Man- 
ager" may  be  wise  and  to  the  interest  of  said  "Subscribers,"  includ- 
ing such  alterations,  changes  or  modifications  of  the  terms  and  con- 
ditions of  the  Plan  of  Purchase  and  the  amount  and  character  of 
securities  to  be  allotted  thereunder  as  the  "Manager"  may  from  time 
to  time  deem  advisable,  or  to  abandon  the  undertaking,  anything  here- 
inbefore or  in  said  Plan  of  Purchase  expressed,  implied  or  to  be  in- 
ferred therefrom  to  the  contrary  notwithstanding. 

Eighth.  For  convenience  of  parties,  signatures  of  "Subscribers" 
may  be  taken  upon  a  copy  or  copies  of  this  Agreement  with  like  effect 
as  if  one  of  the  duplicate  originals  were  signed  by  them,  and  it  is 
expressly  agreed  and  understood  that  each  and  every  taker  or  holder  of 
the  Participation  Receipt  hereunder,  whether  original  or  an  assignee 
thereof,  shall  be  deemed  and  taken  to  have  subscribed  to  this  Agree- 
ment and  to  be  subject  in  all  respects  to  each  and  every  of  the  terms 
and  provisions  thereof. 

In  evidence  whereof  this  Agreement  is  executed  in  duplicate  and 
the  New  York  Security  and  Trust  Company  has  caused  its  corporate 
seal  to  be  hereto  attached,  attested  by  its  Secretary  and  the  Partici- 


534 


MATERIALS    OP   CORPORATION   FINANCE 


pants  have  affixed  their  signatures  hereto  the  day  and  year  first  above 
written,  each  for  the  amount  set  opposite  his  or  their  respective 
names. 

NEW  YORK  SECURITY  &  TRUST  COMPANY, 
BY  CHARLES  S.  FAIRCHILD, 

President. 
Attest  : 

L.  CARROLL  ROOT, 

Secretary. 

[COPY] 


Name. 


Address. 


Amount 


SANDERSON  &  PORTER, 
Engineers  and  Contractors 


Edwin  N.  Sanderson, 
H.  Hobart  Porter,  Jr. 
Francis  Blossom, 
Richmond  Talbot. 


Telephone,  2721  Cortlandt. 

BANK    OF    COMMERCE    BUILDING, 

31  Nassau  Street. 
NEW  YORK,  May  1,  1902. 


NEW  YORK  SECURITY  AND  TRUST  COMPANY, 

46  Wall  Street,  New  York. 

Gentlemen:  Referring  to  the  proposed  consolidation  of  the  Electric 
Railway  Companies,  the  Gas  and  Electric  Light  Companies  of  New 
Orleans,  Louisiana,  we  beg  to  say  that  from  the  examination  which 
we  made  of  these  properties,  and  from  the  reports  submitted  to  us, 
we  believe  that  the  total  receipts  of  the  various  companies,  for  the 
year  1902,  based  on  the  earnings  already  shown,  will  be. .  $4,234,000 
and  the  operating  expenses  and  taxes,  under  the  present 

conditions 2,255,550 

Leaving  an  income  from  operation  of  about 1,978,450 

When  these  companies  are  consolidated  and  operated  as  a  unit, 
and  the  proposed  extensions  and  improvements  completed,  a  consid- 
erable increase  in  the  gross  revenue  will  result,  and  a  substantial 
decrease  in  the  operating  expenses  be  assured. 
In  our  opinion  the  united  property  should  be  operated  for 

50  per  cent,  of  the  gross  receipts,  which  would  show 

a  net  income  at  the  current  rate  of  gross  earnings.  .  $2,117,000 

for  the  first  full  year  after  consolidation. 


PLAN   OF   CONSOLIDATION  635 

Should  this  consolidation  and  the  improvements  contem- 
plated be  effected  immediately,  we  believe  that  for 
the  calendar  year  1903  the  Company  will  show  gross 
receipts  4,500,000 

Operating  and  Taxes  2,250,000 


Net  Income  $2,250,000 


Yours  very  truly, 

(Signed)     SANDERSON  &  PORTER. 


536         MATEEIALS    OF    CORPORATION    FINANCE 


BASIS  OF   CONSOLIDATION* 

A  corporation  to  be  formed  under  the  laws  of  the  State  of  Michigan, 
with  a  paid-up  capital  of  ten  million  dollars,  to  be  apportioned  into  6 
per  cent,  preferred  stock  and  common  stock,  as  the  parties  interested 
may  hereafter  determine. 

This  corporation  to  purchase  all  the  assets,  property,  good-will,  etc., 
of  all  the  four  companies  and  to  pay  therefor  in  preferred  and  com- 
mon stock  and  by  an  assumption  of  the  indebtedness  of  each  company. 

The  amount  of  preferred  and  common  stock,  to  be  paid  to  each 
company,  to  be  determined  by  the  value  of  the  net  tangible  assets  and 
the  valuation  placed  upon  the  earning  power  of  each  company. 

In  placing  a  value  upon  the  tangible  assets,  same  to  be  reached  as 
follows : 

(1)  The  land,  buildings,  machinery,  tools,  and  patterns,  to  be 
determined  by  appraisers,  to  be  chosen  by  a  majority  of  a  committee 
made  up  of  one  appointed  by  each  of  the  companies;  on  failure  of 
this  committee  to  agree  on  appraisers  the  selection  to  be  left  to  the 
committee  who  present  these  suggestions. 

(2)  Inventories  of  raw  materials,  work  in  progress  and  manufac- 
tured stock  to  be  taken,  and  valuations  placed  thereon  by  the  indi- 
vidual companies,  and  this  to  be  done  under  the  supervision  of  a  dis- 
interested party,  to  be  named  by  the  committee. 

The  inventories  are  to  be  made  as  of  the  same  date,  and  to  be  taken 
at  substantially  the  same  time. 

When  completed  the  inventories  are  to  be  passed  and  agreed  upon 
by  a  committee  consisting  of  a  representative  of  each  of  the  companies 
and  one  to  be  named  by  the  committee.  The  decision  of  these  five  to 
be  binding. 

(3)  In  reaching  the  value  of  the  earning  power  of  the  several 
companies,  consideration  is  to  be  given  to  the  following  details : 

(a)  That  profits  are  incidental  to  the  business  and  have  not  been 
anticipated. 

(b)  To  the  charging  to  operating  expenses  of  items,  exceptional 
or  unusual,  and  which  have  had  the  effect  of  reducing  profits  below 
normal. 

(c)  The  effect  upon  the  earnings  of  the  money  paid  out  as  interest 
upon  borrowed  capital,  in  case  it  be  found  that  the  borrowings  (loans) 
made  by  the  several  companies  are  disproportionate  to  each  other. 

(d)  That  all  charges  to  operating  expenses  are  proper  charges 

i  Quoted  by  W.  H.  Lough  in  his  Corporation  Finance  from  an  article  in  the 
Journal  of  Accountancy  by  F.  H.  McPherson,  F.C.A.  (November,  1908). 


BASIS   OF   CONSOLIDATION  537 

against  the  business  and  that  they  are  made  for  and  during  the  proper 
period. 

(e)  That  proper  and  reasonable  allowances  have  been  made  for 
repairs  and  renewals  and  that  these  have  been  charged  against  earn- 
ings. 

(f)  That  charges  against  earnings  for  depreciation  are  adjusted 
upon  an  equitable  basis. 

(g)  Such  other  matters  as  appear  from  an  examination  of  the 
accounts  and  which  would  prejudicially  affect  the  earnings  of  any  of 
the  companies,  either  advantageously  or  disadvantageous^. 

(h)  The  value  of  the  earning  power  to  be  determined  by  a  con- 
sideration of  the  business  done  by  each  of  the  several  companies  for 
the  three  years,  1903,  1904  and  1905. 

(i)  Accountants  to  be  selected  by  the  committee  and  questions 
which  may  arise  as  to  treatment  of  various  matters  and  about  which 
there  is  difference  of  opinion,  to  be  determined  by  the  committee. 

(j)  All  costs  and  expenses  incurred  in  making  appraisals,  exami- 
nation of  accounts,  or  of  performing  the  other  duties  in  connection 
with  the  formation  of  the  proposed  new  company  to  be  charged  to  and 
borne  by  the  new  company;  should  the  new  company  not  be  formed, 
then  such  costs,  expenses,  and  disbursements  to  be  borne  by  the  four 
individual  companies  in  proportion  to  the  number  of  men  employed 
by  each. 


538         MATEEIALS   OF   COKPOKATION    FINANCE 


AGREEMENT   TO   CONSOLIDATE.1 

Each  vendor  executing  this  agreement  also  executes  and  delivers 
a  schedule  of  the  entire  property,  which  it  sells  to  said  purchaser, 
setting  forth  briefly  the  various  classes  of  property,  with  the  sufficient 
description  of  the  several  items  of  real  estate,  plant  and  movables  to 
identify  the  same,  which  schedule  sets  forth  the  value  of  the  entire 
property  so  sold,  the  tangible  and  intangible  property  in  separate 
items,  the  tangible  property  being  valued  as  prescribed  by  subdivisions 
a  and  &  in  the  Method  of  Appraisal  hereinafter  set  forth,  and  the 
value  of  its  intangible  property  ascertained  and  certified  by  one 
or  more  responsible  public  accountants,  as  prescribed  by  subdivision 
c  of  said  Method  of  Appraisal,  together  with  a  statement  of  any  addi- 
tional facts,  and  of  the  valuations  based  thereon,  which,  in  the  vendor's 
judgment,  may  aid  the  Appraisal  Committee  in  exercising  the  discre- 
tion conferred  upon  it  by  subdivision  &  of  said  Method  of  Appraisal. 
The  valuations  of  the  tangible  and  intangible  properties  so  made  by 
each  vendor  shall  be  considered  as  prima  facie  evidence  of  the  true 
value  of  said  vendor's  property  for  the  purposes  of  sale,  but  shall  in 
no  case  be  controlling  upon  the  Appraisal  or  Executive  Committee 
hereinafter  appointed,  such  valuations  or  prices  being  subject  in  all 
cases  to  any  investigation  and  modification  which  the  said  committee 
or  committees  may  deem  that  justice  requires ;  the  total  of  such  valu- 
ations as  verified  or  modified  according  to  the  terms  of  this  agree- 
ment, to  be  the  purchase  price  which  said  vendor  is  to  receive  for  its 
entire  property  so  sold. 

PURCHASE  PRICE 

The  purchase  price  to  be  paid  to  such  vendor  for  the  property  sold 
by  it  to  the  purchaser  shall  be  the  total  value  of  its  tangible  and  in- 
tangible property  and  shall  be  paid  in  stock  of  the  purchaser  at  par, 
as  follows : 

1.     Tangible  property  paid  for  in  preferred,  etc. 

Each  vendor  whose  net  earnings  for  the  six  months  ending  July 
1st,  1898,  amount  to  4  per  cent. — that  is,  at  the  rate  of  8  per  cent,  per 
annum — on  the  value  of  its  land  and  plant,  ascertained  as  above,  shall 
receive  preferred  stock  for  the  full  value  of  all  its  tangible  property. 

Any  vendor  whose  net  earnings  for  the  said  period  of  six  months 
shall  amount  to  less  than  at  the  rate  of  8  per  cent,  per  annum  on  the 

i  Quoted  by  W.  H.  Lough  in  his  Corporation  Finance  as  an  "actual  agree- 
ment where  several  fair-sized  manufacturing  corporations  and  partnerships 
were  to  be  consolidated." 


TYPICAL   CONSOLIDATION    AGREEMENT          539 

value  of  its  land  and  plant,  shall  receive  preferred  stock  to  the  amount 
of  twenty-five  times  its  net  earnings  for  said  six  months;  and  the 
balance  of  the  value  of  said  tangible  property  it  shall  receive  in  com- 
mon stock. 

Each  vendor  has  upon  its  schedule  set  forth  a  statement  of  its  net 
earnings  for  said  period,  which  is  subject  to  modification  by  said  com- 
mittee under  the  above  rules  applicable  thereto. 

2.     Intangible  property  paid  for  in  common  stock. 

The  entire  value  of  the  intangible  property,  ascertained  as  per  this 
agreement,  shall  be  paid  by  the  purchaser  in  its  common  stock  at  par. 

Simultaneous  with  the  sale  and  transfer  of  its  properties  each  ven- 
dor shall  receive  from  the  purchaser  in  stock,  or  if  permanent  certi- 
ficates are  not  ready,  then  script  for  the  same,  one-half  of  the  pur- 
chase price  to  which  it  claims  to  be  entitled  by  its  schedule,  less  an 
amount  of  preferred  stock  equal  to  125  per  cent,  of  its  mortgage  in- 
debtedness, if  any,  and  the  remainder  of  said  stock  shall  be  withheld 
by  the  purchaser  until  the  exact  amount  of  the  purchase  price  shall 
have  been  finally  determined  as  herein  provided,  whereupon  the  ven- 
dor shall  become  entitled  to  the  remainder  of  the  purchase  price,  but 
the  purchaser  may  out  of  such  remaining  stock  retain  an  amount 
thereof  sufficient  to  secure  it  against  any  defective  title  and  against 
any  indebtedness  which  is  not  otherwise  sufficiently  provided  for. 

APPRAISAL,  ETC. 

Each  vendor  expressly  covenants  and  agrees  that  the  property  set 
forth  by  it  in  its  schedule  has  been  fairly  and  honestly  valued  in 
accordance  with  the  following  rules  and  methods,  which  shall  be  the 
rules  and  methods  to  govern  the  Appraisal  and  Executive  Committees 
in  their  verification  or  modification  of  the  same. 

METHOD  OF   APPRAISAL 

(1)     Tangible  Property. 

(a)     Land : 

Land  shall  be  separately  appraised  at  its  actual  value  without 
reference  to  plants  thereon,  and  consideration  shall  be  given  to  special 
adaptability  or  want  of  adaptability  to  the  business. 

Plants  shall  be  appraised  apart  from  the  bare  land  at  their  value 
to-day  to  a  going  concern  for  the  purpose  for  which  used,  based  upon 
present  cost  of  construction  at  the  same  places  respectively.  No 
vendor  shall  set  forth  in  its  schedule  any  unimproved  land  or  other 
property  belonging  to  it  which  is  neither  a  part  of  the  plant  of  such 
vendor  nor  essential  in  the  operation  of  the  same,  nor  shall  the  same 
be  purchased  by  the  second  party. 


540         MATEEIALS    OF   CORPORATION    FINANCE 

(b)  Materials,  Supplies  and  Manufactured  Product. 

These  shall  be  appraised  at  what  it  would  cost  to  replace  the  same 
at  the  place  and  date  of  the  transfer  of  the  same  to  the  purchaser. 

(2)     Intangible  Property. 

(c)  Intangible  property  shall  be  appraised  by  multiplying  by  ten 
the  average  yearly  earnings  during  the  past  five  and  one-half  years, 
which  shall  be  ascertained  as  follows: 

In  order  to  arrive  at  the  earnings  of  the  property  sold  by  each  ven- 
dor and  to  determine  on  a  uniform  basis  fair  for  all,  the  earning 
power  of  the  property  so  sold,  each  vendor  shall  add  to  its  net  profits 
such  of  the  following  items  as  have  been  theretofore  deducted  by  said 
vendor  in  ascertaining  its  net  profits  during  said  period. 

1.  Interest  on  indebtedness. 

2.  Insurance  of  any  description. 

3.  Arbitrary  items  of  depreciation  or  wear  and  tear  not  paid  out 
or  actually  incurred  as  a  debt,  and  all  items  of  new  construction. 

4.  Also  salaries  and  compensation  paid  to  officers,  directors,  part- 
ners, trustees,  superintendents  of  departments  or  works,  general  man- 
agers, auditors,  cashiers  and  chief  accountants,  but  all  wages,  salaries 
and  compensation  paid  to  laborers,  servants,  foremen,  clerks  and  em- 
ployees in  subordinate  positions  shall  remain  charged  against  earn- 
ings. 

5.  The  accountants  must  ascertain  the  amounts  expended  by  each 
of  said  vendors  for  repairs,  renewals  and  maintenance  of  plant  which 
have  been  deducted  from  earnings  during  said  period  of  five  and  one- 
half  years,  and  the  said  amounts  so  ascertained  are  set  forth  on  the 
schedules  of  said  vendors. 

In  order  to  place  said  vendors  on  a  uniform  basis  as  to  the  amounts 
expended,  or  which  ought  to  have  been  expended,  for  repairs,  renewals 
and  maintenance  of  plant  and  charged  against  or  deducted  from  the 
earnings  during  said  five  and  one-half  years  or  other  period,  each 
vendor  shall  add  to  said  earnings  any  amount  actually  expended  by  it 
for  repairs,  renewals  and  maintenance  of  plant  which  it  has  hereto- 
fore charged  against  and  deducted  from  said  earnings,  and  there  shall 
then  be  charged  against  and  deducted  from  said  earnings  of  each  ven- 
dor ascertained  as  aforesaid,  annually  a  sum  equal  to  3  per  cent,  of  the 
schedule  value  of  the  plant  of  said  vendor  completed  prior  to  the  last 
date  of  the  five  and  one-half  years  or  other  period  applicable  to  said 
vendor. 

In  the  case  of  those  vendors,  if  any,  which  shall  not  have  kept  a 
separate  repair  account  the  amounts  expended  by  them  for  repairs,  as 
required  by  this  subdivision  shall  be  ascertained  as  nearly  as  possible 


TYPICAL   CONSOLIDATION    AGREEMENT          541 

by  the  accountants  and  the  committee  of  appraisal  from  the  books  of 
such  vendors  and  from  the  condition  of  their  plants  and  otherwise, 
and  in  default  of  information  to  the  contrary  it  shall  be  assumed 
that  they  have  expended  in  repairs  a  sum  equal  to  3  per  cent,  of  the 
value  of  their  respective  plants. 

Having  by  the  foregoing  methods,  ascertained  the  earnings,  there 
shall  thereupon  be  deducted  from  the  average  annual  earnings  of  each 
vendor  for  said  period,  a  sum  equal  to  5  per  cent.  (5%)  of  the  value 
of  the  land  and  plant  sold  and  completed  prior  to  the  last  date  of 
the  five  and  one-half  years  or  other  period  applicable  to  such  vendor, 
and  the  balance  of  said  average  annual  earnings  so  ascertained  shall 
be  deemed  for  the  purposes  of  this  agreement  the  net  profits  of  the 
respective  vendors  to  be  severally  multiplied  by  ten  as  aforesaid. 

Provided,  however,  that  in  case  it  shall  be  found  that  the  aforesaid 
multiplier  of  ten  will  produce  a  grand  aggregate  of  common  stock 
greater  in  amount  than  the  grand  aggregate  of  preferred  stock,  the 
Executive  Committee  shall  choose  such  lower  multiplier  as  will  limit 
the  grand  aggregate  of  common  stock. 

Provided,  further,  that  in  the  event  that  the  grand  aggregate  of  the 
average  annual  net  earnings  of  the  vendors,  ascertained  as  aforesaid, 
shall  be  found  to  exceed  12  per  cent,  of  the  total  value  of  the  tangible 
property,  then  said  Executive  Committee  in  its  discretion  may  choose 
such  multiplier  as  will  fix  the  volume  of  common  stock  as  closely  as 
may  be  at  an  amount  upon  which  such  past  net  earnings  would  show 
6  per  cent,  applicable  to  dividends  upon  such  common  stock  after  pro- 
viding for  the  dividend  on  the  preferred  stock. 

And  thereupon  such  newly  chosen  multiplier  (whatever  the  same 
may  be)  shall  be  the  multiplier  to  be  used  in  the  case  of  each  vendor. 


MATERIALS    OF   CORPORATION    FINANCE 


THE  NEW   YORK  CENTRAL  AND  HUDSON  RIVER 
RAILROAD    COMPANY. 


NEW  YORK,  December  15,  1911. 

To  the  Holders  of  The  New  York  Central  and  Hudson  River  Railroad 
Company's  Three  and  One-half  Per  Cent.  Gold  Bonds,  Michigan 
Central  Collateral: 

Under  the  indenture,  dated  April  13,  1898,  executed  by  The  New 
York  Central  and  Hudson  River  Railroad  Company  and  the  Guar- 
anty Trust  Company  of  New  York,  as  Trustee,  pursuant  to  which  the 
above-mentioned  bonds  were  issued,  the  Michigan  Central  Railroad 
Company  may  be  consolidated  with  the  New  York  Central,  or  any 
other  company  may  be  consolidated  with  the  Michigan  Central,  upon 
such  terms  as  may  be  approved  by  the  holders  of  three-quarters  of 
said  bonds;  but  in  case  of  any  such  consolidation,  these  bonds  and 
certain  other  bonds  of  the  New  York  Central  of  a  similar  issue  not 
exceeding  in  amount  $100,000,000  (the  latter  being  the  three  and  one- 
half  per  cent,  gold  bonds  of  this  Company  for  which  stock  of  the 
Lake  Shore  &  Michigan  Southern  Railway  Company  is  pledged  as  col- 
lateral) shall  be  secured  by  a  mortgage  upon  the  railroad  of  the  New 
York  Central,  as  provided  in  the  Section  5  of  Article  Two  of  the  in- 
denture, next  in  rank  and  second  only  to  its  existing  general  mortgage, 
dated  June  1,  1897,  securing  an  authorized  issue  of  $100,000,000  of 
bonds;  and,  in  connection  with  any  such  consolidation  of  the  Michi- 
gan Central  and  the  New  York  Central,  no  lien  or  charge  shall  be  cre- 
ated or  incurred  except  in  subordination  and  subjection  to  the  prior 
claim,  lien  and  charge  of  the  Michigan  Central  collateral  bonds. 
There  are  similar  provisions  as  to  the  Lake  Shore  in  the  indenture  un- 
der which  The  New  York  Central  and  Hudson  River  Railroad  Com- 
pany's Three  and  One-Half  Per  Cent.  Gold  Bonds,  Lake  Shore  collat- 
eral, were  issued. 

The  New  York  Central  owns  more  than  90  per  cent,  of  the  stock 
of  the  Lake  Shore,  and  it  is  thought  that  it  may  be  desirable  to  con- 
solidate the  two  companies,  and  to  include  in  such  consolidation  cer- 
tain others  of  the  New  York  Central  Lines. 

It  is  not  intended  at  the  present  time  to  consolidate  the  Michigan 
Central  with  the  New  York  Central  or  with  the  Lake  Shore,  but  (the 
necessary  consents  being  obtained)  the  Michigan  Central  collateral 
bonds  will  be  secured  by  a  mortgage  on  the  railroad  of  the  New  York 
Central  when  any  two  of  those  companies  are  consolidated. 


CONSOLIDATION  OF  NEW  YORK  CENTRAL  LINES  543 

In  that  connection  and  in  order  to  facilitate  such  Michigan  Central 
consolidation  as  may  hereafter  be  decided  on,  the  holders  of  the  Michi- 
gan Central  collateral  bonds  are  asked  to  give  their  consent  to  the 
consolidation  of  the  Michigan  Central  with  the  New  York  Central,  or 
its  successors,  or  with  any  other  railroad  company  or  companies  now 
or  hereafter  of  the  New  York  Central  System,  which  consolidation 
may  be  made  presently  or  at  any  future  time. 

Such  consent  being  given,  before  making  use  of  it,  the  New  York 
Central  will  secure  these  bonds  and  also  the  Lake  Shore  collateral 
bonds  above  referred  to  by  executing  a  mortgage  upon  the  railroad 
now  owned  by  it,  second  only  to  its  existing  general  mortgage,  and  in 
that  connection  will  pay  the  mortgage  tax,  which  will  entitle  your 
bonds  to  the  exemption  provided  for  in  the  existing  mortgage  tax  laws 
ef  the  State  of  New  York. 

The  indenture  by  which  your  bonds  are  secured  provides  that  the 
amount  and  numbers  of  coupon  bonds  held  by  any  person  executing 
any  request  of  other  instrument  as  a  bondholder  and  the  date  of  hold- 
ing the  same  may  be  proved  by  the  certificate  of  any  trust  company 
bank,  bankers  or  other  depositary,  if  such  certificate  shall  be  deemed 
by  the  Trustee  to  be  satisfactory,  showing  therein  that  at  the  date 
therein  mentioned  such  person  had  on  deposit  with  such  depositary 
the  bonds  described  in  such  certificate.  The  holding  of  registered 
bonds  of  course  is  shown  by  the  registry.  The  holders  of  coupon  bonds 
are,  therefore,  requested  to  furnish  the  certificate  of  a  depositary,  as 
provided  in  the  indenture,  a  form  of  which  certificate  is  herewith  en- 
closed. The  deposit  of  bonds  required  for  the  purpose  of  procuring 
such  certificate  need  be  only  a  temporary  one. 

Herewith  you  will  find  a  form  of  consent,  which  we  should  be  pleased 
to  have  you  execute  and  return  at  your  convenience,  first  having  ac- 
knowledged its  execution  before  a  notary  public. 
By  order  of  the  Board  of  Directors. 

THE  NEW  YORK  CENTRAL  AND  HUDSON  RIVER  RAILROAD  COMPANY, 

W.  C.  BROWN, 

President. 
DWIGHT  W.  PARDEE, 

Secretary. 

Extra  copies  of  the  form  of  consent  will  be  sent  to  you  on  application. 


544         MATEEIALS    OP   COEPOEATION    FINANCE 


TEE  NEW   YORK  CENTRAL  AND  HUDSON  RIVER 
RAILROAD  COMPANY 

GEAND    CENTEAL   TEEMINAL 

NEW  YORK,  December  15,  1911. 

To  the  Holders  of  The  New  York  Central  and  Hudson  River  Railroad 
Company's  Three  and  One-half  Per  Cent.  Gold  Bonds,  Lake 
Shore  Collateral: 

Under  the  indenture,  dated  February  4,  1898,  executed  by  The 
New  York  Central  and  Hudson  Eiver  Eailroad  Company  and  the 
Guaranty  Trust  Company  of  New  York,  as  Trustee,  pursuant  to  which 
the  above-mentioned  bonds  were  issued,  the  Lake  Shore  &  Michigan 
Southern  Eailway  Company  may  be  consolidated  with  the  New  York 
Central,  or  any  other  company  may  be  consolidated  with  the  Lake 
Shore,  upon  such  terms  as  may  be  approved  by  the  holders  of  three- 
quarters  of  said  bonds;  but  in  case  of  any  such  consolidation,  these 
bonds  and  certain  other  bonds  of  the  New  York  Central  of  a  similar 
issue  not  exceeding  in  amount  $21,550,000  (the  latter  being  the  three 
and  one-half  per  cent,  gold  bonds  of  this  company  for  which  stock 
of  the  Michigan  Central  Eailroad  Company  is  pledged  as  collateral) 
shall  be  secured  by  a  mortgage  upon  the  railroad  of  the  New  York 
Central,  as  provided  in  Section  5  of  Article  Two  of  the  indenture,  next 
in  rank  and  second  only  to  its  existing  general  mortgage,  dated  June 
1,  1897,  securing  an  authorized  issue  of  $100,000,000  of  bonds,  and  in 
connection  with  any  such  consolidation  of  the  Lake  Shore  and  the  New 
York  Central,  no  lien  or  charge  shall  be  created  or  incurred  except  in 
subordination  and  subjection  to  the  prior  claim,  lien  and  charge  of  the 
Lake  Shore  collateral  bonds. 

The  New  York  Central  owns  more  than  90  per  cent,  of  the  stock 
of  the  Lake  Shore,  and  it  is  thought  that  it  may  be  desirable  to  con- 
solidate the  two  companies,  and  to  include  in  such  consolidation  cer- 
tain others  of  the  New  York  Central  Lines. 

As  a  preliminary  step,  your  consent  is  requested  pursuant  to  the  pro- 
visions of  the  indenture  securing  your  bonds. 

Such  consent  being  given,  before  making  use  of  it,  the  New  York 
Central  will  secure  these  bonds  and  also  the  Michigan  Central  collat- 
eral bonds  above  referred  to  by  executing  a  mortgage  upon  the  rail- 
road now  owned  by  it,  second  only  to  its  existing  general  mortgage, 
and  in  that  connection  will  pay  the  mortgage  tax,  which  will  entitle 
your  bonds  to  the  exemption  provided  for  in  the  existing  mortgage  tax 
laws  of  the  State  of  New  York. 


CONSOLIDATION    OF   NEW   YORK   CENTRAL   LINES    545 

The  indenture  by  which  your  bonds  are  secured  provides  that  the 
amount  and  numbers  of  coupon  bonds  held  by  any  person  executing 
any  request  or  other  instrument  as  a  bondholder  and  the  date  of  hold- 
ing the  same  may  be  proved  by  the  certificate  of  any  trust  company, 
bank,  bankers  or  other  depositary,  if  such  certificate  shall  be  deemed 
by  the  Trustee  to  be  satisfactory,  showing  therein  that  at  the  date 
therein  mentioned  such  person  had  on  deposit  with  such  depositary 
the  bonds  described  in  such  certificate.  The  holding  of  registered 
bonds  of  course  is  shown  by  the  registry.  The  holders  of  coupon  bonds 
are,  therefore,  requested  to  furnish  the  certificate  of  a  depositary,  as 
provided  in  the  indenture,  a  form  of  which  certificate  is  herewith  en- 
closed. The  deposit  of  bonds  required  for  the  purpose  of  procuring 
such  certificate  need  be  only  a  temporary  one. 

Herewith  you  will  find  a  form  of  consent,  which  we  should  be  pleased 
to  have  you  execute  and  return  at  your  convenience,  first  having  ac- 
knowledged its  execution  before  a  notary  public. 

By  order  of  the  Board  of  Directors. 

THE  NEW  YORK  CENTRAL  AND  HUDSON  RIVER  RAILROAD  COMPANY 

W.  C.  BROWN, 

President. 
DWIQHT  W.  PARDEE, 

Secretary. 

Extra  copies  of  the  form  of  consent  will  be  sent  to  you  on  application. 
FORM  ACCOMPANYING  PRECEDING  NOTICES. 


191 


The  undersigned,  being  the  owner  and  holder  of  THE  NEW  YORK 
CENTRAL  AND  HUDSON  RIVER  RAILROAD  COMPANY'S  THREE  AND 
ONE-HALF  PER  CENT.  REGISTERED  (COUPON)  GOLD  BONDS,  MICHI- 
GAN CENTRAL  COLLATERAL,  under  an  indenture  dated  April  13,  1898, 
to  Guaranty  Trust  Company  of  New  York  as  Trustee,  of  the  aggre- 
gate par  value  of  $  ,  numbered  as  follows : 

****** 

on  his  (her,  its)  own  behalf  and  on  behalf  of  his  (her,  its)  succeaaOW 
in  the  ownership  of  such  bonds,  hereby  consents  to  and  approves  of 
the  consolidation  of  The  Michigan  Central  Railroad  Company  with 
The  New  York  Central  and  Hudson  River  Railroad  Company,  or  its 
successors,  together  with  any  other  railroad  companies,  now  or  here- 


546         MATEEIALS    OF   COEPOBATION   FINANCE 

after  of  the  New  York  Central  System,  which  the  Board  of  Directors 
of  The  New  York  Central  and  Hudson  River  Eailroad  Company,  or 
its  successors,  may  determine  to  include  in  such  consolidation  with  it, 
and  also  hereby  consents  to  and  approves  of  the  consolidation  of  The 
Michigan  Central  Eailroad  Company  with  any  other  railroad  com- 
pany or  companies  now  or  hereafter  of  the  New  York  Central  Sys- 
tem, such  consolidation  or  consolidations  being  made  upon  such  terms 
and  conditions  as  the  Boards  of  Directors  and  the  stockholders  of  said 
companies,  acting  pursuant  to  law,  may  fix,  and  the  particular  terms 
and  conditions  hereinafter  mentioned;  this  consent  being  applicable 
either  to  a  single  consolidation  or  to  successive  consolidations  which 
may  be  effected  by  consolidation  proceedings  or  by  merger  under 
present  or  future  laws,  or  by  purchase  or  otherwise. 

The  consent  and  approval  hereby  given  are,  however,  on  the  par- 
ticular terms  and  conditions  that,  prior  to  any  such  consolidation, 
The  New  York  Central  and  Hudson  River  Eailroad  Company's  Three 
and  One-Half  Per  cent.  Gold  Bonds,  Michigan  Central  Collateral, 
and  The  New  York  Central  and  Hudson  Eiver  Eailroad  Company's 
Three  and  One-Half  Per  Cent.  Gold  Bonds,  Lake  Shore  Collateral, 
shall  have  been  secured  by  a  mortgage  to  be  executed  by  The  New 
York  Central  and  Hudson  Eiver  Eailroad  Company  upon  the  railroad 
owned  by  it  at  the  date  hereof,  which  mortgage  shall  be  next  in  rank 
and  second  only  to  the  existing  general  mortgage  of  The  New  York 
Central  and  Hudson  Eiver  Eailroad  Company,  dated  June  1,  1897. 
securing  an  authorized  issue  of  $100,000,000  of  bonds;  and  that  the 
Eailroad  Company  shall  have  paid  the  tax  on  the  Michigan  Central 
collateral  bonds  under  the  present  mortgage  tax  law  of  the  State  of 
New  York;  and  that  in  connection  with  any  consolidation  with  the 
New  York  Central  no  lien  or  charge  upon  the  property  of  The  Michi- 
gan Central  Eailroad  Company  shall  be  created  or  incurred  except 
in  subordination  and  subjection  to  the  prior  claim,  lien  and  charge 
of  the  Michigan  Central  collateral  bonds. 


Us. 


L.8. 

STATE  OF 
County  of 

On  this  day  of  ,  191     ,  before  me,  the  sub- 

scriber, personally  came  to  me  known 

and  known  to  me  to  be  the  same  person  described  in  and  who  executed 
the  foregoing  instrument,  and  he  duly  acknowledged  to  me  that  he 
executed  the  same. 

Notary  Public, 


CONSOLIDATION   OF   NEW   YORK   CENTRAL   LINES    547 

STATE  OF  1 

County  of  |SS': 

On  the  day  of  ,  191     ,  before  me  personally 

came  to  me  known,  who,  being  by  me 

duly  sworn,  did  depose  and  say :  that  he  resided 
that  he  was  of  the  corporation 

which  executed  the  foregoing  instrument;  that  he  knew  the  seal  of 
said  corporation;  that  the  seal  affixed  to  said  instrument  was  such 
corporate  seal ;  that  it  was  so  affixed  by  order  of  the  Board  of 

of  said  corporation,  and  that  he  signed  his  name  thereto 
as  such  by  like  order. 

Notary  Public, 


191 


The  undersigned  hereby  certifies  that,  at  the  date  hereof, 

had  on  deposit  with  it  of  THE 

NEW  YORK  CENTRAL  AND  HUDSON  RIVER  RAILROAD  COMPANY'S 
THREE  AND  ONE-HALF  PER  CENT.  COUPON  GOLD  BONDS,  MICHIGAN 
CENTRAL  COLLATERAL,  dated  April  13,  1898,  each  of  the  par  value 
of  $1,000,  numbered 


548         MATERIALS    OF   CORPORATION   FINANCE 

PURPOSE  AND  METHOD  OF  CONSOLIDATION1 
REPORT  OF  THE  COMMISSION  TO  THE  SENATE  OF  THE  UNITED  STATES. 
BY  THE  COMMISSION: 

The  Interstate  Commerce  Commission  has  the  honor  to  report  the 
result  of  its  investigation,  conducted  pursuant  to  the  resolution  of 
the  Senate  of  July  10,  1913,  reading  as  follows: 

Resolved,  That  the  Interstate  Commerce  Commission  be  instructed  to  in- 
vestigate, if  it  has  not  the  information  now  in  hand,  and  report  to  the  Senate, 
all  the  facts  and  circumstances  connected  with  the  proposed  issue  by  the 
New  York  Central  &  Hudson  River  Railway,  of  4  per  cent,  mortgage  bonds  for 
$167,102,400,  for  the  purpose  of  taking  up  outstanding  3y2  per  cent,  bonds 
now  existing  against  said  railroad  and  the  stock  of  the  Lake  Shore  and  Michi- 
gan Central  Railways. 

That  the  Commission  be  instructed  to  furnish  the  Senate  with  the  date  and 
amount  of  all  said  3%  per  cent,  mortgage  bonds,  the  reason  for  their  issue, 
when  they  mature,  whether  the  issuing  of  the  said  4  per  cent,  bonds  for  the 
said  3%  per  cent,  bonds  will  not  be  an  unwarranted  and  illegal  capitalization 
of  said  railroads,  whether  the  proposed  consolidation  of  said  railroads  in- 
volved in  the  said  proposed  issue  of  4  per  cent,  bonds  would  not  be  unwar- 
ranted and  unlawful,  and  whether  the  increase  of  the  rate  of  interest  thus 
proposed  by  the  issuing  of  said  4  per  cent,  bonds  is  necessary,  even  though 
the  consolidation  of  said  railroads  is  unobjectionable. 

The  New  York  Central  &  Hudson  River  Railroad  Company  will  be 
referred  to  in  this  report  as  the  New  York  Central,  the  Lake  Shore 
&  Michigan  Southern  Railway  Company  as  the  Lake  Shore,  and  the 
Michigan  Central  Railway  Company  as  the  Michigan  Central. 

The  $167,102,400  of  bonds  referred  to  in  the  Senate  resolution  con- 
stitute the  total  of  the  New  York  Central's  Lake  Shore  collateral  bonds 
for  $90,578,400,  issued  in  1898,  to  mature  in  100  years,  in  payment 
for  about  90  per  cent,  of  the  stock  of  the  Lake  Shore  at  $200  a  share ; 
its  Michigan  Central  collateral  bonds  for  $19,336,000,  issued  in  1898, 
to  mature  in  100  years,  in  payment  for  about  90  per  cent,  of  the 
stock  of  the  Michigan  Central  at  $114  a  share;  its  debenture  bonds 
for  $48,000,000,  issued  in  1904,  to  mature  in  30  years;  and  its  deben- 
ture bonds  for  $9,188,000,  issued  in  1912,  to  mature  in  30  years. 

i  Interstate  Commerce  Commission.  No.  5960.  In  the  matter  of  a  pro- 
posed Bond  Issue  by  the  New  York  Central  &  Hudson  River  Railroad  Com- 
pany. April  13,  1914.  By  direction  of  Senate  resolution  the  Commission 
reports  to  the  Senate  the  facts,  and  its  opinions  on  certain  questions  raised 
thereby,  in  connection  with  the  New  York  Central  &  Hudson  River  Railroad 
Company's  proposal  to  consolidate  with  that  company  the  Lake  Shore  & 
Michigan  Southern  Railway  Company  and  certain  of  its  owned  or  controlled 
lines,  and  to  refund  $90.578,400  of  the  New  York  Central  Company's  Lake 
Shore  collateral  3%  per  cent  bonds  with  the  consolidated  company's  4  per  cent 
mortgage  bonds  in  consideration  for  the  consent  of  these  bondholders  to  the 
consolidation. 


CONSOLIDATION  OF  NEW  YORK  CENTRAL  LINES  549 


The  Lake  Shore  and  Michigan  Central  collateral  bonds  bear  interest 
at  3£  per  cent.,  the  debenture  bonds  at  4  per  cent.  The  par  value 
of  the  stock  purchased  as  above  shown  is  $100  a  share.  The  Lake 
Shore  collateral  bonds  are  secured  by  pledge  of  the  Lake  Shore  stock, 
and  the  Michigan  Central  collateral  bonds  by  pledge  of  the  Michigan 
Central  stock,  for  which  they  were  issued  in  payment.  None  of  the 
bonds  mentioned,  collateral  or  debenture,  is  secured  by  mortgage,  but 
as  to  all  of  them  the  New  York  Central  is  bound  by  covenant  con- 
tained in  the  respective  indentures  under  which  they  were  issued  to 
secure  them  in  any  future  mortgage  which  it  may  place  upon  its  prop- 
erty. The  New  York  Central  is  also  bound  by  the  further  covenants 
not  to  consolidate  the  Lake  Shore  with  the  New  York  Central  without 
first  obtaining  the  written  consent  thereto  from  the  holders  of  three- 
fourths  of  the  Lake  Shore  collateral  bonds,  and  not  to  vote  the  stock  of 
the  Lake  Shore  in  favor  of  any  increase  in  the  Lake  Shore's  capital 
stock,  which  is  $50,000,000.  Similar  covenants  in  the  two  respects 
last  noted  are  contained  in  the  indenture  under  which  the  New  York 
Central's  Michigan  Central  collateral  bonds  were  issued. 

The  New  York  Central  extends  from  New  York  to  Buffalo  and  tho 
Lake  Shore  from  Buffalo  to  Chicago.  The  New  York  Central  now 
desires  to  consolidate  the  Lake  Shore  with  the  New  York  Central, 
not  only  in  the  interest  of  the  through  traffic  of  the  two  companies 
between  New  York  and  Chicago,  but  more  particularly  in  the  interest 
of  simplicity  and  strength  in  the  financing  of  the  two  companies. 
The  Lake  Shore  owns  all  of  the  stock  of  the  Toledo  &  Ohio  Central 
Railway  Company;  of  the  Chicago,  Indiana  &  Southern  Railroad 
Company;  and  of  the  Jamestown,  Franklin  &  Clearfield  Railroad 
Company;  and  a  trifle  more  than  50  per  cent,  of  the  stock  of  the 
Pittsburgh  &  Lake  Erie  Railroad  Company,  and  of  the  New  York, 
Chicago  &  St.  Louis  Railroad  Company.  The  New  York  Central 
intends  to  include  all  of  these  companies  so  owned  or  controlled  by 
the  Lake  Shore,  together  with  certain  of  their  subsidiaries,  in  the  con- 
solidation, except  the  New  York,  Chicago  &  St.  Louis  Railroad  Com- 
pany. The  capital  stock  and  bonded  debt  of  the  principal  companies 
which  the  New  York  Central  proposes  to  consolidate  are  as  follows: 


Company 

Stock 

Bonds 

New  York  Central  &  Hudson  River  R.  R.  Co.  . 
Lake  Shore  &  Michigan  Southern  Ry.  Co  

$225,581,100 
50,000,000 

$291,211,400 

150,000,000 

Pittsburgh  <fe  Lake  Erie  R.  R.  Co  
Toledo  <fe  Ohio  Central  Ry.  Co  

29,988,000 
10,208,000 

4,000,000 
8,500,000 

Chicago,  Indiana  &  Southern  R.  R.  Co  

20,000,000 

20,000,000 

Jamestown,  Franklin  &  Clearfield  R.  R.  Co.  .  .  . 

3,000,000 

11,000,000 

550         MATERIALS    OF   CORPORATION    FINANCE 

Included  in  the  $291,211,400  of  the  New  York  Central's  bonds 
shown  in  the  above  table  are  the  $167,102,400  of  bonds  referred  to 
in  the  Senate  resolution. 

The  New  York  Central  states  that  the  proportion  of  bonds  to  stock 
of  the  Lake  Shore  approaches  closely  the  limit  of  separate  and  eco- 
nomic financing  of  that  property,  and  that  the  situation  as  to  the 
Lake  Shore  is  further  complicated  by  the  restriction  mentioned  with 
respect  to  any  future  increase  in  its  capital  stock.  The  New  York  Cen- 
tral proposes  to  provide  for  the  issuance,  following  the  consolidation 
of  bonds  secured  by  mortgage  on  the  combined  properties,  to  be  avail- 
able for  refunding  the  present  bonded  debt  of  the  two  companies  and 
for  additional  future  capital  needs  of  the  consolidated  company 
so  far  as  those  needs  are  to  be  met  by  the  sale  of  bonds.  It  represents 
that  such  a  simplified  series  of  bonds,  each  of  equal  lien,  would 
find  readier  confidence  with  the  investing  public  than  would  the 
separate  issues  of  the  two  companies,  each  subject  to  previous  issues 
of  prior  lien,  and  that  they  would  soon  become  established  in  the 
market  as  the  consolidated  company's  standard  bonds. 

The  issue  of  $167,102,400  of  bonds  referred  to  in  the  Senate  reso- 
lution is  but  a  step  in  this  general  plan  of  future  financing  of  the  two 
properties.  The  New  York  Central  proposes  to  secure  those  bonds  by 
mortgage  on  the  property  of  the  New  York  Central,  and,  following 
the  consolidation,  by  mortgage  on  the  property  also  of  the  Lake  Shore, 
under  what  the  New  York  Central  designates  its  consolidation  mort- 
gage. It  has  been  explained  that  the  New  York  Central  is  bound  by 
covenant  of  indenture  to  secure  by  mortgage  its  Lake  Shore  collateral 
bonds,  its  Michigan  Central  collateral  bonds,  and  its  debenture  bonds 
of  1904  and  of  1912  before  it  may  place  other  mortgages  on  its  prop- 
erty, and  it  is  to  carry  out  this  promise  that  it  proposes  to  execute 
the  consolidation  mortgage.  This  mortgage  restricts  the  issuance  of 
bonds  thereunder  to  the  exact  amount  of  these  collateral  and  deben- 
ture bonds;  that  is,  to  the  total  of  the  $167,102,400  referred  to  in  the 
Senate  resolution,  and  provides  that  the  New  York  Central  may,  fol- 
lowing the  consolidation,  issue  4  per  cent,  bonds  thereunder  in  ex- 
change for  all  or  any  part  of  those  bonds.  The  final  bond  which  the 
New  York  Central  contemplates  as  its  standard  consolidated  company 
security  it  proposes  to  authorize  and  secure  by  another  mortgage, 
which  it  terms  its  general  refunding  and  improvement  mortgage. 
This  mortgage  authorizes  the  issuance  of  bonds  sufficient  in  amount 
to  refund  all  prior  indebtedness  of  the  consolidated  company,  includ- 
ing the  consolidation  mortgage  bonds,  and  to  provide  for  such  future 
bonds  as  may  from  time  to  time  be  required  for  the  consolidated 
system.  Its  only  restriction  is  that  there  shall  at  no  time  be  out- 


CONSOLIDATION  OF  NEW  YORK  CENTRAL  LINES    551 

standing  thereunder  bonds  exceeding  in  amount  three  times  the  cap- 
ital stock  of  the  consolidated  company,  and  that  additional  bonds 
beyond  $500,000,000  may  be  sold  only  to  the  extent  of  80  per  cent, 
of  the  cost  of  needed  improvements.  The  New  York  Central  estimates 
that  the  consolidated  company  will  require  within  the  next  10  years 
$350,000,000  of  new  money  for  addition  and  improvement  purposes, 
a  sum  which  would  increase  the  present  bonded  debt  of  the  con- 
solidated company  to  more  than  $800,000,000.  Unless  increased  in 
the  meantime,  there  would  be  then  outstanding  against  the  consoli- 
dated company  $275,581,100  of  capital  stock.  The  consolidation 
would  have  the  effect  of  removing  the  present  restriction  with  respect 
to  the  increase  of  the  Lake  Shore's  capital  stock.  It  is  therefore 
problematical  what  the  stock  and  bond  capitalization  of  the  consoli- 
dated company  under  the  proposed  plan  would  eventually  be. 

We  have  explained  that  this  general  plan  of  future  financing  of  the 
two  companies  is  dependent  upon  the  consolidation  taking  place, 
and  that  the  consolidation  is  contingent  upon  the  New  York  Central 
obtaining  the  written  consent  thereto  from  the  holders  of  three- 
fourths  of  the  Lake  Shore  collateral  bonds.  In  December,  1911,  the 
New  York  Central  in  order  to  procure  that  consent  offered  to  secure 
these  bonds  by  mortgage  on  the  property  of  the  New  York  Central, 
and,  following  the  consolidation,  on  the  property  also  of  the  Lake 
Shore,  in  conformity  with  the  covenant  mentioned,  and  to  provide  for 
the  payment  of  certain  taxes  on  these  bonds  under  the  New  York  law. 
In  response  to  this  proposal  consents  representing  only  $20,000,000 
of  the  required  $67,933,800  were  received.  In  May,  1913,  the  New 
York  Central  offered,  in  addition  to  the  mortgage  security  of  the 
first  offer,  to  extend  to  these  bondholders  the  opportunity,  following 
consolidation,  of  exchanging  their  3l/2  per  cent,  collateral  bonds  for 
4  per  cent,  consolidation  mortgage  bonds.  As  the  collateral  bonds 
have  84  years  yet  to  run,  the  exchange  would  have  the  effect  of  adding 
annually  to  the  fixed  charges  of  the  consolidated  company  for  that 
period  $452,892  if  the  entire  issue  should  be  exchanged,  and  $339,069 
if  the  offer  should  be  withdrawn  after  securing  consents  only  of  the 
necessary  three-fourths.  The  New  York  Central  proposes  this  in- 
crease in  interest  rate  to  be  effective  under  its  present  plan  only  as  to 
the  $90,578,400  of  the  $167,102,400  mentioned  in  the  Senate  resolution 
which  represents  its  Lake  Shore  collateral  bonds.  While  the  New 
York  Central  concedes  that  it  reserves  the  right  under  the  consoli- 
dation mortgage  to  make  the  same  offer  of  exchange  to  holders  of 
its  Michigan  Central  collateral  bonds  and  of  its  debenture  bonds  of 
1904  and  of  1912,  also  secured  under  that  mortgage,  it  declares  that 
it  has  no  present  intention  of  including  the  Michigan  Central  in  the 


552         MATERIALS    OF   CORPORATION    FINANCE 

consolidation,  and  therefore  no  present  intention  of  offering  the  op- 
portunity of  exchange  to  the  holders  of  those  bonds.  Its  deben- 
ture bonds  of  1904  and  of  1912  now  bear  interest  at  4  per  cent. 

We  have  stated  that  the  New  York  Central  states  its  main  object 
in  consolidating  to  be  not  so  much  to  effect  economy  in  operation  of 
the  two  companies  as  to  afford  a  broader  basis  for  their  future  financ- 
ing. Nevertheless,  it  represents  to  us  that  by  the  consolidation  sub- 
stantial savings  can  be  made.  It  estimates  that  perhaps  $325,000  a 
year  can  be  saved  by  unification  and  simplification  of  accounting,  by 
the  elimination  of  interline  records,  reports,  printing,  etc.,  incident  to 
the  consolidation.  It  also  represents  that  perhaps  $200,000  annually 
can  be  saved  under  the  federal  income  tax  law;  for  example,  the 
present  triplicate  taxation  under  that  law  of  the  50  per  cent,  of 
Pittsburgh  &  Lake  Erie  Railroad  Company's  dividends  that  pass 
first  to  the  Lake  Shore  and  finally,  to  the  extent  they  enter  into 
90  per  cent,  of  the  Lake  Shore's  dividends,  to  the  New  York  Cen- 
tral, will  be  stopped,  and  only  the  one  tax  thereon  as  part  of  the 
sarnings  of  the  consolidated  company  be  required.  Finally,  it  ex- 
presses the  opinion  that  by  reason  of  greater  public  confidence  in 
a  bond  of  the  consolidated  company  orer  separate  bonds  of  the 
two  companies  the  saving  to  it  in  iterest  charges  in  connection  with 
the  sale  of  new  bonds  under  the  refunding  and  improvement  mort- 
gage will  more  than  offset  the  annual  increase  of  $452,892  in  interest 
charges  which  it  proposes  to  pay  as  a  maximum  to  the  Lake  Shore 
collateral  bondholders  for  their  consent  to  the  consolidation. 

It  seems  probable  that  by  the  consolidation  a  substantial  saving 
can  be  effected,  possibly  a  sum  equal  to  that  last  above  stated. 

We  think  that  from  the  standpoint  of  economy  in  operation  and  fa- 
cility in  the  future  financing  of  the  two  companies  the  consolidation  is 
warranted.  Neither  the  consolidation  itself  nor  the  exchange  of  bonds 
on  the  basis  of  increased  interest  rate  indicated,  incident  thereto, 
would,  so  far  as  we  are  advised,  offend  any  federal  statute.  The  ques- 
tion whether  the  exchange  of  the  Lake  Shore  collateral  bonds  on  that 
basis  is  warranted  will  be  answered  by  our  reply  to  the  Senate  resolu- 
tion's further  question,  whether  the  exchange  as  proposed  is  necessary 
even  though  the  consolidation  of  the  two  companies  be  found  unobjec- 
tionable. We  have  stated  that,  in  response  to  the  New  York  Central's 
first  offer  to  the  holders  of  its  Lake  Shore  collateral  bonds  of  a  mort- 
gage security  for  their  bonds  in  consideration  for  their  consent  to  the 
consolidation,  consents  representing  only  about  $20,500,000  of  the  re- 
quired $67,933,800  were  received.  On  the  date  the  taking  of  testi- 
mony before  us  was  concluded  most  of  the  required  consents  had  been 
secured  under  the  New  York  Central's  second  offer  of  an  increased 


CONSOLIDATION  OF  NEW  YORK  CENTRAL  LINES   553 

interest  rate  in  addition  to  that  security.  We  have  been  since  ad- 
vised by  the  New  York  Central,  by  letter,  that  the  necessary  con- 
sents have  been  received.  We  think  that  as  a  practical  matter  the 
exchange  of  the  3y2  per  cent.  Lake  Shore  collateral  bonds  for  4  per 
cent,  consolidation  mortgage  bonds  is,  under  the  circumstances  dis< 
closed,  a  necessary  step  in  the  carrying  out  of  the  proposed  consolida- 
tion plan  as  outlined  to  us  by  the  New  York  Central. 

What  we  here  say  is  aside  from  any  question  as  to  the  necessity  or 
advisability  of  federal  control  of  the  issuance  by  railroads  of  their 
securities  or,  in  lieu  of  that  control,  of  a  requirement  for  full  meas- 
ure of  publicity  with  respect  thereto.  Whether  one  or  the  other  of 
these  measures  or  some  other  provision  looking  to  the  same  purpose 
should  be  enacted  into  law  is  a  question  we  deem  it  unnecessary  to 
discuss  in  this  report.  We  have  under  existing  law  no  jurisdiction  or 
control  over  such  matters.  We  have  expressed  our  views  on  the  sub^ 
ject  in  previous  reports. 

The  execution  of  the  mortgages  referred  to  herein,  and  the  issu- 
ance of  bonds  thereunder,  are  subject  to  the  approval  of  the  Public 
Service  Commission  of  the  State  of  New  York  (Second  District)  and 
of  the  Board  of  Public  Utility  Commissioners  of  the  State  of  New 
Jersey.  They  have  approved  the  execution  of  both  mortgages.  This 
approval  does  not  extend,  however,  to  the  issuance  of  bonds  thereunder 
or  to  the  consolidation  itself.  Separate  applications  must  be  made  for 
those  purposes,  and  the  application  to  consolidate  cannot  be  made  un- 
less and  until  the  necessary  consent  of  stockholders  has  been  secured. 
Since  the  taking  of  testimony  before  us  has  been  concluded  an  appli- 
cation made  by  the  New  York  Central  to  the  New  York  and  New  Jer- 
sey authorities  for  leave  to  issue  $70,000,000  of  bonds  under  the  re- 
funding and  improvement  mortgage  to  refund  certain  short-term 
notes  that  mature  in  1914  has  been  granted. 

Certain  New  York  Central  stockholders  have  objected  to  the  pro- 
posed consolidation,  not  only  on  the  ground  that  the  increase  in 
interest  rate  on  the  Lake  Shore  collateral  bonds  is  unwarranted  and, 
as  they  state,  in  violation  of  statutes  of  the  State  of  New  York 
in  certain  respects,  but  also  because,  as  they  allege,  the  consolida- 
tion will  violate  the  Sherman  Anti-trust  act  unless  prior  thereto  the 
New  York  Central  disposes  of  its  stock  in  the  Michigan  Central  and 
in  certain  lake  lines  between  Buffalo  and  Chicago,  and  Buffalo  and 
Detroit,  and  unless  also  the  Lake  Shore  first  disposes  of  its  stock  in 
the  New  York,  Chicago  &  St.  Louis  Railroad.  These  stockholders 
state  that  the  Michigan  Central,  the  New  York,  Chicago  &  St.  Louis 
Railroad  and  these  lake  lines  are  competing  routes  with  the  Lake 
Shore.  We  think  this  question  is  one  more  properly  to  be  passed 


upon  by  the  Department  of  Justice,  and  as  to  it  we  therefore  express 
no  opinion.  However,  it  would  seem  that  if  this  ownership  of  stock 
in  parallel  lines  by  the  New  York  Central  and  Lake  Shore  violates 
the  Anti-trust  law,  the  offence  is  as  complete  now  as  it  would  be  after 
the  consolidation.  The  New  York  Central's  relation  to  lake  lines 
will  be  considered  in  connection  with  eases  before  us  under  the 
Panama  Canal  act. 

By  the  Commission.  GEORGE  B.  McGiNTY, 

[SEAL]  Secretary. 


CORPORATE   LEASE   OF   ALL   ASSETS  555 


LEASE  l 

•  West  End  Street  Railway  Co. 
Boston  Elevated  Railway  Co. 

THIS  INDENTURE,  made  in  duplicate,  this 
day  of  ,  A.  D.  1897,  by  and  between  the  WEST 

END  STREET  RAILWAY  COMPANY,  a  corporation  existing 
under  and  by  virtue  of  the  laws  of  the  Commonwealth  of  Massachu- 
setts, party  of  the  first  part,  and  hereinafter  denominated  the 
"Lessor,"  and  the  BOSTON  ELEVATED  RAILWAY  COMPANY, 
a  corporation  existing  under  and  by  virtue  of  the  laws  of  the  said 
Commonwealth,  party  of  the  second  part,  and  hereinafter  denomi- 
nated the  "Lessee," 

WITNESSETH,  That  the  said  parties,  each  for  itself,  its  successor 
and  assigns,  and  each  in  consideration  of  the  grants,  covenants  and 
engagements  herein  made  by  the  other,  have  granted,  covenanted  and 
agreed,  and  do  hereby  grant,  covenant  and  agree,  each  to  and  with 
the  other,  and  its  successor  and  assigns,  as  follows,  to  wit: 

I. 

The  Lessor  doth 'grant,  assign,  transfer,  demise  and  lease  unto  the 
Lessee,  its  successors  and  assigns,  subject  to  all  legal  obligation  and 
encumbrances  thereon,  its  railway  and  property  of  every  description; 
including  therein  its  railway,  branches,  tracks,  sidetracks,  road-beds, 
lands,  stations  and  station  grounds,  viaducts,  shops,  car-houses,  power- 
houses, buildings,  fixtures,  cars,  horses,  rolling  stock,  machinery,  tools, 
furniture,  patents,  licenses,  telegraphic  and  electrical  apparatus,  poles, 
wires,  conduits,  equipment,  material  and  supplies  and  cash  on  hand 
at  the  inception  of  this  lease,  and  all  accounts  and  notes  receivable, 
whether  secured  by  mortgage  or  otherwise,  and  all  rights,  franchises, 
easements,  privileges  and  appurtenances  thereto  belonging,  together 
with  the  right  to  demand  and  receive  all  tolls,  rent,  revenue,  income 
and  profits  of  the  demised  premises ;  including  therein,  subject  to  all 
the  duties,  obligations  and  undertakings  thereby  imposed,  all  the 
rights,  privileges  and  powers  granted  and  conveyed  to  the  Lessor  by 
a  certain  contract  between  it  and  the  City  of  Boston,  acting  by  the 
Boston  Transit  Commission,  dated  December  7th,  A.  D.  1896;  and 
also  including  therein,  subject  to  all  legal  obligations  and  encum- 
brances thereon,  all  the  right,  title  and  interest  of  the  Lessor  in  and 
to  any  and  all  street  railways  operated  by  it,  directly  or  indirectly, 

»  Described  by  E.  S.  Meade  as  "one  of  the  most  carefully  drawn  leases  ever 
executed."     Corporation  Finance,  p.  380. 
19 


556         MATERIALS    OF    CORPORATION    FINANCE 

under  lease  or  operating  contract  or  through  ownership  of  stock  or 
otherwise,  and  in  and  to  any  stock  of  other  street  railway  companies, 
all  dividends  thereon,  and  its  right  of  voting  thereon,  and  in  and  to 
any  bonds,  obligations  and  contracts  of  or  with  other  corporations  or 
individuals  and  all  income  or  other  advantages  and  benefits  to  be  de- 
rived therefrom. 

To  HAVE  AXD  TO  HOLD  all  and  singular  the  demised  premises  to 
the  Lessee,  its  successors  and  assigns,  for  and  during  the  term  of 
twenty-four  years  eight  months  and  nine  days  from  and  after  the  first 
day  of  October  A.  D.  1897,  the  said  Lessee  keeping  and  performing 
the  covenants  herein  contained  on  its  part  to  be  kept  and  performed 
and  yielding  and  paying  rent  for  the  said  premises  to  the  amount 
and  in  the  manner  following,  to  wit : 

1.  The  Lessee  shall  pay  all  operating  expenses  of  the  Lessor  and 
of  all  railways  of  which  it  shall  came  into  possession  under  and  by 
virtue  of  this  instrument,  there  being  included  therein,  as  part  thereof, 
all  repairs  and,  subject  to  the  provisions  of  Article  VI.,  all  renewals ; 
all  expenditures  arising  out  of  any  contract,  obligation,  business, 
negligence  or  misfeasance,  or  however  otherwise  arising,  and  whether 
the  liability  for  the  same  now  exist  or  be  hereafter  created,  in  any 
way  connected  with  the  use  and  operation  of  the  demised  premises, 
except  the  scheduled  indebtedness  hereinafter  mentioned,  and  includ- 
ing damages  to  persons  or  property,  insurance,  taxes  of  every  descrip- 
tion, federal,  state  or  municipal,  levied  upon  the  Lessor's  property, 
income,  business,  franchises  or  capital  stock,  or  by  law  required  to  be 
deducted  from  any  amounts  payable  upon  the  Lessor's  stock;  all  ex- 
penses consequent  upon  or  incidental  to  the  renewal  or  refunding  of 
the  Lessor's  indebtedness,  or  that  of  any  company  for  which  it  is  re- 
sponsible; all  necessary  legal  expenses  of  the  Lessor;  all  expenses 
incidental  to  the  transfer  and  registration  of  the  Lessor's  stock  and 
bonds,  provided  that  the  Lessee  shall  have  the  right  to  designate  from 
time  to  time  the  registration  and  transfer  agents,  and  if  at  any  time 
the  Lessor  is  dissatisfied  with  the  responsibility  of  any  transfer  or 
registration  agent  so  designated  another  agent  shall  be  designated 
unless  the  Arbitral  Board  hereinafter  mentioned  shall  approve  of  the 
continuance  of  the  first  agent;  any  expenditures  hereinafter  declared 
to  be  operating  expenses;  and  the  expenses  of  maintaining  the  or- 
ganization of  the  Lessor,  for  which  expenses,  in  addition  to  sufficient 
and  suitable  offices  in  Boston,  with  appropriate  furniture  and  fittings 
to  be  supplied  by  the  Lessee,  there  shall  be  paid  to  the  Lessor  at  the 
end  of  each  successive  six  months  during  the  term  of  this  lease,  the 
sum  of  Three  Thousand  Seven  Hundred  and  Fifty  ($3,750)  Dol- 
lars; provided,  however,  that  the  Lessor  shall,  from  the  proceeds  of 


CORPORATE   LEASE    OF   ALL   ASSETS  557 

bonds  heretofore  issued  or  authorized,  or  of  stock  or  bonds,  or  both, 
hereafter  to  be  issued  and  authorized,  as  provided  in  Article  IV.,  from 
time  to  time  repay  to  the  Lessee  all  sums  which  the  Lessee  shall  pay 
on  account  of  any  indebtedness  existing  at  the  date  hereof  which  has 
been  incurred  for  permanent  additions  or  improvements  to  the  de- 
mised property,  or  which  it  may  be  obliged  to  pay  under  any  existing 
contract  for  like  purposes,  or  which  it  may  be  obliged  to  pay  for  the 
purpose  of  completing  any  work  in  the  nature  of  such  permanent 
additions  or  improvements  already  in  part  or  in  whole  contracted  for 
by  the  Lessor;  and  provided  further  that  the  Lessor  shall  at  the  ex- 
piration or  earlier  termination  of  this  lease  reimburse  the  Lessee  for 
all  sums  which  it,  the  Lessee,  may  be  obliged  to  pay  on  account  of  any 
indebtedness  or  liability  of  the  Lessor  existing  or  incurred  prior  to  the 
inception  of  this  lease  other  than  for  permanent  additions  or  improve- 
ments, and  also  for  such  proportional  part  of  all  rentals,  taxes,  in- 
terest and  dividend  charges  on  preferred  and  common  stock,  as  shall 
have  accrued  prior  to  the  date  hereof  and  shall  be  paid  by  the  Lessee. 

2.  The  Lessee,  during  the  continuance  of  this  lease,  shall  pay, 
as  the  same  may  from  time  to  time  become  due,  the  rental  of  any 
railway  of  which  it  shall  come  into  possession,  by  virtue  of  this  lease ; 
shall  pay  to  the  holders  thereof  the  interest  on  the  existing  indebted- 
ness of  the  Lessor  and  on  the  existing  indebtedness  of  any  street  rail- 
way company  whose  indebtedness  the  Lessor  is  under  obligation  to 
pay,  a  schedule  whereof  is  hereto  annexed,  and  the  interest  upon  any 
future  indebtedness  created  in  the  manner  hereinafter  provided.  The 
Lessee  shall  assume  and  pay  the  current  expenses  and  indebtedness 
upon  open  account  of  the  Lessor  outstanding  at  the  inception  of  this 
lease,  and  the  same  shall  be  accounted  for  and  reimbursed  to  the 
Lessee  from  the  proceeds  of  stock  or  bonds  as  hereinbefore  provided 
so  far  as  the  indebtedness  is  for  permanent  additions  or  improve- 
ments, and  at  the  expiration  or  earlier  termination  of  this  lease  so  far 
as  the  indebtedness  is  not  for  permanent  additions  and  improvements. 

The  Lessor  shall  turn  over  to  the  Lessee  all  cash  on  hand,  all  bills, 
notes  and  accounts  receivable  outstanding  at  the  inception  of  this 
lease,  and  all  sums  received  thereon  and  all  cash  on  hand  shall  be 
accounted  for  and  paid  over  to  the  Lessor  without  interest  at  the  ex- 
piration or  earlier  termination  of  this  lease,  together  with  a  Bum 
equal  to  all  then  accrued  and  unpaid  rentals,  taxes,  interest  and  divi- 
dend charges  on  preferred  and  common  stock;  provided,  however, 
that  so  far  as  proceeds  of  bonds  heretofore  issued  under  authority  of 
the  Railroad  Commissioners  or  authorized  by  them  are  received  by  the 
Lessee  under  this  Indenture,  such  proceeds  shall  be  applied  by  the 
Lessee  to  the  specific  purposes  for  which  said  bonds  were  authorized, 


558         MATEKIALS   OF   CORPOKATION   FINANCE 

and  the  Lessee  shall  not  be  obliged  to  account  therefor  except  by  show- 
ing that  such  proceeds  have  been  so  applied. 

3.  The  Lessee  shall  on  the  first  day  of  April,  1898,  and  thereafter 
on  the  first  days  of  October  and  April  in  each  year  during  the  con- 
tinuance of  this  lease,  pay  to  each  holder  of  record  of  common  stock 
of  the  Lessor  a  sum  equal  to  one  dollar  and  seventy-five  cents  for  each 
and  every  share  of  common  stock  so  held  by  him,  and  shall,  on  the 
first  days  of  January  and  July  in  each  year,  during  the  continuance 
of  this  lease,  pay  to  each  holder  of  record  of  the  preferred  stock  of  the 
Lessor  a  sum  equal  to  two  dollars  per  share  for  each  and  every  share 
of  preferred  stock  so  held  by  him ;  it  being  the  intent  hereof  that  the 
holders  of  common  stock  of  the  Lessor  shall  receive  three  and  one-half 
(3^)  per  cent,  semi-annually,  net,  and  the  holders  of  preferred  stock 
four  (4)  per  cent,  semi-annually,  net,  during  each  and  every  year 
this  lease  continues  in  force.  The  Treasurer  of  the  Lessor  shall,  at 
least  five  days  before  each  date  of  payment,  furnish  the  Lessee  with  a 
certificate  list  of  holders  of  record  of  the  common  or  preferred  stock 
of  the  Lessor  entitled  to  dividends  on  such  date. 

II 

The  Lessee,  as  assignee  hereunder  of  the  contract  of  the  Lessor  with 
the  City  of  Boston  for  the  use  of  the  subway,  dated  December  7th, 
1896,  hereby  assumes  all  liabilities  of  the  Lessor  under  said  contract, 
shall  punctually  pay  to  the  City  of  Boston  the  compensation  therein 
stipulated  at  the  times  and  in  the  manner  therein  set  forth,  and  shall 
fulfil  every  obligation,  express  or  implied,  therein  devolved  upon  the 
Lessor  in  the  same  manner  and  with  the  same  effect  as  if  said  con- 
tract had  been  made  with  the  Lessee. 

Such  alterations  of  said  subway  and  its  approaches  as  may  be  neces- 
sary to  connect  the  same  with  the  Lessee's  road  and  to  adapt  the 
same  to  the  use  of  the  Lessee's  road,  shall,  if  made  by  the  Lessee, 
with  the  approval  of  the  Transit  Commission,  be  borne  exclusively 
by  the  Lessee;  if,  however,  said  alterations  are  made  by  the  Transit 
Commission  upon  request  of  the  Lessee,  pursuant  to  the  provisions 
of  section  12  of  chapter  500  of  the  Acts  of  1897,  nothing  herein  shall 
be  construed  as  requiring  the  Lessor  to  make  or  join  in  any  agree- 
ment respecting  the  same;  provided,  however,  that  at  the  expiration 
or  earlier  termination  of  this  lease,  said  subway,  if  it  shall  then  be 
in  the  control  of  the  Lessee,  shall  be  delivered  to  the  Lessor  in  as 
good  order  and  repair  as  the  same  shall  be  in  when  the  use  thereof 
shall  be  begun  under  said  contract,  and  so  that  the  same  shall  be 
equally  well  fitted  for  the  independent  use  and  operation  thereof  by 
the  Lessor. 


COKPOKATE   LEASE    OF   ALL   ASSETS  559 

Any  failure  to  comply  with  the  terras  of  said  subway  contract  by 
the  Lessee  shall  be  deemed  a  violation  of  the  covenants  of  this  lease, 
giving  the  Lessor  the  rights  and  remedies  herein  provided  in  case  of 
violation,  including  a  right  of  entry  and  repossession  if  such  failure 
shall  have  continued  for  sixty  days;  provided,  however,  that  if  the 
Lessor  shall  at  any  time  deem  it  necessary  for  its  own  protection,  it 
may  itself  make  any  payment  required  by  said  subway  contract 
and  may  fulfill  any  other  provision  thereof,  and  in  every  such  case, 
while  retaining  unimpaired  all  its  rights  and  remedies  against  the 
Lessee  shall  have  the  right  to  require  the  Lessee  to  indemnify  it  for 
all  money  thus  expended  and  for  all  loss  thus  sustained. 

The  Lessee,  in  anticipation  of  the  expiration  of  said  subway  con- 
tract, shall  use  its  best  endeavors  to  agree  with  the  City  of  Boston 
upon  a  new  contract  for  a  renewal  or  extension  of  the  same  upon 
the  most  favorable  terms  practicable,  in  which  said  new  contract  shall 
be  embodied  stipulations  satisfactory  to  the  Lessor,  providing  for  the 
use  and  control  of  said  subway  by  the  Lessor  upon  the  expiration  or 
earlier  termination  of  this  lease. 

All  of  the  provisions  of  this  lease  applicable  to  said  existing  sub- 
way contract  shall  apply  to  any  contract  renewing  or  extending  the 
same  in  the  same  manner  and  with  the  same  effect  as  if  said  new 
contract  had  been  in  existence  at  the  inception  of  this  lease. 

Extensions  of  said  subway  under  the  existing  contract  shall  not 
be  requested  nor  promoted  by  the  Lessee  except  with  the  consent  of 
the  Lessor  first  had  and  obtained.  In  the  event  of  any  extension 
thereof  under  any  other  contract,  or  of  the  construction  of  any  new 
subway,  the  use  and  control  thereof  if  acquired  by  the  Lessee  shall 
be  so  acquired  that  upon  the  expiration  or  earlier  termination  of  this 
lease,  if  such  extension  or  new  subway  constitutes  an  essential  part 
of  the  Lessor's  surface  system,  the  same  shall  belong  to  the  Lessor; 
that  if  such  extension  or  new  subway  constitute  an  essential  part  of 
the  Lessee's  system,  the  same  shall  belong  to  the  Lessee;  that  if  such 
extension  or  new  subway  be  capable  of  concurrent  use  by  both  systems, 
provision  shall  be  made  for  such  concurrent  use  by  both  Lessor  and 
Lessee ;  and  that  if  such  extension  or  new  subway  constitute  an  essen- 
tial part  of  both  systems,  but  be  incapable  of  concurrent  use  by  both, 
the  Arbitral  Board  provided  for  by  Article  XII.,  shall  determine,  in 
view  of  all  the  equities  of  the  case  and  of  all  the  private  and  public 
considerations  involved,  to  which  of  said  systems  the  use  and  control 
of  said  new  extension  or  new  subway  shall  belong. 

Provided,  however,  that  the  right  of  said  Arbitral  Board  to  assign 
the  use  and  control  of  said  new  extension  or  new  subway  to  the  Lessee 
shall  not  affect  or  impair,  nor  be  affected  or  impaired  by,  the  obliga- 


560         MATERIALS    OF   CORPORATION    FINANCE 

tion  hereinafter  imposed  upon  the  Lessee  to  return  the  Lessor's  road 
without  break  of  continuity  or  connection. 

Ill 

The  Lessee  shall  assume  all  traffic  balances  due  from  the  Lessor 
to  other  companies;  shall  assume  and  have  the  benefit  of  all  con- 
tracts of  the  Lessor  for  equipment,  supplies  and  material  and  all 
other  contracts  and  liabilities  of  the  Lessor  to  and  with  individuals 
or  corporations  express  or  implied  (its  contracts  with  the  holders  of 
its  indebtedness  as  scheduled  excepted) ;  shall  assume  and  defend  all 
suits  against  the  Lessor  arising  out  of  or  in  any  way  connected  with 
the  past  or  future  use  or  operation  of  the  railways  demised  or  directly 
or  indirectly  operated  by  the  Lessee  under  and  by  virtue  of  this  in- 
strument, and  shall  pay  all  judgments  obtained  thereon  against  the 
Lessor  or  which  the  Lessor  is  under  obligation  to  assume;  and  shall 
assume  and  discharge  all  liabilities  of  the  Lessor  except  as  herein 
otherwise  provided. 

IV 

The  Lessee  shall  pay  the  interest  upon  any  portion  of  the  indebted- 
ness of  the  Lessor  or  of  any  Company  for  whose  indebtedness  the 
Lessor  is  responsible  that  shall  be  renewed  or  extended  during  the 
term  of  this  lease  in  like  manner  as  upon  the  same  indebtedness  before 
renewal  or  extension. 

In  case  it  shall  become  necessary  under  the  provisions  of  this  lease 
for  the  Lessor  to  make  payment  for  permanent  additions,  alterations 
or  improvements  to  the  demised  premises,  or  to  pay  or  refund  any 
portion  of  the  indebtedness  mentioned  in  the  annexed  schedule,  or 
any  indebtedness  hereafter  incurred  and  scheduled,  or  to  pay  or  fund 
any  indebtedness  contracted  for  permanent  additions  and  improve- 
ments prior  to  the  inception  hereof,  or  to  make  any  repayments  to 
the  Lessee  for  expenditures  made  by  it  for  the  foregoing  purposes, 
the  Lessor  shall,  from  time  to  time  at  the  request  of  the  Lessee,  issue 
additional  stock  or  bonds,  or  both,  to  an  amount  sufficient  for  the 
purpose  so  far  as  it  may  legally  have  or  can  obtain  the  right  so  to  do. 
In  such  cases  the  Lessor  shall,  at  the  expense  and  under  the  direction 
of  the  Lessee,  do  all  such  acts  and  things  as  may  be  necessary  or 
proper  to  obtain  the  requisite  authority  for  the  issue  desired  from  the 
Board  of  Railroad  Commissioners  or  from  any  other  board  having 
jurisdiction  in  the  premises  or  from  the  Legislature.  Said  stock  and 
bonds  so  issued  shall,  except  so  far  as  other  provision  is  made  by  law, 
be  sold  under  the  direction  of  the  Lessee.  In  so  far  as  the  proceeds  of 
any  issue  of  stock  or  bonds  exceed  the  amount  to  obtain  which  the 
issue  has  been  authorized,  the  excess  shall  be  paid  over  to  the  Lessee 


CORPORATE  LEASE  OF  ALL  ASSETS'  561 

to  be  invested  by  it  in  permanent  additions,  alterations  or  improve- 
ments to  the  demised  property,  under  the  provisions  of  Article  VI. 

The  Lessee  shall  in  all  cases  have  authority  as  between  the  parties 
to  decide  whether  stock  or  bonds,  or  both,  and  what  amount  thereof, 
shall  from  time  to  time  be  issued,  and  shall  also  have  the  right  to 
determine  the  rate  of  interest  upon  all  interest-bearing  obligations, 
and  the  time  for  which  they  shall  run,  whether  the  same  are  issued 
for  the  purpose  of  refunding  or  paying  indebtedness  or  for  the  pur- 
pose of  paying  for  permanent  additions,  alterations  or  improvements 
to  or  upon  the  demised  property;  provided,  however,  that  no  bonds 
shall  be  issued  in  excess  of  the  outstanding  capital  stock  of  the 
Lessor;  that  no  bonds  shall  be  issued  to  become  payable  after  the 
expiration  of  this  lease  without  the  consent  of  the  Lessor;  that  all 
bonds  shall  be  payable  in  lawful  money  of  the  United  States,  unless, 
in  the  case  of  bonds  issued  to  refund  gold  bonds  of  the  Lessor  already 
outstanding,  the  parties  shall  otherwise  agree;  that  no  such  bonds 
shall  be  sold  at  less  than  par;  and  that  the  benefit  of  all  reductions 
in  interest  shall  accrue  to  the  Lessee.  All  stock  issued  as  provided  in 
this  article  shall  from  the  time  of  such  issue  be  deemed  part  of 
the  Lessor's  capital  stock  within  the  provisions  of  Clause  3  of  Ar- 
ticle I.  of  this  Indenture,  and  all  bonds  so  issued  shall  be  scheduled 
and  the  interest  paid  as  part  of  the  Lessor's  indebtedness  under  and 
pursuant  to  Clause  2  of  Article  I. 

V 

The  Lessee  shall  have  the  right  of  voting  on  all  stock  owned  by 
the  Lessor  in  other  corporations,  and  said  stock  shall  not  be  sold  or 
otherwise  disposed  of  except  with  the  assent  of  both  the  Lessor  and 
the  Lessee. 

VI 

The  Lessee  shall  have  the  right  at  its  own  erpense  to  alter  the 
tracks  of  the  demised  railway  and  to  build  such  sidings  and  branches 
as  may  be  necessary  to  connect  the  demised  railway  with  the  stations 
or  railroad  of  the  Lessee. 

The  Lessee  may  from  time  to  time  make  such  additions  to,  altera- 
tions and  improvements  in  the  demised  railway,  its  rolling  stock, 
tracks,  equipment,  power-houses,  car-houses,  stations,  structures  and 
appurtenances,  as  it  may  deem  necessary  for  the  purpose  of  making 
better  provisions  for  the  due  and  safe  transportation  of  the  public, 
or  for  the  purpose  of  complying  with  any  requirement  of  law  or  pub- 
lic or  municipal  authority,  or  for  the  purpose  of  reducing  the  operat- 
ing expenses  of  the  demised  railway. 

The  Lessor  shall  from  time  to  time,  either  from  moneys  received 


562         MATERIALS    OF   CORPORATION   FINANCE 

by  the  Lessee  under  Article  VIL  or  from  the  proceeds  of  stock  and 
bonds  lawfully  authorized,  and  in  no  other  manner,  repay  to  the 
Lessee  the  cost  of  such  permanent  additions,  alterations  and  improve- 
ments made  by  the  Lessee,  as  the  Lessor  may  consent  to,  or,  if  such 
consent  be  refused,  as  the  Arbitral  Board  provided  for  in  Article  XII. 
shall  determine  that  the  Directors  of  the  Lessor,  if  actually  operating 
the  Lessor's  road,  would  be  justified  in  making  in  the  interest  of  the 
Lessor. 

Permanent  additions,  alterations  and  improvements  for  which  the 
Lessor  may  be  called  upon  to  pay  under  the  provisions  of  this  lease 
shall  consist  of, — 

(1)  The  abolition  of  grade  crossings. 

(2)  Additional  rolling  stock  and  its  equipment. 

(3)  Additional  track  mileage  and  its  equipment. 

(4)  Additional  real  estate. 

(5)  Additional    stations,    additional    power-houses    with    their 
equipments,  and  additional  car-houses  with  their  equipments. 

(6)  Additional  bridges,  buildings  and  other  structures. 

(7)  Renewals  of  or  substitutions  for  stations,  bridges,  buildings 
and  other  structures,  tracks  and  equipment,  rolling  stock  and  equip- 
ment, power-houses  and  equipment  and  car-houses  and  equipment,  so 
far  as  the  cost  of  such  renewals  or  substitutions  exceeds  the  cost,  when 
new,  of  the  things  renewed  or  the  things  replaced. 

Provided,  however,  that  the  road  of  the  Lessor  shall  so  far  as 
practicable  continue  unimpaired  in  length  and  value;  that  no  part 
of  the  same  shall  be  voluntarily  discontinued  except  with  the  con- 
sent of  the  Lessor;  that  road  discontinued  by  compulsion  of  law  in 
consequence  of  the  result  of  the  construction  and  operation  of  the 
Lessee's  elevated  road,  shall,  within  a  reasonable  time,  be  made  good 
to  the  Lessor  by  other  road  of  equal  value  constructed  by  the  Lessee 
at  its  own  expense,  or  otherwise  shall  be  paid  for  at  its  value  in 
money  to  be  applied  as  in  the  case  of  the  proceeds  of  real  estate  under 
Article  VIL;  and  that  new  track  mileage  shall  be  deemed  a  perma- 
nent addition  or  improvement  hereunder  only  when  increasing  the 
mileage  of  the  Lessor's  road  as  existing  at  the  inception  of  this  lease, 
or  when  exceeding  in  cost  the  cost  of  road  previously  discontinued, 
and  then  only  to  the  extent  of  such  increase  or  such  excess  of  cost. 
Track  mileage  discontinued  or  removed  from  Tremont  Street  in 
Boston  between  Boylston  Street  and  Scollay  Square  and  from  Boyl- 
ston  Street  between  Park  Square  and  Tremont  Street  under  the  pro- 
visions of  section  35,  chapter  548,  Acts  of  1894,  and  all  track  mileage 
discontinued  under  compulsion  of  law  which  has  been  paid  for  by  the 
Lessee  as  above  provided,  shall,  for  the  purpose  of  computing  addi- 


CORPORATE   LEASE    OF   ALL   ASSETS  563 

tional  mileage  to  be  paid  for  by  the  Lessor,  be  deducted  from  the 
aggregate  mileage  of  the  Lessor's  road  existing  at  the  inception  of 
this  lease. 

Any  moneys  from  time  to  time  in  the  possession  of  the  Lessee 
which  are  by  the  terms  of  this  Indenture  applicable  to  such  purpose 
shall  first  be  applied  to  the  repayment  to  the  Lessee  of  the  cost  of  per- 
manent additions,  alterations  and  improvements,  and  only  the  balance 
remaining  unpaid  shall  be  paid  from  the  proceeds  of  stock  or  bonds 
or  both  to  be  issued  by  the  Lessor  as  provided  in  Article  IV. 

The  Lessee  shall  have  the  right  to  apply  for  the  necessary  consent 
of  the  Lessor  or  for  the  necessary  certification  or  determination  of 
said  Arbitral  Board  either  before  said  additions,  alterations  and  im- 
provements are  made  or  within  one  year  thereafter. 

The  Lessee  shall  not  directly  or  indirectly  locate  or  construct,  or 
through  any  agency  or  device  promote  or  aid  in  the  location  or  con- 
struction of  any  surface  street  railway  paralleling  or  in  any  way  com- 
peting with  any  surface  street  railway,  or  any  portion  thereof,  de- 
mised to  or  directly  or  indirectly  operated  by  the  Lessee  by  virtue  of 
this  lease. 

VII 

Real  estate  of  the  Lessor  in  the  judgment  of  the  Lessee  not  re- 
quired by  the  Lessee  for  the  conduct  of  its  business  may  be  sublet 
by  the  Lessee  for  a  period  not  longer  than  the  expiration  or  other 
earlier  termination  of  this  lease. 

Such  real  estate  may  also  be  sold  with  the  consent  of  the  Lessor 
to  be  given  upon  the  reasonable  request  of  the  Lessee,  and  the  pro- 
ceeds of  said  sale  shall  be  received  by  the  Lessee  and  applied  either  to 
purchasing  and  retiring  the  outstanding  indebtedness  of  the  Lessor 
as  scheduled  or  to  making  permanent  additions,  alterations  or  im- 
provements upon  the  property  demised  or  operated  by  virtue  of  this 
lease, — as  the  parties  hereto  may  agree.  If  such  proceeds  are  applied 
to  retire  outstanding  indebtedness,  the  annual  rental  to  be  paid  by 
the  Lessee  under  Clause  2  of  Article  I.  hereof  shall  be  reduced  by  the 
amount  of  the  saving  in  interest  charges  thereby  effected. 

If  the  parties  are  unable  to  agree  as  to  whether  a  sale  of  said  real 
estate  is  reasonable  or  upon  the  terms  thereof  or  upon  the  applica- 
tion of  the  proceeds,  the  matters  in  difference  shall  be  determined  by 
the  arbitrators  provided  for  in  Article  XII.  hereof. 

If  the  City  of  Boston,  upon  the  expiration  or  any  earlier  termina- 
tion of  said  Subway  contract,  shall  take  over  and  become  the  owner 
of  the  tracks,  wires,  appliances,  fixtures,  machinery  and  other  equip- 
ment of  said  Subway*,  any  money  paid  for  the  same,  so  far  as  such 


564         MATERIALS    OF    CORPORATION    FINANCE 

money  shall  represent  Subway  equipment  supplied  by  the  Lessor,  shall 
be  applied  or  disposed  of  in  the  manner  in  this  Article  prescribed 
respecting  the  proceeds  of  sale  of  real  estate. 

The  Lessee  shall  also  receive  any  money  paid  by  the  City  of  Boston 
on  account  of  Subway  equipment,  also  all  money  not  yet  received  to 
which  the  Lessor  may  be  or  become  entitled  for  land  or  property 
taken  by  public  authority,  either  before  or  after  the  date  hereof,  or 
for  injury  or  damage  to  the  same  and  apply  the  same  as  hereinabove 
provided  with  respect  to  the  proceeds  of  real  estate. 

VIII 

The  Lessee  shall,  subject  to  the  special  provisions  of  this  In- 
denture, at  its  own  expense  maintain  and  keep  the  demised  premises 
and  all  the  property  and  fixtures  of  every  description  which  it  shall 
receive  or  operate  under  this  lease  in  as  good  order  and  condition  as 
the  same  now  are  or  shall  be  when  received  by  the  Lessee,  so  that 
there  shall  be  no  depreciation  as  to  quality  or  quantity  in  the  same  or 
any  part  thereof,  and,  at  the  expiration  or  earlier  termination  of  this 
lease,  shall,  subject  to  the  special  provisions  of  this  Indenture  return 
the  same  to  the  Lessor  in  the  same  good  order  and  condition,  and 
put  the  Lessor  in  possession  of  all  the  railways  and  property  at  said 
time  demised  to  the  Lessee  under  this  Indenture.  The  Lessee  shall 
use  and  operate  said  railways  and  properties  so  demised  and  operated 
in  accordance  with  all  laws  of  the  Commonwealth  of  Massachusetts, 
all  municipal  ordinances,  and  all  orders  of  the  Railroad  Commis- 
sioners or  of  any  public  authority  that  may  be  applicable  thereto; 
shall,  subject  to  the  provisions  of  Article  VI.,  furnish  all  horse  or 
electric  or  other  power,  all  engines,  rolling  stock  and  equipment  of 
every  description  required,  in  addition  to  the  like  property  hereby 
demised,  for  the  due  operation  of  the  railways  operated  under  and 
by  virtue  of  this  Indenture ;  shall  not  diminish  the  facilities  for  travel 
upon  the  Lesspr's  railway  as  they  exist  at  the  inception  of  this  lease, 
except  so  far  as  substantially  equal  facilities  may  be  furnished  in  sub- 
stitution therefor  either  by  the  Lessee's  elevated  railway  or  other- 
wise; shall  observe  and  perform  all  the  provisions  of  contracts  of  the 
Lessor  with  companies  whose  railways  now  are  or  hereafter  may  be 
operated  under  this  Indenture;  shall  keep  the  demised  premises  rea- 
sonably insured  and  shall  apply  the  proceeds  of  any  insurance  to 
restoring  or  replacing  the  property  destroyed  or  to  making  permanent 
improvements,  not  in  the  nature  of  ordinary  repairs,  upon  the  de- 
mised premises;  shall  apply  the  proceeds  of  the  rolling  stock,  equip- 
ment and  other  personal  property  herein  demised,  which  it  may  deem 
advisable  to  sell  and  which  it  is  hereby  authorized  to  sell  at  its  dis- 


COBPORATE   LEASE    OF   ALL   ASSETS  565 

cretion  so  as  to  substitute  therefor  like  property  of  equal  value ;  shall 
replace  buildings  or  structures  on  the  demised  premises  taken  down 
or  removed,  and  which  the  Lessee  is  hereby  authorized  to  take  down 
or  remove  at  its  discretion,  with  other  buildings,  structures  or  per- 
manent improvements  upon  the  demised  premises  of  equal  value  and 
equally  convenient  for  the  use  of  the  Lessor  at  the  expiration  or  ear- 
lier termination  of  this  lease,  or  shall  apply  a  sum  of  money  equal 
to  the  value  thereof  in  the  same  manner  as  the  proceeds  of  real  estate 
are  to  be  applied  under  Article  VII. ;  shall  permit  the  demised  prem- 
ises to  be  inspected  annually  by  the  Lessor's  Directors  and  by  some 
competent  person  appointed  by  the  Lessor  who  shall  report  to  the 
Lessor  the  condition  of  said  premises  and  shall,  for  the  purpose  of 
such  inspection,  be  furnished  with  free  transportation  over  the  rail- 
ways operated  under  and  by  virtue  of  this  Indenture  and  shall  re- 
ceive a  reasonable  compensation  for  his  services  to  be  paid  by  the 
Lessee;  shall  make  all  returns  required  by  law  and  shall  furnish  the 
Lessor  with  such  abstracts  of  accounts  as  shall  enable  it  to  make  all 
returns  required  of  the  Lessor ;  shall  not  assign  this  lease  nor  underlet 
the  premises  or  any  part  thereof  without  the  written  assent  of  the 
Lessor  first  had  and  obtained,  except  as  provided  in  Article  VII. 
hereof  and  except  that  nothing  herein  shall  be  construed  to  impair 
the  right  and  power  of  the  Lessee  to  mortgage  or  pledge  the  interests 
acquired  under  and  by  virtue  of  this  lease  in  accordance  with  the 
authority  conferred  by  chapter  500  of  the  Acts  of  1897;  and  at  the 
end  of  the  term  of  this  lease,  or  at  any  earlier  termination  thereof 
from  any  cause  whatever,  shall  surrender  the  real  and  personal  estate 
demised  under  and  by  virtue  of  this  Indenture,  to  be  ascertained  and 
determined  according  to  the  inventory  hereinafter  provided  for,  in 
the  like  good  order  and  condition  in  which  they  are  at  the  inception 
of  this  lease,  or  when  received  by  the  Lessee  or  may  be  put  during 
the  term,  with  all  improvements  thereon  or  additions  thereto,  the 
amount  of  money,  materials  and  supplies  to  be  surrendered  or 
accounted  for  to  the  Lessor  to  be  equivalent  in  value  to  the  amount 
on  hand  at  the  inception  of  this  lease,  as  shown  by  said  inventory, 
and  all  stocks,  bonds  and  securities,  or  any  bonds,  stocks  or  securi- 
ties substituted  therefor  under  the  provisions  of  this  Indenture 
to  be  returned  at  the  expiration  or  other  earlier  termination  of 
this  lease. 

Provided,  however,  that  the  continuity  of  the  Lessor's  road,  when- 
ever returned  to  the  Lessor,  and  the  connection  between  its  several 
parts  shall  be  such  that  said  Lessor's  road  will  be  as  well  fitted  for 
independent  use  and  operation  by  the  Lessor  as  at  the  inception  of 
this  lease, — any  compensation  for  mileage  previously  discontinued 


566         MATEEIALS    OF   CORPORATION    FINANCE 

and  paid  for  but  restored  or  made  good,  under  this  provision,  to  be 
accounted  for  and  reimbursed  to  the  Lessee. 

IX 

That  the  property  herein  demised,  and  to  be  accounted  for  at  the 
expiration  or  earlier  termination  of  this  lease,  may  be  accurately 
determined,  there  shall  be  made,  as  of  the  day  when  this  lease  takes 
effect,  a  full,  complete  and  particular  inventory  and  description  of 
all  estate  and  property,  real  or  personal,  belonging  to  the  Lessor,  and 
coming  into  the  possession  of  the  Lessee  by  virtue  of  this  lease,  and 
to  this,  from  time  to  time,  shall  be  added  such  other  estate  and  prop- 
erty as  shall  come  into  the  possession  of  the  Lessee  under  the  terms 
of  this  lease.  Such  inventory  and  description,  with  the  additions 
thereto  from  time  to  time,  shall  be  made  by  two  competent  persons, 
one  selected  by  each  party;  in  case  of  their  disagreement,  they  shall 
refer  the  matter  in  difference  to  some  third  person,  whose  decision 
shall  be  final.  Such  inventory  and  description  shall  be  made  in 
duplicate,  and  an  original  furnished  to  each  party,  and  shall  be  evi- 
dence of  the  nature  and  condition  of  the  property  demised  at  the  in- 
ception of  this  lease,  or  at  the  time  of  the  additions  thereto  in  all 
cases  in  which  any  questions  of  the  nature,  condition  or  value  may 
arise.  The  reasonable  compensation  for  services  and  expenses  of  the 
persons  making  such  inventory  shall  be  paid  by  the  Lessee. 


The  Lessor  shall  maintain  its  existence  and  organization  as  a  cor- 
poration, and  to  that  end  shall  comply  with  all  the  requirements  and 
forms  of  law ;  shall  do  all  acts  and  things,  and  execute  all  legal  instru- 
ments necessary  and  proper  to  put  and  secure  the  Lessee  in  the  full 
enjoyment  of  all  the  property,  rights,  franchises  and  interests  herein 
demised,  and  to  carry  into  effect  the  true  intent  and  meaning  of  this 
Lease;  and  shall  not  increase  its  capital  stock  as  now  existing  and 
issued  nor  its  indebtedness  except  as  provided  in  this  Lease.  To  fur- 
ther secure  the  Lessee  in  the  beneficial  enjoyment  of  the  property, 
franchises,  rights  and  privileges  herein  demised  and  specified,  the 
Lessor  constitutes  the  Lessee  its  attorney  irrevocable  with  full  right 
and  power,  at  the  Lessee's  expense,  to  use  the  name  of  the  Lessor  in 
all  legal  proceedings  and  in  all  cases  needful  for  obtaining,  holding  and 
enjoying  the  premises  herein  demised  and  specified,  and  for  all  pur- 
poses consistent  with  the  true  scope  and  intent  of  this  instrument. 

The  Lessor  further  covenants  that  it  will  at  the  expense  of  the 
Lessee  comply  with  all  requirements  of  law  and  with  the  ordinances 
of  all  cities  and  towns  in  which  the  demised  property  is  located,  in 


CORPORATE   LEASE    OF   ALL   ASSETS  567 

so  far  as  the  Lessee  cannot  act  in  its  stead,  and  that  it  will,  at  the 
request  of  the  Lessee,  itself  make  applications  for  extensions  or  altera- 
tions of  tracks  and  locations  where  the  Lessee  cannot  act  in  its  stead, 
and  with  at  all  times,  when  it  cannot  act  by  the  Lessee  as  attorney, 
itself  do  such  acts  and  execute  such  papers  as  may  be  necessary  or 
proper  to  carry  out  the  true  intent  of  these  presents.  Any  locations, 
rights  or  property  so  acquired  by  the  Lessor  after  the  date  hereof 
shall  be  made  subject  to  the  provisions  of  this  Indenture.  The  Lessor 
also  constitutes  and  appoints  the  Lessee  its  attorney  in  fact  with 
full  power  to  collect  and  receive  all  moneys  due  to  the  Lessor,  and  to 
compromise  or  refer  to  arbitration  all  claims  by  or  against  the  Lessor 
or  its  property. 

XI 

This  lease  is  upon  the  condition  that,  if  the  Lessee  shall  at  any 
time  fail  to  punctually  pay  to  the  holders  of  the  Lessor's  indebted- 
ness and  each  of  them  the  interest  on  the  Lessor's  indebtedness  as 
scheduled  as  the  same  shall  become  due  and  payable,  or  shall  fail  to 
make  any  payment  as  stipulated-  for  in  Clause  3  of  Article  I.  hereof, 
then,  and  in  such  case,  at  any  time  after  the  expiration  of  thirty  days 
from  the  time  when  written  notice  of  such  default  has  been  served  on 
the  Lessee,  the  Lessor  may,  if  such  default  still  continues,  enter  upon 
the  demised  premises,  and  upon  any  part  thereof,  as  and  for  the 
whole,  and  expel  the  Lessee,  and  determine  the  estate  hereby  granted, 
and  shall  thereupon  become  seized  and  possessed  of  the  demised  prem- 
ises, and  of  all  premises  then  in  possession  of  the  Lessee  or  the  Lessor 
under  this  Indenture,  and  of  every  part  thereof  in  its  original  right, 
and  as  if  this  lease  had  never  been  made;  and  upon  the  further  con- 
dition that,  if  the  Lessee  shall  fail  to  perform  any  other  of  the  cove- 
nants and  agreements  in  this  case  contained,  and  such  failure  shall 
continue  for  six  months  after  written  notice  of  such  failure  from  the 
Directors  of  the  Lessor,  the  Lessor  shall  have  the  like  right  to  enter 
and  expel  the  Lessee,  and  vest  in  itself  its  former  estate  in  the 
demised  premises,  and  all  premises  then  in  possession  of  the  Lessee 
or  the  Lessor  under  this  Indenture,  and  every  part  thereof ;  provided, 
however,  that  such  entry  by  the  Lessor  for  breach  of  condition  shall 
in  no  wise  prejudice  or  impair  any  remedies  to  which  it  might  other- 
wise be  entitled  for  arrears  of  rent  or  preceding  breach  of  covenant, 
or  any  other  rights  secured  by  this  lease  in  case  of  its  termination 
before  the  expiration  of  the  time  thereof. 

XII 

In  case  of  any  disagreement  between  the  parties  hereto  as  to  the 
true  intent  and  meaning  of  this  lease  or  any  part  thereof,  or  as  to 


568         MATEEIALS    OF   CORPORATION   FINANCE 

anything  done  under  and  by  virtue  of  it,  or  growing  out  of  it,  the 
matter  in  controversy  shall  be  determined  by  arbitrators  to  be  chosen 
in  the  manner  following:  One  shall  be  chosen  by  each  of  the  parties 
hereto,  or  if  either  shall  unreasonably  fail  or  neglect  to  appoint  an 
arbitrator  when  requested  by  the  other,  the  Board  of  Railroad  Com- 
missioners or  the  Chief  Justice  of  the  Superior  Court  may,  after  due 
notice  to  the  party  so  failing  or  neglecting  to  appoint  an  arbitrator. 
The  third  shall  be  selected  by  the  two  so  chosen,  or  in  case  of  their 
failure  to  choose  a  third,  by  the  Board  of  Railroad  Commissioners  or 
the  Chief  Justice  of  the  Superior  Court.  The  arbitrators  shall  hear 
the  parties,  after  due  notice  to  each  of  them,  and  if  either  party  fail 
to  attend  after  such  notice,  may  proceed  ex  parte.  The  award  in 
writing  of  said  arbitrators,  or  a  majority  of  them,  being  duly  notified 
to  the  parties,  shall  be  final  and  conclusive  upon  them.  The  expenses 
and  reasonable  compensation  of  said  arbitrators  shall  be  paid  by  the 
Lessee. 

XIII 

This  lease  shall  take  effect  as  of  the  first  day  of  October,  1897,  and 
all  accounts  between  the  parties  shall  be  made  up  as  of  that  date; 
provided,  however,  that  on  or  before  January  15,  1898,  at  least  five 
million  ($5,000,000)  dollars  in  cash  shall  have  been  paid  in  upon 
the  Lessee's  capital  stock,  and  that  until  such  payment  the  Lessor 
shall  remain  in  possession  and  operation  of  the  demised  property — 
the  Lessor  accounting  to  the  Lessee  for  all  income  in  the  interval; 
and  provided  further  than  this  lease  shall  not  be  valid  until  the  terms 
thereof,  as  respects  the  rental  or  compensation  to  be  paid  and  the 
due  and  safe  transportation  of  the  public  shall  have  been  approved 
by  the  Board  of  Railroad  Commissioners. 

IN  WITNESS  WHEREOF,  the  said  parties,  by  their  respective  Presi- 
dents and  Treasurers,  thereunto  duly  authorized,  have  caused  their 
corporate  seals  to  be  hereto  affixed,  and  these  presents  to  be  executed 
the  day  and  year  first  above  written. 


CORPORATE  LEASE  OF  ALL  ASSETS     569 

SCHEDULE  OF  INDEBTEDNESS  REFERRED  TO  IN  THE 
WITHIN  LEASE 

WEST  END   STREET  RAILWAY   COMPANY 
FUNDED  DEBT 

Bonds  Highland  St.  Ry.  due  Jan.  1,  1898,  6% $100,000.00 

Bonds  Highland  St.  Ry.  due  May  1,  1902,  5% 300,000.00 

Bonds  West  End  St.  Ry.  due  Nov.  1,  1902,  57o » 3,000,000.00 

Bonds  Cambridge  R.  R.  due  April  1,  1903,  5% 480,000.00 

Bonds  Metropolitan  R.  R.  due  Dec.  15,  1903,  5% 500,000.00 

Bonds  Chas.  River  St.  Ry.  due  April  1,  1904,  57o 150,000.00 

Bonds  Middlesex  R.  R,  due  July  1,  1904,  5% 200,000.00 

Bonds  So.  Boston  H.  Ry.  due  May  1,  1905,  5% 200,000.00 

Bond?  Boston  Con.  St.  Ry.  due  June  1,  1907,  5% 500,000.00 

Bonds  West  End  St.  Ry.  due  March  1,  1914,  4%% 2,000,000.00 

Bonds  West  End  St.  Ry.  due  May  1,  1916,  4% 815,000.00 

Bonds  We«t  End  St.  Ry.  due  Feb!  1,  1917,  4% 2,700,000.00 

$10,945,000.00 


570         MATERIALS    OF    CORPOEATION    FINANCE 

HOLDING  COMPANIES  IN  THE  PUBLIC  UTILITY  FIELD  1 

For  the  convenience  of  the  committee  there  has  been  printed  an 
appendix,  which  is  herein  submitted,  containing  quotations  from  the 
opinions  of  courts,  public  service  commissions,  and  experts  on  the 
benefits  of  the  combination  of  pubic  utilities.  There  is  also  a  refer- 
ence to  various  State  statutes  permitting  their  combination. 

Before  the  Interstate  Commerce   Committee  of  the  United   States 

Senate. 

In  the  matter  of  Senate  bill  4160,  entitled  a  bill  "To  create  an  Inter- 
state trade  commission,  to  define  its  powers  and 
duties,  and  for  other  purposes." 

BRIEF  ON  BEHALF  OF  PUBLIC  UTILITY  HOLDING  COMPANIES. 

We  having  heretofore  filed  with  the  Judiciary  Committee  of  the 
House  of  Representatives  a  brief  asking  that  public  utility  or  public 
service  corporation  be  specifically  exempted  from  the  provisions  of 
House  Bill  No.  15657,  known  as  the  Clayton  antitrust  bill,  we  desire 
to  respectfully  renew  our  request  before  your  committee  and  suggest 
that  there  be  added  at  the  conclusion  of  section  13  of  the  bill,  on 
page  18,  the  following : 

These  sections  shall  not  apply  to  corporations  acquiring  or  hold- 
ing the  stock  of,  or  engaged  in  the  business  of  conducting  a  public 
utility  which  is  subject  to  State  regulation,  other  than  common  car- 
riers as  defined  in  the  act  to  regulate  commerce  approved  February 
4,  1887,  and  the  amendments  thereto. 

Our  objection  to  section  10  as  it  now  appears  in  the  bill  is  that  the 
large  public  utility  holding  companies  as  now  organized  and  operated 
might  be  held  to  be  engaged  in  interstate  commerce,  particularly  in 
view  of  the  recent  decision  in  the  Sixth  United  States  Circuit,  in  the 
case  of  Alabama  &  N.  0.  Transp.  Co.  v.  Doyle  (210  Fed.  Rep.,  173), 
wherein  it  was  held  "that  stocks  and  bonds  are  now  the  subject  of 
interstate  commerce,  and  that  shipments  and  sales  of  them  between 
the  States  are  interstate  commerce."  That  the  Supreme  Court  will 
uphold  this  view  is  indicated  by  their  decision  in  the  Lottery  cases 
(188  U.  S.,  321).  As  one  of  the  useful  features  of  these  holding 
companies  as  indicated  in  our  point  III  is  the  widespread  sale  of 
their  stocks  and  bonds  in  order  to  finance  the  subsidiary  corporations, 
the  probability  of  such  a  decision  is  increased. 

i  Brief  submitted  on  behalf  of  Public  Utility  Holding  Companies  to  the 
Interstate  Commerce  Committee  of  the  United  States  Senate,  in  the  matter  of 
Senate  Bill  No.  4160. 


ADVANTAGES   OF   HOLDING   COMPANIES         571 

The  effect  of  this  section  if  the  holding  company  is  thus  engaged 
in  interstate  commerce  may  be  to  prevent  such  a  company  from  acquir- 
ing or  holding  the  controlling  interest  in  the  gas  and  electric  plants 
of  a  particular  locality,  even  though  the  State  commission  permits 
it  as  in  the  case  in  New  York  and  many  States.  And  the  same  is 
true  of  street  railroads  on  different  streets  in  the  same  town. 

Furthermore,  many  public  utility  holding  companies  actually  trans- 
mit power  from  State  to  State,  such  as  the  Appalachian  Power  Co., 
which  operates  in  Virginia  and  West  Virginia  and  has  acquired  the 
control  of  the  local  plants  in  many  towns  through  which  its  lines  run. 
Such  a  company  would  be  absolutely  crippled  by  this  section,  though 
under  the  strictest  control  of  the  public  service  commission  of  the 
States  in  which  it  operates  such  utilities. 

The  exception  of  public  utility  companies  is  urged  because  we  rea!7 
ize  that  Congress  is  only  desirous  of  enacting  legislation  which  will 
eradicate  the  evil  and  does  not  wish  to  injure  or  prohibit  such  holding 
companies  as  serve  a  useful  purpose  and  do  not  lessen  or  prevent  com- 
petition between  corporations  which  are  or  should  be  competitive. 

In  presenting  our  argument  for  the  exception  of  such  companies 
we  should  like  to  bring  to  the  attention  of  the  committee: 

I.  The  magnitude  of  the  interests  involved  and  the  large  amount 
of  capital  invested  in  such  companies. 

II.  The  great  economical  advantages  of  combining  public  utilities 
serving  different  communities  through  the  means  of  a  holding  com- 
pany. 

III.  The  indispensable  service  rendered  by  the  holding  company 
as  a  means  of  financing  public  utilities  and  in  securing  the  necessary 
capital  for  their  extension  and  development. 

IV.  The  fact  that  the  objections  to  intercoporate  stockholding  do 
not  apply  to  public-service  corporations,  for  they  are  natural  monopo- 
lies and  are  subject  to  State  regulation. 

I 

THE    MAGNITUDE    OP    THE     INTERESTS     INVOLVED     AND    THE     LARGE 
AMOUNT  OF  CAPITAL  INVESTED  IN  SUCH  COMPANIES 

The  total  capital  employed  in  electric,  gas,  street,  and  interurban 
railway  companies,  commonly  called  public-utility  corporations,  in 
this  country  to-day  is  estimated  to  exceed  eight  billion  dollars.  Of 
this  capital  nearly  five  and  a  half  billion  dollars  are  controlled  by 
holding  companies  and  their  subsidiary  companies.  Of  the  approx- 
imately 89,000,000  people  served  by  electric  light  and  power  and  gas 
companies  over  62,000,000  (approximately  70  per  cent)  are  served 
by  holding  company  systems. 


572         MATEEIALS    OF   CORPOKATION    FINANCE 

Electric  light  and  power. — The  electric  light  and  power  companies 
represent  approximately  two  billion  dollars  of  capital,  of  which 
approximately  76  per  cent  is  controlled  by  the  holding  company  form 
of  organization.  These  utilities  serve  over  50,000,000  people,  approx- 
imately 38,000,000  of  which  are  served  by  holding  companies.  Of 
577  cities  of  10,000  or  more  population  served,  428  are  served  by 
holding  company  systems.  Of  the  114  cities  in  the  United  States 
of  a  population  in  excess  of  50,000,  103  are  served  by  holding  com- 
panies. Of  the  54  cities  in  this  country  having  in  excess  of  100,000 
population,  49  are  served  by  the  holding  company. 

Gas. — Artificial  gas  companies  represent  a  capital  of  approximately 
one  and  one-fhird  billion  dollars.  Of  that  capital,  approximately 
two-thirds  is  controlled  by  holding  companies.  The  gas  utilities  of 
the  country  serve  approximately  thirty-eight  and  one-half  million 
people.  Of  this  number  nearly  twenty-five  million  are  served  by  hold- 
ing companies  or  their  subsidiaries. 

Street  railways. — Street  and  interurban  railway  companies  repre- 
sent a  total  capital  of  approximately  five  billion  dollars.  Of  this  sum 
it  is  estimated  that  not  less  than  two-thirds  is  controlled  by  holding 
companies.  In  the  28  cities  of  the  United  States  having  a  population 
in  excess  of  200,000,  the  mileage  of  track  controlled  by  holding  com- 
panies is  in  excess  of  61  per  cent.  Here,  again,  it  is  of  interest  to 
note  that  only  four  of  these  cities  have  more  than  one  principal  operat- 
ing company  and  only  two  of  these  cities  have  companies  that  are 
really  independently  and  separately  owned. 

II 

THE  GREAT  ECONOMICAL  ADVANTAGES  OF  COMBINING  PUBLIC  UTILI- 
TIES, SERVING  DIFFERENT  COMMUNITIES,  THROUGH  THE  MEANS 
OF  A  HOLDING  COMPANY 

It  is  almost  self-evident  that,  in  the  realm  of  public  utilities,  the 
large  holding  company  possesses  great  economic  advantages  over  the 
independent  small  local  company. 

Disadvantages  of  independent  companies. — In  small  towns  and  in 
sparsely  settled  districts  the  independent  company  is,  as  a  rule,  unable 
to  supply  good  service  at  reasonable  cost.  The  business  is  too  small 
to  warrant  the  employment  of  the  high-grade  but  expensive  staff 
needed  to  insure  efficiency  in  construction,  administration,  main- 
tenance and  operation.  Then,  owing  to  the  limited  output,  the  unit 
cost  of  production  and  distribution  is  necessarily  high.  Again,  .be- 
cause of  its  limited  local  character,  the  entire  business  is  likely  to  be 
completely  paralyzed  by  some  calamity  and  the  company  so  seriously 


ADVANTAGES    OF   HOLDING   COMPANIES         573 

embarrassed  as  to  be  unable  for  a  protracted  period,  or  perhaps  per- 
manently, to  continue  its  service  to  the  community. 

Advantages  of  holding  companies  to  investor. — Many  of  these  causes 
for  the  lack  of  success  of  the  independent  local  companies  have  been 
eliminated  by  the  device  of  the  holding  company  which  unites  under 
one  control  and  management  the  public  utilities  of  several  communi- 
ties. The  increased  volume  of  business  so  obtained  enables  the  hold- 
ing companies  to  make  the  expenditure  necessary  to  secure  a  thor- 
oughly competent  executive,  engineering,  and  operating  staff,  whose 
services  are  available  to  all  of  its  subsidiaries.  Thus,  along  with  the 
resulting  increase  in  efficiency,  the  expenses  of  each  subsidiary  are 
materially  reduced.  Expenses  are  further  reduced  by  the  standardiza- 
tion of  materials  and  supplies,  and  by  the  purchasing  of  such  sup- 
plies by  skilled  purchasing  agents  in  large  quantities  in  a  far  wider 
market  and  upon  much  better  terms  of  credit  than  could  possibly  be 
secured  by  the  separate  local  companies  acting  independently.  The 
centralized  expert  management  effects  further  economies  in  the  cost 
of  production  by  the  standardization  of  operating  and  accounting 
methods.  Plants  are  combined  and  construction  work  is  standard- 
ized, so  that  equipment  outgrown  by  one  community  can  be  utilized  by 
transfer  to  another  smaller  community,  instead  of  being  discarded  as 
useless;  in  this  way  the  enterprise  is  run  with  a  minimum  amount 
of  capital,  and  depreciation  charges  are  materially  lessened.  The  dis- 
tribution of  the  business  over  an  enlarged  territory  "averages  the 
risk"  and  secures  the  holding  company  against  irreparable  damage 
from  purely  local  causes.  All  of  these  improved  conditions  operate 
to  increase  the  attractiveness  of  the  enterprise  to  the  investor,  and, 
consequently,  to  bring  about  the  very  great  economy  of  decreased 
cost  of  capital  and  the  resultant  fixed  carrying  charges. 

From  the  point  of  view  of  salability,  the  securities  of  the  large 
holding  company  and  of  its  subsidiaries  are  so  greatly  superior  to 
those  of  the  small  independent  company  that  the  two  are  scarcely 
comparable.  The  safety  and  stability  due  to  the  large  volume  and 
diversified  character  and  location  of  the  business,  the  reduced  expenses, 
and  the  increased  efficiency  of  the  management  eliminate  one  of  the 
greatest  obstacles  to  the  successful  financing  of  public  utility  com- 
panies. And  the  risk  of  the  investor  is  further  reduced  by  the  ability 
of  the  holding  company  to  carry  the  losses  of  its  subsidiaries  during 
the  accumulation  of  business  and  through  periods  of  stress,  to  provide 
working  capital  for  their  temporary  needs,  and  to  protect  them  against 
prolonged  or  permanent  curtailment  or  suspension  of  operations  by 
furnishing  immediate  financial  and  engineering  assistance  in  case  of 
accident  or  calamity.  The  securities  of  subsidiary  companies  con- 


574         MATERIALS    OF   CORPORATION   FINANCE 

trolled  by  holding  companies  are  valuable  in  a  broader  market,  at  a 
higher  price,  and  with  a  more  ready  demand  on  the  part  of  investors 
by  reason  of  the  fact  that  these  securities  are  advertised  as  securities 
having  priority  over  the  securities  of  a  well-known  and  established 
holding  company. 

Advantages  of  holding  company  to  public. — In  a  large  measure 
the  economic  advantages  of  the  public  utility  holding  company  inure 
to  the  benefit  of  the  general  public.  The  community  enjoys  more 
efficient  and  more  extended  service  at  the  same  or  lower  cost.  It  is 
protected  against  any  crippling,  interruption,  or  discontinuance  of 
that  service,  due  to  local  causes.  Where  individual  consumers  are 
served,  as  in  the  case  of  light,  heat,  and  power  companies,  there  is  a 
direct  and  distinct  saving  to  the  community  and  to  the  taxpayer ;  one 
set  of  house  connections  takes  the  place  of  several,  thereby  reducing 
the  costly  and  inconvenient  interference  with  traffic  and  injury  to 
pavements  caused  by  the  necessary  openings  in  the  streets. 

The  actual  record  of  the  public  utility  holding  companies  affords 
ample  proof  of  their  great  economic  advantages.  That  the  securities 
of  these  companies  offer  an  investment  astonishingly  free  from  risk 
appears  from  the  steady  gain  in  earnings  over  a  period  of  years.  In 
10  years  the  gross  earnings  of  gas  and  electric  light  and  power  com- 
panies in  the  United  States  increased  110  per  cent,  and  those  of 
electric  railways  75  per  cent,  the  net  earnings  for  the  same  period 
being  100  per  cent  and  60  per  cent,  respectively — a  far  better  record 
than  that  of  railroads  and  industrials,  the  two  other  large  classes  of 
securities.  And  this  increase  has  been  steady,  and  almost  free  from 
fluctuation,  showing  remarkable  independence  of  the  effects  of  gen- 
eral business  depression. 

The  receivership  risk  of  the  public  utility  holding  companies  over 
a  period  of  years  is  only  37  cents  for  $100  of  capital  invested.  This 
is  but  little  in  excess  of  that  of  national  banks  actually  closed  for 
insolvency,  and  only  one-fifth  of  that  of  steam  railroads  and  two- 
elevenths  of  that  of  industrials.  The  safety  of  the  investment  has 
appealed  to  the  general  investor,  has  brought  the  securities  of  the 
public  utility  holding  companies  through  the  experimental  stage,  and 
has  resulted  in  opening  up  a  market  for  them  throughout  the  United 
States  and  abroad,  where  they  are  now  competing  on  equal  terms  with 
the  older  classes  of  securities. 

That  there  has,  in  general,  been  a  great  improvement  in  the  char- 
acter of  the  service  since  the  development  of  the  public  utility  hold- 
ing company  is  patent  to  almost  everyone.  In  the  electrical  field 
alone,  in  14  years  the  efficiency  of  the  electric  lamp  has  been  increased 
268  per  cent,  while  the  cost  of  current  has  been  reduced  61.5  per 


ADVANTAGES   OF   HOLDING   COMPANIES         575 

cent.  The  lowered  cost  of  public  utility  service  has  been  practically 
the  only  reduction  in  the  cost  of  living  in  recent  years. 

The  advantage  to  the  public  of  the  public  utility  holding  companies 
has  been  generally  recognized  by  the  public  service  commissions  which 
now  exist  in  most  of  the  States.  They  are  practically  unanimous  in 
holding  that  public  utilities  are  best  supplied  to  the  community  by  a 
single  large  company  subject  to  State  regulation  and  control.  Indeed, 
the  general  objections  to  intercorporate'  stockholding  are  eliminated 
in  case  of  State-regulated  corporations  by  the  supervision  and  control 
of  the  public  service  commissions.  These  commissions  prevent  over- 
capitalization and  the  manipulation  of  the  securities  of  subsidiaries 
by  their  control  over  the  issuance  of  securities.  They  prevent  over- 
charge to  the  public  for  service  by  their  power  to  fix  the  legal  rates 
upon  which  that  service  shall  be  furnished.  They  also  have  power 
to  compel  adequate  and  efficient  service. 

Disastrous  effect  of  prohibiting  public  utility  holding  companies. — 
A  refusal  to  permit  the  continued  existence  of  holding  companies  in 
the  public  utility  field  would  be  a  widespread  public  calamity.  Such 
action  would  retard  the  development  of  many  small  communities 
whose  immediate  needs  and  resources  are  not  sufficient  to  attract 
capital.  This  loss  can  not  readily  be  measured,  but  is  reflected  in 
the  universal  desire  of  local  boards  of  improvement  and  trade  to 
secure  for  their  localities  such  favorable  conditions  for  industrial 
plants  and  such  public  conveniences  as  will  render  them  profitable 
locations  for  business  enterprises  and  attractive  for  residence  pur- 
poses. The  supply  of  light  and  power  through  a  large  central  station 
and  transmission  lines  is  the  only  means  of  reaching  the  farmer  and 
the  dweller  in  the  small  village.  As  the  result  of  the  development 
of  the  public  utility  holding  company,  the  farmer  can  to-day  in  many 
districts  pump  his  water,  operate  his  farm  machinery,  and  light  his 
house  by  electricity,  and  give  his  wife  electric  power  for  laundry  and 
other  household  purposes.  He  enjoys  the  tremendous  advantages  of 
having  electricity  brought  to  his  very  door  to  the  same  extent  and  at 
practically  the  same  cost  as  does  the  dweller  in  the  largest  city.  Such 
a  state  of  affairs  could  never  have  existed  were  each  small  com- 
munity compelled  to  pay  the  cost  of  a  local  independent  service  or 
do  without. 

The  prohibition  of  the  combination  of  public  utilities  by  means  of 
the  holding  company  would  deprive  the  small  communities  of  the 
sure  reduction  in  the  cost  of  living  due  to  the  decreased  cost  of  such 
modern  necessities  as  power,  heat,  light,  and  transportation  facilities. 
It  would  result  in  a  direct  tax  on  the  consumer  (the  general  public) 
to  the  extent  of  the  reduction  in  cost  securable  through  the  larger 


576         MATERIALS    OF   CORPORATION   FINANCE 

enterprise.  Charges  for  operation,  financing,  etc.,  are  essential  ele- 
ments in  the  cost  of  production;  they  are  properly  considered  by  the 
public  utility  companies  in  fixing  their  rates  for  service;  they  must 
be,  and  are,  considered  by  the  public  service  commissions  in  confirm- 
ing or  changing  those  rates.  Any  increase,  therefore,  in  these  charges 
is  sure  to  be  shifted  to  the  consumer  and  not  borne  to  any  degree  by 
the  stockholder.  It  is  clear,  therefore,  that  legislation  depriving  a 
community  of  the  economic  advantages  of  a  large  holding  company 
will  operate  to  impose  an  increased  financial  burden  on  that  com- 
munity, even  if  it  be  sufficiently  large  to  secure  the  public  utility, 
service  at  any  price. 

Ill 

THE  INDISPENSABLE  SERVICE  RENDERED  BY  THE  HOLDING  COMPANY 
AS  A  MEANS  OF  FINANCING  PUBLIC  UTILITIES  AND  IN  SECURING 
THE  NECESSARY  CAPITAL  FOR  THEIR  EXTENSION  AND  DEVELOP- 
MENT. 

Constant  need  for  new  capital. — The  total  capital  employed  in 
electric  light  and  power,  gas,  street,  and  interurban  railroad  com- 
panies in  this  country  to-day  is  approximately  $8,000,000,000.  New 
capital  at  the  rate  of  approximately  $400,000,000  per  year — $8,000.- 
000  per  week — will  be  required  for  several  years  to  come  if  the  present 
rate  of  progress  is  to  be  maintained.  Figures  and  experience  prove 
that  for  every  dollar  of  new  annual  revenue  to  an  electric  utility  a 
capital  expenditure  of  $5  must  be  made.  The  public,  as  it  has  a 
legitimate  right  to  do,  demands  up-to-date  service,  and  is  impatient 
of  any  delay  in  securing  it.  This  natural  growth  and  development 
of  existing  plants  and  the  requirements  of  new  fields  of  service  make 
so  great  demand  for  new  capital  that  the  entire  revenue  derived 
from  the  operation  of  all  existing  utilities  in  the  country,  without  the 
deduction  of  one  cent  for  the  payment  of  interest  or  dividends,  if 
devoted  to  this  purpose,  would  be  utterly  inadequate  to  supply  the 
necessary  new  capital  for  these  extensions  and  developments. 

A  consideration  of  the  above  facts  makes  it  obvious  that  the  public 
utility  companies  must  continually  enlist  new  capital  in  order  to 
finance  their  business  and  shows  how  vital  both  to  the  utility  and 
to  the  public  is  the  ability  on  the  part  of  these  companies  to  secure 
the  necessary  funds.  This  ever  present  necessity,  in  fair  and  stormy 
financial  weather,  of  new  financing,  presents,  possibly,  the  most  seri- 
ous and  difficult  problem  faced  by  American  public  utilities  com- 
panies. It  was  to  meet  this  situation  and  to  facilitate  this  necessary 
financing  that  the  holding  company  was  first  used  in  the  field  and  it 
has  proved  to  be  indispensable. 


ADVANTAGES   OF   HOLDING   COMPANIES         577 

Reasons  for  indispensability  of  holding  company. — Any  analysis 
of  the  reasons  why  may  not  include  all  the  causes,  but  among  the  very 
apparent  advantages  of  this  form  of  organization  may  be  enumerated 
the  following: 

1.  The  holding  company  combines  in  one  concrete,  responsible,  and 
convenient  business-doing  form  of  ownership  all  the  resources  and 
advantages,  tangible  and  intangible,  of  all  the  utilities  owned  or  con- 
trolled by  it.    The  combined  credit  of  the  former  separate  and  com- 
paratively small  properties  can  now  be  readily  pledged  to  any  given 
project  and  the  necessary  business  details  satisfactorily  and  expedi- 
tiously  performed.    The  total  resources  of  the  various  properties  when 
combined  make  an  impressive  total  and  secure  for  the  holding  com- 
pany recognition  by  and  credit  with  the  large  metropolitan  banking 
and  bonding  houses,  with  which  it  is  quite  impossible  for  the  separate 
and  small  constituent  companies  to  establish  connections  and  secure 
for  themselves  the  advantages  of  the  services  rendered  by  such  estab- 
lishments. 

As  a  practical  matter,  it  is  impossible  to  secure  these  very  real 
advantages  resulting  from  the  combination  of  small  and  separate 
utilities  except  through  the  organizations  of  a  holding  company. 
The  ownership  of  any  large  number  of  separate  plants  by  one  cor- 
poration is  impossible  for  the  reason  that,  generally  speaking,  the 
laws  of  each  State  require  that  the  utilities  within  their  limits  must 
be  owned  and  operated  by  domestic  corporations.  Furthermore,  the 
State  laws  establishing  public  utilities  commissions  vary  greatly  and 
provide  different  requirements  relative  to  accounting,  issuance  of  secu- 
rities, etc.,  so  that  it  is  fairly  a  legal  necessity  that  the  utilities  in 
each  State  shall  be  owned  and  operated  by  a  corporation  organized 
under  the  laws  of  the  particular  State. 

2.  The  securities  of  the  holding  company,  owning  and  controlling 
a  large  number  of  separate  utilities  located  in  wide  and  separate 
areas,  present  a  greater  element  of  security  and  stability  due  to  the 
fact  that  the  risk  is  prorated  and  averaged  over  a  large  number  of 
physically  entirely  separate  plants  located  in  many  different  localities. 
As  a  result,  if  any  one  or  more  plants,  due  to  any  local  condition  or 
to  any  casuality  or  any  other  cause,  fails  to  prosper,  the  remaining 
and  comparatively  large  number  of  plants,  free  from  the  misfortune 
of  the  particular  plants,  are  able  to  make  good  the  securities  issued 
by  the  holding  company.    Where  the  earnings  of  one  plant  or  com- 
pany are  low,  those  of  a  corresponding  company  are  high,  and  BO  the 
average  earnings  of  all  the  plants  operated  by  the  holding  company 
are  maintained  at  a  satisfactory  rate.     From   the  investor's  point 
of   view,    this   is   simply   an   application   of   the   homely  but  time- 


578         MATERIALS    OF    CORPORATION    FINANCE 

honored  adage  with  reference  to  putting  all  your  eggs  in  one  basket. 

3.  The  borrowing  power  of  the  holding  company  is  much  greater 
than  that  of  the  separate  constituent  companies,  for  it  can  seek  the 
capital  in  large  financial  centers.    The  credit  with  local  banks,  where 
local  companies  operate,  is  still  retained.     This  enables  the  holding 
company  to  meet  emergency  demands  and  to  provide  funds  pending 
the  marketing  of  securities. 

4.  The  facilities  of  the  holding  company  for  the  sale  and  distribu- 
tion of  its  securities  are  greatly  enlarged  by  reason  of  its  connections 
with  large  bond  houses.    An  efficient  organization  is  indispensable  in 
the  marketing  of  securities.     This  advantage  the  separate  companies 
are  unable  to  secure  because  of  the  small  and  local  character  of  the 
issues  of  their  securities. 

5.  The  holding  company  is  in  a  position  to  finance  temporarily  with 
its  own  funds  the  emergency  requirements  of  any  of  its  subsidiary 
companies.     This  was  illustrated  in  the  instance  of  certain  Indiana 
companies  during  the  severe  floods  of  a  year  ago.     Certain  local  com- 
panies suffered  severe  and  extensive  losses  and  would  have  been  unable 
to  finance  successfully  the  necessary  replacements.    The  holding  com- 
pany, however,  advanced  these  funds  at  once  and  enabled  the  local 
companies  to  continue  their  service  with  the  least  possible  inter- 
ruption. 

6.  The  holding  company  system  of  organization  presents  greater 
elasticity  in  that  it  makes  possible  additional  forms  of  financing  to 
meet  any  particular  condition  of  the  money  market.     When  it  is 
impossible  to  dispose  of  bonds  of  subsidiary  companies,  the  holding 
company  can  issue  short-term  notes  or  debentures  secured  by  the 
bonds  of  subsidiary  companies.     These  notes   and  debentures  with 
the  diversified  security  back  of  them  can  ordinarily  be  disposed  of  to 
provide  funds  temporarily  and  until  conditions  permit  of  the  market- 
ing of  other  long-time  securities. 

7.  Another  advantage  in  financing  enjoyed  by  the  holding  com- 
pany is  the  feeling  among  those  who  purchase  securities  that  the 
properties  operated  and  controlled  under  the  supervision  of  a  holding 
company  are,  as  a  rule,  more  successfully  operated  than  the  inde- 
pendent plants. 

IY 

THE  OBJECTION'S  TO  INTERCORPORATE  STOCKHOLDING  DO  NOT  APPLY 
TO  PUBLIC-SERVICE  CORPORATIONS,  FOR  THEY  ARE  NATURAL  MO- 
NOPOLIES AND  ARE  SUBJECT  TO  STATE  REGULATION. 

The  particular  objections  against  which  the  bill  is  directed,  namely, 
that  the  devices  of  intercorporate  stockholding  and  holding  companies 


ADVANTAGES   OF   HOLDING   COMPANIES         579 

may  lead  to  unlawful  restraints  of  trade  or  monopolies,  are  not 
applicable  to  public-service  corporations,  because  it  is  now  universally 
recognized  that  such  corporations  can  be  economically  and  success- 
fully operated  only  as  monopolies,  and  that  competition  in  this  field 
is  an  evil  which  should  be  eliminated  wherever  possible. 

The  interests  of  the  public  are  best  subserved  by  protecting  mo- 
nopoly in  such  corporations,  and  supervising  and  regulating  them  in 
the  public  interest.  Competition  is  wasteful  and  expensive.  It  is 
bad  for  the  public  and  the  investor  alike. 

Many  of  the  States  have  recognized  this  principle  and  require 
certificates  of  public  convenience  and  necessity  as  a  prerequisite  for 
a  competing  company. 

Public  utilities  are  natural  monopolies. — The  principle  that  a  mo- 
nopoly regulated  by  governmental  authority  is  a  sounder  economic 
principle  than  unrestricted  competition  is  the  basis  of  the  widespread 
State  legislation  creating  public  service  commissions.  Including 
Colorado  and  Maine,  whose  utility  laws  are  in  referendum  and  will 
be  voted  on  in  the  fall  in  1914,  30  States  and  the  District  of  Columbia 
intrust  their  commissions  with  more  or  less  complete  powers  to  regu- 
late utilities. 

Actual  experience  is  the  foundation  for  this  principle.  It  was 
experience  of  the  evils  of  uncontrolled  competition  among  railroads 
that  led  to  the  creation  of  the  railroad  commissions  now  acting 
in  45  States.  It  was  experience  of  the  actual  workings  of  compe- 
tition that  has  led  19  jurisdictions  to  give  their  commissions 
power  to  restrict  competition  among  utilities,  to  a  greater  or  less 
degree. 

Striking  conclusions  may  be  drawn  if  attention  is  focused  on  the 
States  of  largest  population,  where  presumably  the  best  facilities  have 
been  offered  to  judge  of  the  advantages  and  disadvantages  of  competi- 
tion: Cf  the  13  States  which  in  1910  had  more  than  two  and  one- 
quarter  million  inhabitants,  namely,  in  order  of  population,  New 
York,  Pennsylvania,  Illinois,  Ohio,  Texas,  Massachusetts,  Missouri, 
Michigan,  Indiana,  Georgia,  New  Jersey,  California,  and  Wisconsin, 
no  less  than  11  have  given  their  commissions  power  to  restrict  com- 
petition in  the  utility  field. 

A  fair  sample  of  these  provisions  is  that  in  the  very  recent  Illinois 
Public  Utilities  Commission  law  (effective  Jan.  1,  1914) : 

"SEC.  55.  CERTIFICATE  OP  CONVENIENCE  AND  NECESSITY. — No  pub- 
lic utility  shall  begin  the  construction  of  any  new  plant,  equipment, 
property,  or  facility  which  is  not  in  substitution  of  any  existing  plant, 
equipment,  property  or  facilities,  or  in  extension  thereof  or  in  addi- 
tion thereto,  unless  and  until  it  shall  have  obtained  from  the  com- 


580         MATEEIALS    OF   CORPOKATION    FINANCE 

mission  a  certificate  that  public  convenience  and  necessity  require 
such  construction. 

"No  public  utility  not  owning  any  city  or  village  franchise  nor 
engaged  in  performing  any  public  service  or  in  furnishing  any  product 
or  commodity  within  this  State  at  the  time  this  act  goes  into  effect 
shall  transact  any  business  in  this  State  until  it  shall  have  obtained 
a  certificate  from  the  commission  that  public  convenience  and  neces- 
sity require  the  transaction  of  such  business." 

In  addition  to  providing  against  competition  by  new  construction, 
etc.,  a  number  of  States  exempt  public  utility  companies  from  the 
operation  of  the  local  antitrust  acts  by  permitting  the  merger  of 
competing  utilities  with  the  approval  of  the  State  commission.  As 
a  rule,  these  provisions  permit  utilities  to  purchase  each  other's  stock 
as  well  as  to  purchase  each  other's  franchises  and  property,  always, 
of  course,  assuming  that  the  consent  of  the  commission  is  obtained. 

Nature  and  extent  of  State  regulation. — It  is  of  interest  here  to 
note  the  extremely  broad  powers  of  supervision  and  regulation  with 
which  the  commissions  have  been  intrusted.  In  general  these  com- 
missions have  been  empowered  to  insure  safe  and  adequate  service  at 
fair  and  reasonable  rates  in  respect  to  both  consumers  and  producers, 
without  discrimination  or  favoritism  among  the  former 

Of  these  powers,  the  first  and  foremost  is  that  to  regulate  rates  and 
see  that  no  utility  earns  more  than  a  fair  compensation  for  the  service 
rendered.  Allied  to  this  is  the  power  to  prevent  discrimination  or 
favoritism.  Then  comes  the  power  to  require  safe  service,  involving 
therein  adequate  security  and  protection,  not  only  to  the  users  of  the 
service,  but  to  the  employees  of  the  company  furnishing  the  service. 
The  numerous  regulations  made  for  the  protection,  comfort,  and 
convenience  of  motormen  and  conductors,  the  installation  of  safety 
devices  in  electric  generating  stations,  etc.,  are  samples  of  the  exercise 
of  this  power.  The  power  to  compel  adequate  service  involves  the 
duty  of  seeing  that  plants  are  kept  in  good  repair  and  not  allowed  to 
fall  into  poor  condition  for  the  sake  of  showing  increased  profits. 
The  commissions  also  can  require  the  establishment  of  depreciation 
funds  and  thus  insure  that  no  disaster  shall  befall  through  failure 
to  provide  for  the  renewal  of  machinery,  etc.,  after  it  is  worn  out 
In  addition  to  this  the  commissions  may  regulate  systems  of  utilities, 
classify  expenditures,  and  determine  what  shall  be  charged  against 
capital  and  what  must  be  charged  against  income.  Furthermore,  the 
commissions  regulate  the  stocks,  bonds,  and  other  securities  issued 
by  the  utilities,  they  pass  upon  the  amount  that  shall  be  issued,  the 
type  of  security  that  shall  be  issued,  the  price  at  which  the  securities 
shall  be  sold,  the  persons  to  whom  they  shall  be  offered  for  sale,  and, 


ADVANTAGES   OF   HOLDING   COMPANIES         581 

in  addition,  they  specify  the  way  in  which  the  funds  secured  shall 
be  spent,  and  have  power  to  follow  the  funds  in  the  course  of  their 
expenditure  and  see  that  they  are  actually  applied  to  the  purposes 
enumerated.  The  commissions  even  prescribe  how  the  bond  discount 
shall  be  handled — that  is,  whether  it  shall  be  amortized  out  of  earn- 
ings or  may  be  provided  for  by  the  sale  of  new  securities. 

As  a  result  of  these  elaborate  and  detailed  powers  the  commission 
have  such  control  over  the  utilities  within  their  jurisdiction  that  it 
is  practically  impossible  for  the  owners  of  public  utility  plants  to 
operate  them  except  for  the  good  of  the  public,  or,  in  fact,  do  anything 
but  render  service  in  return  for  a  fair  profit. 

CONCLUSION 

It  would  seem  from  the  foregoing  argument  that  your  committee 
must  reach  the  conclusion  that  intercorporate  stock-holding  com- 
panies have  an  unquestioned  economic  value  in  the  public  utility  field, 
and  that  through  them  the  great  development  of  our  public  utilities 
in  this  country  has  been  made  possible.  To  check  this  development 
by  Federal  legislation,  which  might  conflict  with  State  regulation, 
would  work  a  great  hardship  on  both  the  public  and  the  companies 
as  well.  The  exception  asked  for  is  in  the  interest  of  all,  and  if 
inserted  in  the  bill  will  remove  all  doubt  as  to  the  policy  of  Congress 
and  will  further  the  great  progress  which  has  been  made  in  this  field 
in  the  interest  of  those  necessities  of  the  twentieth  century — light, 
heat,  power,  and  traction. 
Dated  May  11,  1914. 
Respectfully  submitted. 

BARBER,  WATSON  &  GIBBONEY, 

165  Broadway,  New  York. 
STUART  G.  GIBBONEY,  of  Counsel 

"Representing  Bertrom,  Griscom  &  Co.,  of  New  York  and  Philadel- 
phia, interested  in  the  United  Gas  &  Electric  Corporation, 
operating  public  utilities  in  the  following  States:  Connecticut, 
Pennsylvania,  Indiana,  Texas,  Louisiana,  New  York,  Kansas, 
Illinois,  and  Colorado. 

Also  interested  in  the  American  Cities  Co.,  operating  public  utilities 
in  Alabama,  Louisiana,  Tennessee,  Arkansas,  and  Texas. 

BERNARD  FLEXNER, 
RALPH  D.  STEVENSON, 
112  West  Adams  Street,  Chicago,  III 

Representing  Middle  West  Utilities  Co.,  which  operates  in  315  cities 
in  Illinois,  Indiana,  Kentucky,  Oklahoma,  Missouri,  Michigan. 


582         MATERIALS    OF    CORPORATION    FINANCE 

New  York,  Vermont,  New  Hampshire,  Maine,  Wisconsin,  and 

Nebraska. 

H.  ALEXANDER  SMITH, 
DANIEL  W.  KNOWLTON, 
GEORGE  B.  HATCH, 

Colorado  Springs,  Colo. 

Representing  Wm.  P.  Bonbright  &  Co.  (Inc.),  New  York,  interested 
in  public  utilities  operating  in  the  following  States:  Alabama, 
Arizona,  Arkansas,  California,  Colorado,  Connecticut,  Georgia, 
Idaho,  Illinois,  Indiana,  Iowa,  Kansas,  Kentucky,  Louisiana, 
Maine,  Michigan,  Minnesota,  Missouri,  Montana,  New  Hamp- 
shire, New  York,  North  Dakota,  Ohio,  Oklahoma,  Oregon,  Penn- 
sylvania, Tennessee,  Texas,  Utah,  Vermont,  Virginia,  Washing- 
ton, West  Virginia  and  Wisconsin. 


PARTNERSHIP— CITY  AND   CORPORATION        583 


PARTNERSHIP  BETWEEN  MUNICIPALITY  AND  PUBLIC 
UTILITY    CORPORATION1 

The  ordinance  adopted  by  the  City  Council  of  Kansas  City,  Mo., 
signed  by  the  Mayor,  accepted  by  the  company,  and  on  July  7  voted 
by  the  people,  forms  a  pamphlet  of  about  60  pages.  Some  of  the 
leading  provisions  we  have  condensed  as  follows: 

«  Merger. — The  company  (duly  organized  for  the  purpose)  will 
acquire  all  the  property,  franchises  and  privileges  in  Missouri  owned 
by  the  Metropolitan  St.  Ry.  Co.,  Central  Electric  Ry.  Co.  and  the 
Kansas  City  Elevated  Ry.  Co.,  and  all  the  property  of  said  Kansas 
City  &  Westport  Belt  Ry.  Co.,  free  and  clear  of  all  liens  except  judg- 
ments for  injuries.  At  the  same  time  all  contracts  between  the  city 
and  said  other  companies  and  all  claims  thereunder,  except  as  herein 
otherwise  expressly  stated,  are  annulled. 

Term  of  Franchise. — Thirty  years  from  vote  on  ordinance  by  the 
people. 

Organization. — The  aggregate  amount  of  outstanding  mortgage  in- 
debtedness and  capital  stock  of  the  company  shall  at  no  time  exceed 
the  value  of  its  property,  wherever  situated,  exclusive  of  franchise 
value  under  this  ordinance.  The  company  shall  upon  demand  deliver 
to  the  city  one  share  of  stock  to  qualify  each  person  designated  by 
the  city  as  its  representative  on  the  board.  The  stock  of  such  com- 
pany shall,  pending  the  acquisition  of  the  title  as  aforesaid,  be 
deposited  with  U.  S.  Judge  William  C.  Hook,  to  be  held  for  the  bene- 
fit of  the  parties  entitled  thereto  under  a  plan  of  reorganization  to 
be  hereafter  prepared  or  in  case  reorganization  cannot  be  effected, 
then  for  the  benefit  of  those  who  pay  for  the  stock.  Such  plan  of 
reorganization*  must  be  in  harmony  with  this  ordinance  and  must  be 
approved  by  Judge  Hook  or  his  successor  in  office.  Of  the  eleven 
directors,  Kansas  City,  Mo.,  shall  select  five,  \\lio  at  the  outset  will 
be  William  T.  Kemper,  John  H.  Wiles,  Davis  M.  Pinkerton,  Frank 
C.  Niles  and  John  W.  Wagner,  to  serve  for  five,  four,  three,  two  and 
one  years  respectively.  The  city  may  by  agreement  with  Kansas  City, 
Kan.,  give  to  the  latter  the  right  to  name  not  more  than  two  of  said 
five  city  directors. 

Books. — The  City  Comptroller,  or  accountants  authorized  by  him, 
under  the  direction  of  the  Mayor  or  of  the  city  directors,  shall  have 
the  right  at  all  reasonable  times  to  examine  all  the  books,  vouchers, 
etc.,  and  there  shall  also  be  an  annual  audit  for  the  year  ending  May 

*From  The  Commercial  nnd  Financial  Chronicle,  July  18,  1014. 


584         MATERIALS    OF    CORPORATION    FINANCE 

31  and  a  formal  written  report  by  public  accountants  selected  by 
company  and  City  Comptroller. 

Board  of  Control. — Will  consist  at  outset  of  P.  J.  Kealy  for  the 
company  and  Robert  P.  Woods  for  the  city,  with  salaries  of  not  less 
than  $6,000  nor  over  $10,000;  any  difference  between  to  be  deter- 
mined by  an  arbiter  to  be  selected  by  the  judges  of  the  Kansas  City 
Court  of  Appeals.  Said  board  of  control  shall,  with  the  aid  of  en- 
gineers, clerks,  etc.,  (1)  supervise  the  routing,  stopping  and  schedules 
of  cars;  (2)  require  the  operation  of  sufficient  cars;  (3)  supervise 
construction,  reconstruction,  equipment,  etc.;  (4)  properly  classify 
and  charge  all  expenditures;  (5)  supervise  the  bookkeeping;  (6)  file 
semi-annually  complete  statement  of  all  receipts  and  disbursements, 
and  of  the  condition  of  the  capital  and  other  accounts,  etc. 

Fares. — The  fares,  until  and  unless  reduced  as  in  this  ordinance 
provided,  shall  be  five  cents  for  each  passenger  over  twelve  years  of 
age  and  two  and  one-half  cents  for  each  passenger  of  eight  to  twelve 
years,  over  the  entire  system  within  the  city.  Universal  transfers  free 
over  all  parts  of  the  city,  and  also  over  all  parts  of  the  system  in 
Kansas  within  the  limits  of  Eosedale  and  Kansas  City,  Kan.,  and 
intermediate  points,  so  long  as  the  company  shall  operate  therein. 

Rehabilitation — Immediate  Extensions  and  Additions. — As  soon  as 
the  12th  Street  viaduct  is  completed,  the  company  shall  electrify  all 
parts  of  the  system  not  then  electrified.  The  company  shall  proceed 
immediately  to  put  its  entire  street  railway  and  equipment  in  first- 
class  condition  and  complete  the  work  within  three  years,  expending 
$1,500,000  or  so  much  thereof  as  may  be  necessary,  adding  also  for 
each  of  the  three  years  twenty-five  new  cars  and  five  miles  of  track 
as  extensions  (shown  in  the  ordinance). 

The  city  shall  own  and  be  charged  with  the  cost  of  the  following 
named  portions  of  said  lines,  viz. :  Broadway  from  Southwest  Boule- 
vard to  24th  Street,  and  thence  across  the  Union  Station  Plaza  or 
along  24th  Street  to  Main  Street  and  along  Main  Street  to  19th  Street. 

Also  a  further  $250,000  shall  be  used  at  once  to  build  such  other 
extensions  as  the  board  of  control  may  determine. 

Future  Extensions. — The  city  at  any  time  after .  three  years  may 
require  the  company  to  construct  extensions  as  follows:  (a)  any  four 
miles  of  track  a  }rear  not  manifestly  unneeded;  (b)  such  additional 
extensions,  reasonably  necessary,  that  will  pay  not  less  than  six  per 
cent,  per  annum  over  and  above  the  expense  of  operating  and  main- 
taining. 

Rights  to  Other  Companies. — The  city  shall  have  the  right  to  au- 
thorize one  or  more  street  railway  companies  to  use  the  tracks  of  the 
company  for  six  consecutive  blocks  or  less,  also  over  the  Main  and 


PARTNERSHIP— CITY  AND  CORPORATION        585 

Delaware,  10th  Street,  3d  Street  and  Cherry  Street  loops  and  the 
Allen  Avenue  viaduct. 

The  company  shall  pay  to  each  existing  interurban  line  for  the 
use  of  interurban  cars  while  on  the  company's  tracks,  a  sum  equaling 
15  per  cent,  of  the  amount  received  by  it  from  each  through  pas- 
senger at  its  regular  city  rate. 

Express  Matter. — The  company  may  carry  U.  S.  mail  and  also  light 
packages  or  parcels. 

Paving. — Company  must  pave  for  eighteen  inches  beyond  each  outer 
rail — on  parkways  for  thirty  inches. 

Street  Cleaning,  etc. — The  company  shall  sweep,  keep  clean  and 
free  from  snow  and  ice  and  sprinkle  or  oil  that  portion  of  the  streets 
which  it  is  required  to  pave  and  keep  in  repair,  the  city  to  furnish 
the  water  free. 

Capital  Value. — The  capital  value  of  all  of  the  property  in  Missouri 
is  hereby  fixed  at  $25,648,806,  plus  the  cost  of  all  additions,  exten- 
sions and  betterments  made  after  May  31,  1913,  properly  chargeable 
to  capital  account.  The  amount  named  takes  into  consideration  the 
value  of  all  existing  property  in  Missouri  on  May  31,  1913,  together 
with  the  value  of  the  earnings  for  the  fixed  period  of  existing  con- 
tracts with  the  city,  as  well  as  the  total  moneys  expended  in  building 
up  said  properties,  said  sum  being  a  compromise  between  company 
and  city  of  their  respective  calculations. 

The  company  agrees  to  procure  such  new  money  as,  together  with 
such  portions  of  the  surplus  as  by  this  ordinance  may  be  used  to  pay 
for  extensions  and  additions  to  property  in  Missouri,  will  provide  the 
following  sums  of  money  with  which  to  pay  for  additions  and  exten- 
sions to  be  made  in  accordance  with  this  ordinance,  to  wit,  yearly : 

1914-1918  1919-1923  1924-1928  1929-1933  1934-1938  1939-1943 
$650,000  $725,000  $775,000  $825,000  $875,000  $925,000 

Such  new  money  shall  be  added  to  and  become  a  part  of  the  capital 
value,  and  if  the  net  earnings,  in  the  aggregate,  exceed  or  are  less 
than  35  per  cent,  of  the  gross  receipts  in  any  year,  then  the 
amount  so  to  be  annually  expended  shall  be  correspondingly  increased 
or  diminished. 

There  has  been  filed  in  the  City  Clerk's  office  a  reconcilement  dated 
September  6,  1913,  of  the  appraisals  of  Bion  J.  Arnold  and  L.  R.  Ash 
(V.  66,  p.  553),  wherein  it  is  agreed  that  the  depreciated  physical 
value  of  all  property  in  Missouri  and  Kansas,  May  31,  1912,  was 
$22,500,000,  84  per  cent,  thereof  being  in  Missouri  and  16  per  cent, 
in  Kansas.  There  has  also  been  filed  a  statement  showing  that  be- 
tween May  31,  1912,  and  May  31,  1913,  the  receivers  added  to  prop- 


586         MATERIALS    OF   CORPORATION   FINANCE 

erty  value  in  Missouri  $600,000,  making  the  total  depreciated  value, 
exclusive  of  other  elements  of  value,  of  the  physical  property  in 
Missouri  $19,500,000  as  of  May  31,  19'13.  The  board  of  control 
shall  within  ninety  days  adjust  said  appraisal  inventories  in  detail 
without  increasing  or  decreasing  the  totals  as  stated  in  this  para- 
graph. 

Disposition  of  Earnings. — Out  of  each  year's  gross  earnings  in 
Missouri  there  shall  be  paid  in  this  order:  (1)  All  expenses  of  man- 
agement, operation  and  maintenance,  and  all  taxes,  license  fees  and 
special  assessments.  (2)  To  the  company  six  per  cent,  per  annum, 
cumulative,  upon  the  capital  value  from  time  to  time  determined. 

(3)  All  liabilities  for  personal  injuries  and  damages  to  property. 

(4)  The  remaining  surplus  income  shall  be  credited  to  the  city  from 
time  to  time  and  shall  be  used  by  the  company  to  pay  for  extensions 
and  additions  to  the  property  until  the  sum  of  $6,300,000  is  so  used. 
No  part  of  said  sum  and  no  part  of  the  value  of  any  additions  or 
extensions  acquired  by  the  use  thereof  shall  be  added  to  or  become  a 
part  of  capital  value  or  be  considered  as  a  payment  in  reduction 
thereof. 

When  said  $6,300,000  shall  have  been  so  used,  then  and  thereafter 
the  surplus  income  shall  be  paid  two-thirds  to  the  city  and  one-third 
to  the  company.  The  two-thirds  belonging  to  the  city  shall  be  cred- 
ited to  it  until  the  city  otherwise  ordains  and  be  used  either  (a)  to 
reduce  capital  value,  or  (b)  for  additions  and  extensions  approved  by 
the  city's  directors. 

The  city  expressly  reserves  the  right  at  any  time  after  said  sum 
of  $6,300,000  shall  have  been  paid,  first,  by  ordinance,  to  reduce  fares 
and  thereby  diminish  the  amount  of  its  share  of  surplus  income,  but 
not  so  as  materially  to  reduce  the  company's  share  below  what  it 
would  be  if  the  fare  had  not  been  reduced ;  and,  second,  by  ordinance 
approved  by  vote  of  the  people  to  direct  that  its  surplus  income  be 
used  for  any  other  public  purpose. 

When  and  as  said  surplus  is  used  either  to  reduce  capital  value  or 
to  pay  for  additions  or  extensions,  it  shall  be  deemed  and  taken  to  be 
an  investment  by  the  city  of  so  much  money  in  the  property  towards 
the  acquisition  of  title  to  the  property  as  hereinafter  provided,  and 
to  that  extent  the  city  shall  become  and  be  an  owner  of  an  equitable 
interest  in  the  property,  subject  to  the  company's  right  to  capital 
value,  the  return  thereon  and  participation  as  defined  in  this  ordinance. 

When  and  as  capital  value  is  reduced,  the  six  per  cent,  return 
thereon  shall  abate  and  cease  pro  tanto.  The  rights  and  interests  of 
the  company,  shareholders,  bondholders,  mortgagees  and  all  persons 
claiming  any  interest  in  the  property  under  or  through  the  company 


PARTNERSHIP— CITY  AND   CORPORATION        587 

shall  be  restricted  and  confined  to  and  be  no  greater  than  the  right 
to  be  paid  the  capital  value  of  the  property  from  time  to  time. 

All  the  covenants  in  this  contract  shall  run  with  the  property  in 
whatsoever  manner  the  same  may  be  mortgaged,  sold,  transferred  or 
conveyed. 

Maintenance,  etc. — Each  year  the  board  of  control  shall  determine 
what  percentages  of  the  gross  earnings  shall  be  used  during  that  year 
for  (a)  maintenance,  repairs,  renewals  and  depreciation,  and  (b)  for 
damage  claims,  such  percentages  to  be  not  less  than  16  per  cent,  and 
four  per  cent.,  respectively. 

Right  of  City  to  Acquire. — The  company  agrees  that  the  city  shall 
have  the  right  (when  legally  empowered  so  to  do)  to  become  the 
owner  of  the  property  in  Jackson  County,  Mo.,  as  follows: 

(a)  Whenever,  by  application  of  the  city's  share  of  the  surplus, 
the  capital  value  shall  be  reduced  to  an  amount  not  in  excess  of  50 
per  cent,  of  the  combined  capital  value  and  cost  of  extensions  and 
additions,  then  the  city  shall  at  once  become  the  owner  of  all  of  the 
property  in  Jackson  County,  subject  only  to  a  lien  securing  the  pay- 
ment of  the  balance  unpaid  of  the  capital  value  in  Missouri  and  any 
mortgage  securing  same. 

(b)  Whenever,  by  the  application  of  the  city's  interest  in  the  sur- 
plus income  to  the  reduction  of  such  capital  value  and  to  the  pay- 
ment for  extensions  and  additions  to  property  and  by  payment,  by 
the  city  to  the  company,  of  cash,  the  capital  value  shall  be  so  reduced, 
or  the  actual  value  so  increased,  that  the  unpaid  portion  of  the  capital 
value  shall  not  exceed  50  per  cent,  of  the  sum  mentioned,  then  if  the 
city  shall  also  pay  to  the  company  in  cash  the  value  of  the  remainder 
of  its  right  to  participation  and  the  cost,  if  any,  of  redeeming  before 
maturity  such  mortgage  bonds  of  the  company  as  it  may  be  necessary 
to  redeem  in  order  to  accomplish  the  purpose  aforesaid  at  not  exceed- 
ing a  premium  of  three  per  cent,  on  the  bonds  so  redeemed,  the  city 
shall  thereupon  become  the  owner  of  all  said  property  in  Missouri, 
subject  to  a  lien  to  secure  the  payment  of  the  unpaid  portion  of  the 
capital  value  and  any  mortgage  securing  same  or  any  part  thereof. 

Whenever  such  capital  value  shall  be  reduced  by  any  of  the  methods 
aforesaid  to  50  per  cent,  of  the  sum  aforesaid  then  the  company's 
right  to  participation  in  the  surplus  shall  cease  and  entire  surplus 
shall  belong  to  the  city. 

(c)  The  city  may  at  any  time  pay  for  the  entire  capital  value, 
but  prior  to  the  time  such  capital  value  shall  have  been. reduced  to 
one-half  of  the  sum  aforesaid,  it  shall  pay  also  for  the  value  of  the 
remainder  of  the  company's  right  to  participation  in  the  surplus 
income,  and  also  the  cost  of  redeeming,  before  maturity,  mortgage 

20 


588         MATEEIALS   OF   COKPORATION   FINANCE 

bonds  in  order  to  accomplish  said  purpose,  not  exceeding  a  premium 
of  three  per  cent,  on  bonds  so  redeemed. 

If,  however,  before  the  company's  right  to  participation  in  the 
surplus  income  begins,  the  city  should  pay  in  cash  the  entire  capital 
value  and  also  all  sums  due  as  a  return  thereon,  as  well  as  the  said 
sums  necessary  to  redeem  bonds,  then  there  shall  be  no  payment  on 
account  of  the  value  of  the  said  right  of  participation,  but  in  such 
event  the  city  shall  take  the  property  only  for  municipal  operation 
and  ownership,  and  shall  continue  to  own  and  operate  the  property 
for  a  period  of  five  years  thereafter,  or  it  may  sell  said  property,  or 
to  grant  the  right  to  operate  the  same,  to  another  than  the  company 
within  said  period  on  giving  six  months'  notice  and  paying  to  the 
company  the  full  value  of  the  company's  right  of  participation  in  the 
surplus  income. 

Mortgages. — Any  and  every  mortgage  shall  conform  to  the  pro- 
visions of  this  ordinance,  and  may  cover  the  whole  or  any  part  of 
the  property  at  any  time  owned,  but  not  any  line  or  extension  built 
by  the  city.  It  may  include  all  property  in  Missouri  and  Kansas,  but 
that  portion  which  in  Missouri  shall  not  stand  as  security  for  so 
much,  if  any,  of  the  obligations  at  any  time  outstanding  as  are  in 
excess  of  the  then  capital  value  of  the  part  of  the  property  in  Mis- 
souri, and  it  shall  be  released  as  to  such  property  when  such  capital 
value  and  the  return  thereon  has  been  paid.  If,  however,  it  includes 
only  the  property  in  Missouri,  then  the  aggregate  amount  of  bonds 
at  any  time  issued  and  outstanding  under  all  mortgages  which  are 
liens  upon  such  property  shall  never  exceed  the  then  capital  value  as 
herein  defined.  Whenever  the  city  acquires  the  property  all  such 
mortgages,  so  far  as  they  are  liens  upon  the  property  acquired,  shall 
be  closed  and  the  principal  indebtedness  thereby  secured  shall  not 
be  increased. 

In  the  event  mortgage  bonds  theretofore  issued  by  the  company 
shall  be  in  excess  of  the  amount  subject  to  which  the  property  is  to 
be  conveyed  to  the  city  under  this  ordinance,  then  the  city  shall  have 
the  right  to  designate  which  of  said  bonds  up  to  the  amount  subject 
to  which  the  property  is  to  be  conveyed  to  the  city  shall  continue  to 
be  secured  by  the  lien  of  such  mortgage  on  property  then  acquired. 

In  aid  of  the  present  contemplated  plan  of  reorganization  and  the 
refunding  of  the  present  existing  bonded  and  mortgage  debt,  the 
company  is  authorized  to  execute  a  mortgage,  as  above  provided,  and 
issue  thereunder  bonds  of  an  amount  not  in  excess  of  the  then  capital 
value,  as  herein  defined.  Thereafter,  the  company  shall,  before  mak- 
ing any  increase  of  its  stock  or  bonded  indebtedness,  notify  the  city's 
directors  of  such  proposed  increase.  No  such  increase  shall  be  made 


PARTNERSHIP— CITY  AND  COKPOBATION        589 

so  as  to  make  the  total  outstanding  stock  and  bonds  in  excess  of  the 
limitations  provided  for  above. 

Every  receiver,  trustee,  purchaser  and  successor  of  or  to  the  interest 
and  rights  of  the  company  shall  be  bound  by  this  contract. 

Employees. — Company  shall  not  discriminate  either  in  favor  of  or 
against  any  person  because  of  his  or  her  affiliation  with  any  labor 
organization. 

Endorsement  on  Stock. — All  stock  certificates  issued  by  the  com- 
pany shall  bear  this  endorsement:  "The  holder  hereof  has  taken  this 
certificate  upon  condition  that  it  shall  always  be  voted  for  the  elec- 
tion of  city  directors,  as  provided  in  any  franchise  contract  with 
Kansas  City,  Mo.  Without  power  of  revocation,  the  Mayor  of  said 
city  is  constituted  attorney  in  fact,  to  that  extent,  so  to  vote  the  stock. 
No  stockholder  shall  receive  any  dividend  upon  or  vote  any  share  of 
stock  unless  he  holds  a  certificate  so  endorsed." 

Forfeiture. — If  the  company  shall  willfully  do  any  act  or  thing  by 
this  ordinance  prohibited,  or  willfully  neglect  to  do  any  act  or  thing 
required  by  its  terms,  it  shall  forfeit  all  rights  conferred  by  this 
ordinance,  but  such  forfeiture  shall  not  affect  the  right  of  mortgagees 
and  those  claiming  under  the  company  to  capital  value  and  return 
thereon,  as  herein  provided. 

Expiration  of  Grant. — At  the  expiration  of  this  franchise  the  city 
shall  have  the  right  either  to  take  over  the  property  on  payment  of 
the  unpaid  portion  of  the  capital  value,  or  to  transfer  this  right  to 
any  person  or  corporation,  such  new  company  to  pay  therefor  in  cash 
the  unpaid  portion  of  the  capital  value  and,  if  the  city  so  require,  an 
additional  price. 

The  expiration  of  this  franchise  shall  not  have  the  effect  of  ter- 
minating the  mortgage  indebtedness  existing  against  the  property  with 
the  approval  of  the  city,  but  the  same  shall  continue  as  a  lien  against 
the  property,  and  every  person,  including  the  city,  who  shall  come 
into  possession  of  the  same.  At  the  expiration  of  this  franchise,  the 
city  may,  if  it  desires  so  to  do,  require  the  company  to  continue  to 
operate  under  this  contract,  pending  such  purchase  or  other  arrange- 
ment, and  if  no  such  purchase  or  other  arrangement  shall  be  made, 
the  company's  rights  shall  hereunder  cease  and  terminate  and  then 
the  city  through  its  trustees  shall  take  over  the  property  subject 
to  the  unpaid  portion  of  capital  value  and  operate  it  under  the  terms 
hereof,  but  shall  apply  all  surplus  income  to  the  payment  of  capital 
value  and  return  thereon  until  its  entire  payment  shall  have  been 
made.— V.  99,  p.  119. 


590         MATERIALS    OF    CORPORATION    FINANCE 


THE  SHERMAN  ANTI-TRUST  LAW* 

AN  ACT  To  protect  trade   and  commerce   against  unlawful   restraints  and 

monopolies. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Congress  assembled, 

SEC.  1.  Every  contract,  combination  in  the  form  of  trust  or  other- 
wise, or  conspiracy,  in  restraint  of  trade  or  commerce  among  the  sev- 
eral States,  or  with  foreign  nations,  is  hereby  declared  to  be  illegal. 
Everv  person  who  shall  make  any  such  Contract  or  engage  in  any  such 
combination  or  conspiracy,  shall  be  deemed  guilty  of  a  misdemeanor, 
and,  on  conviction  thereof,  shall  be  punished  by  fine  not  exceeding  five 
thousand  dollars,  or  by  imprisonment  not  exceeding  one  year,  or  both 
said  punishments,  in  the  discretion  of  the  court. 

SEC.  2.  Every  person  who  shall  monopolize,  or  attempt  to  monopo- 
lize, or  combine  or  conspire  with  any  other  person  or  persons,  to  mo- 
nopolize any  part  of  the  trade  or  commerce  among  the  several  States, 
or  with  foreign  nations  shall  be  deemed  guilty  of  a  misdemeanor,  and, 
on  conviction  thereof,  shall  be  punished  by  fine  not  exceeding  five  thou- 
sand dollars,  or  by  imprisonment  not  exceeding  one  year,  or  by  both 
said  punishments,  in  the  discretion  of  the  court. 

SEC.  3.  Every  contract,  combination  in  form  of  trust  or  otherwise, 
or  conspiracy,  in  restraint  of  trade  or  commerce  in  any  Territory  of 
the  United  States  or  of  the  District  of  Columbia,  or  in  restraint  of  trade 
or  commerce  between  any  such  Territory  and  another,  or  between  any 
such  Territory  or  Territories,  and  any  State  or  States  or  the  District 
of  Columbia,  or  with  foreign  nations,  or  between  the  District  of  Co- 
lumbia and  any  State  or  States  or  foreign  nations,  is  hereby  declared 
illegal.  Every  person  who  shall  make  any  such  contract  or  engage 
in  any  such  combination  or  conspiracy,  shall  be  deemed  guilty  of  a 
misdemeanor,  and,  on  conviction  thereof,  shall  be  punished  by  fine 
not  exceeding  five  thousand  dollars,  or  by  imprisonment  not  exceeding 
one  year,  or  by  both  said  punishments,  in  the  discretion  of  the  court. 

SEC.  4.  The  several  circuit  courts  of  the  United  States  are  hereby 
invested  with  jurisdiction  to  prevent  and  restrain  violations  of  this  act ; 
and  it  shall  be  the  duty  of  the  several  district  attorneys  of  the  United 
States,  in  their  respective  districts,  under  the  direction  of  the  Attor- 
ney General,  to  institute  proceedings  in  equity  to  prevent  and  restrain 
such  violations.  Such  proceedings  may  be  by  way  of  petition  setting 
forth  the  case  and  praying  that  such  violation  shall  be  enjoined  or 
otherwise  prohibited.  When  the  parties  complained  of  shall  have  been 

lAct  of  July  2,  1890   (26  Stat.,  209). 


SHERMAN   ANTI-TRUST   LAW  591 

duly  notified  of  such  petition  the  court  shall  proceed,  as  soon  as  may 
be,  to  the  hearing  and  determination  of  the  case;  and  pending  such 
petition  and  before  final  decree,  the  court  may  at  any  time  make  such 
temporary  restraining  order  or  prohibition  as  shall  be  -deemed  just  in 
the  premises. 

SEC.  5.  Whenever  it  shall  appear  to  the  court  before  which  any 
proceeding  under  section  four  of  this  act  may  be  pending,  that  the 
ends  of  justice  require  that  other  parties  should  be  brought  before  the 
court,  the  court  may  cause  them  to  be  summoned,  whether  they  reside 
in  the  district  in  which  the  court  is  held  or  not ;  and  subpoenas  to  that 
end  may  be  served  in  any  district  by  the  marshal  thereof. 

SEC.  6.  Any  property  owned  under  any  contract  or  by  any  combi- 
bination,  or  purusant  to  any  conspiracy  (and  being  the  subject  thereof) 
mentioned  in  section  one  of  this  act,  and  being  in  the  course  of  trans- 
portation from  one  State  to  another,  or  to  a  foreign  country,  shall  be 
forfeited  to  the  United  States,  and  may  be  seized  and  condemned  by 
like  proceedings  as  those  provided  by  law  for  the  forfeiture,  seizure,  and 
condemnation  of  property  imported  into  the  United  States  contrary 
to  law. 

SEC.  7.  Any  person  who  shall  be  injured  in  his  business  or  prop- 
erty by  any  other  person  or  corporation  by  reason  of  anything  forbidden 
or  declared  to  be  unlawful  by  this  act,  may  sue  therefor  in  any  circuit 
court  of  the  United  States  in  the  district  in  which  the  defendant  re- 
sides or  is  found,  without  respect  to  the  amount  in  controversy,  and 
shall  recover  threefold  the  damages  by  him  sustained,  and  the  costs 
of  suit,  including  a  reasonable  attorney's  fee. 

SEC.  8.  That  the  word  "person,"  or  "persons,"  wherever  used  in  this 
act  shall  be  deemed  to  include  corporations  and  associations  existing 
under  or  authorized  by  the  laws  of  either  the  United  States,  or  the 
law  of  any  of  the  Territories,  the  laws  of  any  State,  or  the  laws  of  any 
foreign  country. 

ANTI-TRUST  AMENDMENTS  TO  THE  WILSON  TARIFF  ACT  OF  AUGUST 
27,  1894— SECTIONS  73-74 

[28  Stat.,  570] 

SEC.  73.  That  every  combination,  conspiracy,  trust,  agreement,  or 
contract  is  hereby  declared  to  be  contrary  to  public  policy,  illegal,  and 
void,  when  the  same  is  made  by  or  between  two  or  more  persons  or  cor- 
porations either  of  whom  is  engaged  in  importing  any  article  from  any 
foreign  country  into  the  United  Stales,  and  when  such  combination, 
conspiracy,  trust,  agreement,  or  contract,  is  intended  to  operate  in  r. 
straint  of  lawful  trade,  or  free  competition  in  lawful  trade  or  com- 


592         MATERIALS    OF   CORPORATION    FINANCE 

merce,  or  to  increase  the  market  price  in  any  part  of  the  United 
States  of  any  article  or  articles  imported  or  intended  to  be  imported 
into  the  United  States,  or  of  any  manufacture  into  which  such  imported 
article  enters  or  is  intended  to  enter.  Every  person  who  is  or  shall 
hereafter  be  engaged  in  the  importation  of  goods  or  any  commodity 
from  any  foreign  country  in  violation  of  this  section  of  this  act,  or 
who  shall  combine  or  conspire  with  another  to  violate  the  same,  is  guilty 
of  a  misdemeanor,  and,  on  conviction  thereof  in  any  court  of  the 
United  States,  such  person  shall  be  fined  in  a  sum  not  less  than  one 
hundred  dollars  and  not  exceeding  five  thousand  dollars,  and  shall  be 
further  punished  by  imprisonment,  in  the  discretion  of  the  court,  for 
a  term  not  less  than  three  months  nor  exceeding  twelve  months. 

SEC.  74.  That  the  several  circuit  courts  of  the  United  States  are 
hereby  invested  with  jurisdiction  to  prevent  and  restrain  violations  of 
section  seventy-three  of  this  act ;  and  it  shall  be  the  duty  of  the  several 
district  attorneys  of  the  United  States,  in  their  respective  districts, 
under  the  direction  of  the  Attorney  General,  to  institute  proceedings 
in  equity  to  prevent  and  restrain  such  violations.  Such  proceedings 
may  be  by  way  of  petitions  setting  forth  the  case  and  praying  that  such 
violations  shall  be  enjoined  or  otherwise  prohibited.  "When  the  par- 
ties complained  of  shall  have  been  duly  notified  of  such  petition  the 
court  shall  proceed,  as  soon  as  may  be,  to  the  hearing  and  determina- 
tion of  the  case ;  and  pending  such  petition  and  before  the  final  decree, 
the  court  may  at  any  time  make  such  temporary  restraining  order  or 
prohibition  as  shall  be  deemed  just  in  the  premises. 

SEC.  75.  That  whenever  it  shall  appear  to  the  court  before  which 
any  proceeding  under  the  seventy-fourth  section  of  this  act  may  be 
pending  that  the  ends  of  justice  require  that  other  parties  should  be 
brought  before  the  court,  the  court  may  cause  them  to  be  summoned, 
whether  they  reside  in  the  district  in  which  the  court  is  held  or  not ; 
and  subpoenas  to  that  end  may  be  served  in  any  district  by  the  mar- 
shal thereof. 

SEC.  76.  That  any  property  owned  under  any  contract  or  by  any 
combination,  or  pursuant  to  any  conspiracy  (and  being  the  subject 
thereof)  mentioned  in  section  seventy-three  of  this  act,  and  being  in 
the  course  of  transportation  from  one  State  to  another,  or  to  or  from  a 
Territory  or  the  District  of  Columbia,  shall  be  forfeited  to  the  United 
States,  and  may  be  seized  and  condemned  by  like  proceedings  as  those 
provided  by  law  for  the  forfeiture,  seizure,  and  condemnation  of  prop- 
erty imported  into  the  United  States  contrary  to  law. 

SEC.  77.  That  any  person  who  shall  be  injured  in  his  business  or 
property  by  any  other  person  or  corporation  by  reason  of  anything  for- 
bidden or  declared  to  be  unlawful  by  this  act  may  sue  therefor  in  any 


SHERMAN    ANTI-TRUST   LAW  593 

circuit  court  of  the  United  States  in  the  district  in  which  the  defendant 
resides  or  is  found,  without  respect  to  the  amount  in  controversy,  and 
shall  recover  threefold  the  damages  by  him  sustained  and  the  costs  of 
suit,  including  a  reasonable  attorney's  fee. 

[The  foregoing  sections  were  expressly  preserved  in  the  Dingley 
Act  of  1897.  Section  34  of  that  act  (30  Stat,  213)  concludes  as  fol- 
lows:] 

And  further  provided,  That  nothing  in  this  act  shall  be  construed 
to  repeal  or  in  any  manner  affect  the  sections  numbered  seventy-three, 
seventy-four,  seventy-five,  seventy-six,  and  seventy-seven  of  an  act  en- 
titled "And  act  to  reduce  taxation,  to  provide  revenue  for  the  Govern- 
ment, and  for  other  purposes,"  which  became  a  law  on  the  twenty-eighth 
day  of  August,  eighteen  hundred  and  ninety-four. 


[32  Stat.,  823] 

AN  ACT  To  expedite  the  hearing  and  determination  of  suits  in  equity  pending 
or  hereafter  brought  under  an  act  of  July  second,  eighteen  hundred  and 
ninety,  entitled  "An  act  to  protect  trade  and  commerce  against  unlawful 
restraints  and  monopolies,"  "An  act  to  regulate  commerce,"  approved 
February  fourth,  eighteen  hundred  and  eighty-seven,  or  any  other  acts 
having  a  like  purpose  that  may  be  hereafter  enacted. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the 
United  States  of  America  in  Congress  assembled,  That  in  any  suit  in 
equity  pending  or  hereafter  brought  in  any  circuit  court  of  the  United 
States  under  the  act  entitled  "An  act  to  protect  trade  and  commerce 
against  unlawful  restraints  and  monopolies,"  approved  July  second, 
eighteen  hundred  and  ninety,  "An  act  to  regulate  commerce,"  approved 
February  fourth,  eighteen  hundred  and  eighty-seven,  or  any  other  acts 
having  a  like  purpose  that  hereafter  may  be  enacted,  wherein  the  United 
States  is  complainant,  the  Attorney  General  may  file  with  the  clerk 
of  such  court  a  certificate  that,  in  his  opinion,  the  case  is  of  general 
public  importance,  a  copy  of  which  shall  be  immediately  furnished  by 
such  clerk  to  each  of  the  circuit  judges  of  the  circuit  in  which  the 
case  is  pending.  Thereupon  such  case  shall  be  given  precedence  over 
others  and  in  every  way  expedited,  and  be  assigned  for  hearing  at  the 
earliest  practicable  day,  before  not  less  than  three  of  the  circuit  judges 
of  said  circuit,  if  there  be  three  or  more ;  and  if  there  be  not  more  than 
two  circuit  judges,  then  before  them  and  such  district  judge  as  they 
may  select.  In  the  event  the  judges  sitting  in  such  case  shall  be  divided 
in  opinion  the  case  shall  be  certified  to  the  Supreme  Court  for  review  in 
like  manner  as  if  taken  there  by  appeal  an  hereinafter  provided. 

SEC.  2.    That  in  every  suit  in  equity  pending  or  hereafter  brought  in 


594         MATEEIALS    OF    CORPORATION    FINANCE 

any  circuit  court  of  the  United  States  under  any  of  said  acts  wherein 
the  United  States  is  complainant,  including  cases  submitted  but  not 
yet  decided,  an  appeal  from  the  final  decree  of  the  circuit  court  will 
lie  only  to  the  Supreme  Court  and  must  be  taken  within  sixty  days 
from  the  entry  thereof :  Provided,  That  in  any  case  where  an  appeal  may 
have  been  taken  from  the  final  decree  of  a  circuit  court  to  the  circuit 
court  of  appeals  before  this  act  takes  effect,  the  case  shall  proceed.to  a 
final  decree  therein,  and  an  appeal  may  be  taken  from  such  decree  to 
the  Supreme  Court  in  the  manner  now  provided  by  law. 
Approved,  February  11,  1903. 


CLAYTON   ANTI-TRUST   LAW  595 


CLAYTON   LAW   SUPPLEMENTARY   TO   SHERMAN 
ANTI-TRUST  ACT.1 

An  Act  To  supplement  existing  laws  against  unlawful  restraints 
and  monopolies,  and  for  other  purposes. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the 
United  States  of  America  in  Congress  assembled,  That  "anti-trust 
laws,"  as  used  herein,  includes  the  Act  entitled  "An  Act  to  protect 
trade  and  commerce  against  unlawful  restraints  and  monopolies/' 
approved  July  second,  eighteen  hundred  and  ninety ;  sections  seventy- 
three  to  seventy-seven,  inclusive,  of  an  Act  entitled  "An  Act  to  re- 
duce taxation,  to  provide  revenue  for  the  Government,  and  for  other 
purposes/'  of  August  twenty-seventh,  eighteen  hundred  and  ninety- 
four;  an  Act  entitled  "An  Act  to  amend  sections  seventy-three  and 
seventy-six  of  the  Act  of  August  twenty-seventh,  eighteen  hundred 
and  ninety-four,  entitled  'An  Act  to  reduce  taxation,  to  provide 
revenue  for  the  Government,  and  for  other  purposes/ "  approved 
February  twelfth,  nineteen  hundred  and  thirteen;  and  also  this  Act. 

"Commerce,"  as  used  herein,  means  trade  or  commerce  among  the 
several  States  and  with  foreign  nations,  or  between  the  District  of 
Columbia  or  any  Territory  of  the  United  States  and  any  State, 
Territory/  or  foreign  nation,  or  between  any  insular  possessions  or 
other  places  under  the  jurisdiction  of  the  United  States,  or  between 
any  such  possession  or  place  and  any  State  or  Territory  of  the  United 
States  or  the  District  of  Columbia  or  any  foreign  nation,  or  within 
the  District  of  Columbia  or  any  Territory  or  any  insular  possession 
or  other  place  under  the  jurisdiction  of  the  United  States :  Provided, 
That  nothing  in  this  Act  contained  shall  apply  to  the  Philippine 
Islands. 

The  word  "person"  or  "persons"  wherever  used  in  this  Act  shall 
be  deemed  to  include  corporations  and  associations  existing  under 
or  authorized  by  the  laws  of  either  the  United  States,  the  laws  of 
any  of  the  Territories,  the  laws  of  any  State,  or  the  laws  of  any  for- 
eign country. 

SEC.  2.  That  it  shall  be  unlawful  for  any  person  engaged  in  cora- 
incTce,  in  the  course  of  such  commerce,  either  directly  or  indirectly 
to  discriminate  in  price  between  different  purchasers  of  commodities, 
which  commodities  are  sold  for  use,  consumption,  or  resale  within 
the  United  States  or  any  Territory  thereof  or  the  District  of  Columbia 
or  any  insular  possession  or  other  place  under  the  jurisdiction  of  the 
United  States,  where  the  effect  of  such  discrimination  may  be  to 

i  Public— No.    212— 63d   Congrew.     H.  R.   15667. 


596         MATERIALS    OF   CORPORATION   FINANCE 

substantially  lessen  competition  or  tend  to  create  a  monopoly  in  any 
line  of  commerce:  Provided,  That  nothing  herein  contained  shall 
prevent  discrimination  in  price  between  purchasers  of  commodities 
on  account  of  differences  in  the  grade,  quality,  or  quantity  of  the 
commodity  sold,  or  that  makes  only  due  allowance  for  difference  in 
the  cost  of  selling  or  transportation  or  discrimination  in  price  in 
the  same  or  different  communities  made  in  good  faith  to  meet  com- 
petition: And  provided  further,  That  nothing  herein  contained  shall 
prevent  persons  engaged  in  selling  goods,  wares,  or  merchandise  in 
commerce  from  selecting  their  own  customers  in  bona  fide  transac- 
tions and  not  in  restraint  of  trade. 

SEC.  3.  That  it  shall  be  unlawful  for  any  person  engaged  in  com- 
merce, in  the  course  of  such  commerce,  to  lease  or  make  a  sale  or 
contract  for  sale  of  goods,  wares,  merchandise,  machinery,  supplies  or 
other  commodities,  whether  patented  or  unpatented,  for  use,  con- 
sumption or  resale  within  the  United  States  or  any  Territory  thereof 
or  the  District  of  Columbia  or  any  insular  possession  or  other  place 
under  the  jurisdiction  of  the  United  States,  or  fix  a  price  charged 
therefor,  or  discount  from,  or  rebate  upon,  such  price,  on  the  condi- 
tion*, agreement  or  understanding  that  the  lessee  or  purchaser  thereof 
shall  not  use  or  deal  in  the  goods,  wares,  merchandise,  machinery, 
supplies  or  other  commodities  of  a  competitor  or  competitors  of  the 
lessor  or  seller,  where  the  effect  of  such  lease,  sale,  or  contract  for 
sale  or  such  condition,  agreement  or  understanding  may  be  to  sub- 
stantially lessen  competition  or  tend  to  create  a  monopoly  in  any 
line  of  commerce. 

SEC.  4.  That  any  person  who  shall  be  injured  in  his  business  or 
property  by  reason  of  anything  forbidden  in  the  anti-trust  laws  may 
sue  therefor  in  any  district  court  of  the  United  States  in  the  district 
in  which  the  defendant  resides  or  is  found  or  has  an  agent,  without 
respect  to  the  amount  in  controversy,  and  shall  recover  threefold  the 
damages  by  him  sustained,  and  the  cost  of  suit,  including  a  reasonable 
attorney's  fee. 

SEC.  5.  That  a  final  judgment  or  decree  hereafter  rendered  in  any 
criminal  prosecution  or  in  any  suit  or  proceeding  in  equity  brought 
by  or  on  behalf  of  the  United  States  under  the  antitrust  laws  to  the 
effect  that  a  defendant  has  violated  said  laws  shall  be  prima  facie 
evidence  against  such  defendant  in  any  suit  or  proceeding  brought 
by  any  other  party  against  such  defendant  under  said  laws  as  to  all 
matters  respecting  which  said  judgment  or  decree  would  be  an  estoppel 
as  between  the  parties  thereto :  Provided,  This  section  shall  not  apply 
to  consent  judgments  or  decrees  entered  before  any  testimony  has 
been  taken :  Provided  further,  This  section  shall  not  apply  to  consent 


CLAYTON   ANT1-TKUST   LAW  597 

judgments  or  decrees  rendered  in  criminal  proceedings  or  suits  in 
equity,  now  pending,  in  which  the  taking  of  testimony  has  been  com- 
menced but  has  not  been  concluded,  provided  such  judgments  or 
decrees  are  rendered  before  any  further  testimony  is  taken. 

Whenever  any  suit  or  proceeding  in  equity  or  criminal  prosecution 
is  instituted  by  the  United  States  to  prevent,  restrain  or  punish 
violations  of  any  of  the  anti-trust  laws,  the  running  of  the  statute  of 
limitations  in  respect  of  each  and  every  private  right  of  action  arising 
under  said  laws  and  based  in  whole  or  in  part  on  any  matter  com- 
plained of  in  said  suit  or  proceeding  shall  be  suspended  during  the 
pendency  thereof. 

SEC.  6.  That  the  labor  of  a  human  being  is  not  a  commodity  or 
article  of  commerce.  Nothing  contained  in  the  anti-trust  laws  shall 
be  construed  to  forbid  the  existence  and  operation  of  labor,  agricul- 
tural, or  horticultural  organizations,  instituted  for  the  purposes  of 
mutual  help,  and  not  having  capital  stock  or  conducted  for  profit,  or 
to  forbid  or  restrain  individual  members  of  such  organizations  from 
lawfully  carrying  out  the  legitimate  objects  thereof;  nor  shall  such 
organizations,  or  the  members  thereof,  be  held  or  construed  to  be 
illegal  combinations  or  conspiracies  in  restraint  of  trade,  under  the 
antitrust  laws. 

SEC.  7.  That  no  corporation  engaged  in  commerce  shall  acquire, 
directly  or  indirectly,  the  whole  or  any  part  of  the  stock  or  other  share 
capital  of  another  corporation  engaged  also  in  commerce,  where  the 
effect  of  such  acquisition  may  be  to  Substantially  lessen  competition 
between  the  corporation  whose  stock  is  so  acquired  and  the  corpora- 
tion making  the  acquisition,  or  to  restrain  such  commerce  in  any 
section  or  community,  or  tend  to  create  a  monopoly  of  any  line  of 
commerce. 

No  corporation  shall  acquire,  directly  or  indirectly,  the  whole  or 
any  part  of  the  stock  or  other  share  capital  of  two  or  more  corpora- 
tions engaged  in  commerce  where  the  effect  of  such  acquisition,  or  the 
use  of  such  stock  by  the  voting  or  granting  of  proxies  or  otherwise, 
may  be  to  substantially  lessen  competition  between  such  corporations, 
or  any  of  them,  whose  stock  or  other  share  capital  is  so  acquired,  or 
to  restrain  such  commerce  in  any  section  or  community,  or  tend  to 
create  a  monopoly  of  any  line  of  commerce. 

This  section  shall  not  apply  to  corporations  purchasing  such  stock 
solely  for  investment  and  not  using  the  same  by  voting  or  otherwise 
to  bring  about,  or  in  attempting  to  bring  about,  the  substantial  les- 
sening of  competition.  Nor  shall  anything  contained  in  this  section 
prevent  a  corporation  engaged  in  commerce  from  causing  the  forma- 
tion of  subsidiary  corporations  for  the  actual  carrying  on  of  their 


598         MATERIALS    OF   CORPORATION   FINANCE 

immediate  lawful  business,  or  the  natural  and  legitimate  branches  or 
extensions  thereof,  or  from  owning  and  holding  all  or  a  part  of  the 
stock  of  such  subsidiary  corporations,  when  the  effect  of  such  forma- 
tion is  not  to  substantially  lessen  competition. 

Nor  shall  anything  herein  contained  be  construed  to  prohibit  any 
common  carrier  subject  to  the  laws  to  regulate  commerce  from  aiding 
in  the  construction  of  branches  or  short  lines  so  located  as  to  become 
feeders  to  the  main  line  of  the  company  so  aiding  in  such  construction 
or  from  acquiring  or  owning  all  or  any  part  of  the  stock  of  such 
branch  lines,  nor  to  prevent  any  such  common  carrier  from  acquiring 
and  owning  all  or  any  part  of  the  stock  of  a  branch  or  short  line  con- 
structed by  an  independent  company  where  there  is  no  substantial 
competition  between  the  company  owning  the  branch  line  so  con- 
structed and  the  company  owning  the  main  line  acquiring  the  prop- 
erty or  an  interest  therein,  nor  to  prevent  such  common  carrier  from 
extending  any  of  its  lines  through  the  medium  of  the  acquisition  of 
stock  or  otherwise  of  any  other  such  common  carrier  where  there  is 
no  substantial  competition  between  the  company  extending  its  lines 
and  the  company  whose  stock,  property,  or  an  interest  therein  is  so 
acquired. 

Nothing  contained  in  this  section  shall  be  held  to  affect  or  impair 
any  right  heretofore  legally  acquired :  Provided,  That  nothing  in  this 
section  shall  be  held  or  construed  to  authorize  or  make  lawful  any- 
thing heretofore  prohibited  or  made  illegal  by  the  anti-trust  laws,  nor 
to  exempt  any  person  from  the  penal  provisions  thereof  or  the  civil 
remedies  therein  provided. 

SEC.  8.  That  from  and  after  two  years  from  the  date  of  the  approval 
of  this  Act  no  person  shall  at  the  same  time  be  a  director  or  other  offi- 
cer or  employee  of  more  than  one  bank,  banking  association  or  trust 
company,  organized  or  operating  under  the  laws  of  the  United  States, 
either  of  which  has  deposits,  capital,  surplus,  and  undivided  profits 
aggregating  more  than  $5,000,000;  and  no  private  banker  or  person 
who  is  a  director  in  any  bank  or  trust  company,  organized  and  operat- 
ing under  the  laws  of  a  State,  having  deposits,  capital,  surplus,  and 
undivided  profits  aggregating  more  than  $5,000,000,  shall  be  eligible 
to  be  a  director  in  any  bank  or  banking  association  organized  or 
operating  under  the  laws  of  the  United  States.  The  eligibility  of  a 
director,  officer,  or  employee  under  the  foregoing  provisions  shall  be 
determined  by  the  average  amount  of  deposits,  capital,  surplus,  and 
undivided  profits  as  shown  in  the  official  statements  of  such  bank, 
banking  association,  or  trust  company  filed  as  provided  by  law  during 
the  fiscal  year  next  preceding  the  date  set  for  the  annual  election 
of  directors,  and  when  a  director,  officer,  or  employee  has  been  elected 


CLAYTON   ANTI-TKUST   LAW  599 

or  selected  in  accordance  with  the  provisions  of  this  Act  it  shall  be 
lawful  for  him  to  continue  as  such  for  one  year  thereafter  under  said 
election  or  employment. 

No  bank,  banking  association  or  trust  company,  organized  or  oper- 
ating under  the  laws  of  the  United  States,  in  any  city  or  incorporated 
town  or  village  of  more  than  two  hundred  thousand  inhabitants,  as 
shown  by  the  last  preceding  decennial  census  of  the  United  States, 
shall  have  as  a  director  or  other  officer  or  employee  any  private 
banker  or  any  director  or  other  officer  or  employee  of  any  other  bank, 
banking  association  or  trust  company  located  in  the  same  place: 
Provided,  That  nothing  in  this  section  shall  apply  to  mutual  savings 
banks  not  having  a  capital  stock  represented  by  shares:  Provided 
further,  That  a  director  or  other  officer  or  employee  of  such  bank, 
banking  association,  or  trust  company  may  be  a  director  or  other 
officer  or  employee  of  not  more  than  one  other  bank  or  trust  company 
organized  under  the  laws  of  the  United  States  or  any  State  where 
the  entire  capital  stock  of  one  is  owned  by  stockholders  in  the  other : 
And  provided  further,  That  nothing  contained  in  this  section  shall 
forbid  a  director  of  class  A  of  a  Federal  reserve  bank,  as  denned  in 
the  Federal  Reserve  Act  from  being  an  officer  or  director  or  both  an 
officer  and  director  in  one  member  bank. 

That  from  and  after  two  years  from  the  date  of  the  approval  of  this 
Act  no  person  at  the  same  time  shall  be  a  director  in  any  two  or  more 
corporations,  any  one  of  which  has  capital,  surplus,  and  undivided 
profits  aggregating  more  than  $1,000,000,  engaged  in  whole  or  in  part 
in  commerce,  other  than  banks,  banking  associations,  trust  companies 
and  common  carriers  subject  to  the  Act  to  regulate  commerce,  ap- 
proved February  fourth,  eighteen  Hundred  and  eighty-seven,  if  such 
corporations  are  or  shall  have  been  theretofore,  by  virtue  of  their 
business  and  location  of  operation,  competitors,  so  that  the  elimina- 
tion of  competition  by  agreement  between  them  would  constitute  a 
violation  of  any  of  the  provisions  of  any  of  the  anti-trust  laws.  The 
eligibility  of  a  director  under  the  foregoing  provision  shall  be  deter- 
mined by  the  aggregate  amount  of  the  capital,  surplus,  and  undivided 
profits,  exclusive  of  dividends  declared  but  not  paid  to  stockholders, 
at  the  end  of  the  fiscal  year  of  said  corporation  next  preceding  the 
election  of  directors,  and  when  a  director  has  been  elected  in  accord- 
ance with  the  provisions  of  this  Act  it  shall  be  lawful  for  him  to  con- 
tinue as  such  for  one  year  thereafter. 

When  any  person  elected  or  chosen  as  a  director  or  officer  or  selected 
as  an  employee  of  any  bank  or  other  corporation  subject  to  the  pro- 
visions of  this  Act  is  eligible  at  the  time  of  his  election  or  selection  to 
act  for  such  bank  or  other  corporation  in  such  capacity  his  eligibility 


600         MATERIALS    OF    CORPORATION    FINANCE 

to  act  in  such  capacity  shall  not  be  affected  and  he  shall  not  become  or 
be  deemed  amenable  to  any  of  the  provisions  hereof  by  reason  of  any 
change  in  the  affairs  of  such  bank  or  other  corporation  from  what- 
soever cause,  whether  specifically  excepted  by  any  of  the  provisions 
hereof  or  not,  until  the  expiration  of  one  year  from  the  date  of  his 
election  or  employment. 

SEC.  9.  Every  president,  director,  officer  or  manager  of  any  firm, 
association  or  corporation  engaged  in  commerce  as  a  common  carrier, 
who  embezzles,  steals,  abstracts  or  willfully  misapplies,  or  willfully 
permits  to  be  misapplied,  any  of  the  moneys,  funds,  credits,  securities, 
property  or  assets  of  such  firm,  association  or  corporation,  arising  or 
accruing  from,  or  used  in,  such  commerce,  in  whole  or  in  part,  or  will- 
fully or  knowingly  converts  the  same  to  his  own  use  or  to  the  use  of 
another,  shall  be  deemed  guilty  of  a  felony  and  upon  conviction 
shall  be  fined  not  less  than  $500  or  confined  in  the  penitentiary  not 
less  than  one  year  nor  more  than  ten  years,  or  both,  in  the  discretion 
of  the  court. 

Prosecutions  hereunder  may  be  in  the  district  court  of  the  United 
States  for  the  district  wherein  the  offense  may  have  been  committed. 

That  nothing  in  this  section  shall  be  held  to  take  away  or  impair 
the  jurisdiction  of  the  courts  of  the  several  States  under  the  laws 
thereof;  and  a  judgment  of  conviction  or  acquittal  on  the  merits 
under  the  laws  of  any  State  shall  be  a  bar  to  any  prosecution  here- 
under for  the  same  act  or  acts. 

SEC.  10.  That  after  two  years  from  the  approval  of  this  Act  no  com- 
mon carrier  engaged  in  commerce  shall  have  any  dealings  in  securities, 
supplies  or  other  articles  of  commerce,  or  shall  make  or  have  any  con- 
tracts for  construction  or  maintenance  of  any  kind,  to  the  amount  of 
more  than  $50,000,  in  the  aggregate,  in  any  one  year,  with  another 
corporation,  firm,  partnership  or  association  when  the  said  common 
carrier  shall  have  upon  its  board  of  directors  or  as  its  president,  man- 
ager or  as  its  purchasing  or  selling  officer,  or  agent  in  the  particular 
transaction,  any  person  who  is  at  the  same  time  a  director,  manager, 
or  purchasing  or  selling  officer  of,  or  who  has  any  substantial  interest 
in,  such  other  corporation,  firm,  partnership  or  association,  unless  and 
except  such  purchases  shall  be  made  from,  or  such  dealings  shall  be 
with,  the  bidder  whose  bid  is  the  most  favorable  to  such  common  car- 
rier, to  be  ascertained  by  competitive  bidding  under  regulations  to  be 
prescribed  by  rule  or  otherwise  by  the  Interstate  Commerce  Commis- 
sion. No  bid  shall  be  received  unless  the  name  and  address  of  the 
bidder  or  the  names  and  addresses  of  the  officers,  directors  and  general 
managers  thereof,  if  the  bidder  be  a  corporation,  or  of  the  members, 
if  it  be  a  partnership  or  firm,  be  given  with  the  bid. 


CLAYTON   ANTI-TRUST   LAW  601 

Any  person  who  shall,  directly  or  indirectly,  do  or  attempt  to  do 
anything  to  prevent  anyone  from  bidding  or  shall  do  any  act  to  pre- 
vent free  and  fair  competition  among  the  .bidders  or  those  desiring  to 
bid  shall  be  punished  as  prescribed  in  this  section  in  the  case  of  an 
officer  or  director. 

Every  such  common  carrier  having  any  such  transactions  or  making 
any  such  purchases  shall  within  thirty  days  after  making  the  same 
file  with  the  Interstate  Commerce  Commission  a  full  and  detailed 
statement  of  the  transaction  showing  the  manner  of  the  competitive 
bidding,  who  were  the  bidders,  and  the  names  and  addresses  of  the 
directors  and  officers  of  the  corporations  and  the  members  of  the  firm 
or  partnership  bidding;  and  whenever  the  said  commission  shall,  after 
investigation  or  hearing,  have  reason  to  believe  that  the  law  has  been 
violated  in  and  about  the  said  purchases  or  transactions  it  shall  trans- 
mit all  papers  and  documents  and  its  own  views  or  findings  regarding 
the  transaction  to  the  Attorney  General. 

If  any  common  carrier  shall  violate  this  section  it  shall  be  fined  not 
exceeding  $25,000 ;  and  every  such  director,  agent,  manager  or  officer 
thereof  who  shall  have  knowingly  voted  for  or  directed  the  act  con- 
stituting such  violation  or  who  shall  have  aided  or  abetted  in  such 
violation  shall  be  deemed  guilty  of  a  misdemeanor  and  shall  be  fined 
not  exceeding  $5,000,  or  confined  in  jail  not  exceeding  one  year,  or 
both,  in  the  discretion  of  the  court. 

SEC.  11.  That  authority  to  enforce  compliance  with  sections  two, 
three,  seven  and  eight  of  this  Act  by  the  persons  respectively  subject 
thereto  is  hereby  vested:  in  the  Interstate  Commerce  Commission 
where  applicable  to  common  carriers,  in  the  Federal  Reserve  Board 
where  applicable  to  banks,  banking  associations  and  trust  companies, 
and  in  the  Federal  Trade  Commission  where  applicable  to  all  other 
character  of  commerce,  to  be  exercised  as  follows: 

Whenever  the  commission  or  board  vested  with  jurisdiction  thereof 
shall  have  reason  to  believe  that  any  person  is  violating  or  has  vio- 
lated any  of  the  provisions  of  sections  two,  three,  seven  and  eight  of 
this  Act,  it  shall  issue  and  serve  upon  such  person  a  complaint  stating 
its  charges  in  that  respect,  and  containing  a  notice  of  a  hearing  upon 
a  day  and  at  a  place  therein  fixed  at  least  thirty  days  after  the  service 
of  said  complaint.  The  person  so  complained  of  shall  have  the  right 
to  appear  at  the  place  and  time  so  fixed  and  show  cause  why  an  order 
should  not  be  entered  by  the  commission  or  board  requiring  such 
person  to  cease  and  desist  from  the  violation  of  the  law  so  charged  in 
said  complaint.  Any  person  may  mnke  application,  and  upon  good 
cause  shown  may  be  allowed  by  the  commission  or  board,  to  intervene 
and  appear  in  said  proceeding  by  counsel  or  in  person.  The  testi- 

SANTA  BARBARA  STATC  COLLEGE  LIBRARY 


602         MATEEIALS    OP    COKPOBATION    FINANCE 

mony  in  any  such  proceeding  shall  be  reduced  to  writing  and  filed  in 
the  office  of  the  commission  or  board.  If  upon  such  hearing  the  com- 
mission or  board,  as  the  case  may  be,  shall  be  of  the  opinion  that  any 
of  the  provisions  of  said  sections  have  been  or  are  being  violated,  it 
shall  make  a  report  in  writing  in  which  it  shall  state  its  findings  as  to 
the  facts,  and  shall  issue  and  cause  to  be  served  on  such  person  an 
order  requiring  such  person  to  cease  and  desist  from  such  violations, 
and  divest  itself  of  the  stock  held  or  rid  itself  of  the  directors  chosen 
contrary  to  the  provisions  of  sections  seven  and  eight  of  this  Act,  if 
any  there  be,  in  the  manner  and  within  the  time  fixed  by  said  order. 
Until  a  transcript  of  the  record  in  such  hearing  shall  have  been  filed 
in  a  circuit  court  of  appeals  of  the  United  .States,  as  hereinafter  pro- 
vided, the  commission  or  board  may  at  any  time,  upon  such  notice 
and  in  such  manner  as  it  shall  deem  proper,  modify  or  set  aside,  in 
whole  or  in  part,  any  report  or  any  order  made  or  issued  by  it  under 
this  section. 

If  such  person  fails  or  neglects  to  obey  such  order  of  the  commission 
or  board  while  the  same  is  in  effect,  the  commission  or  board  may 
apply  to  the  circuit  court  of  appeals  of  the  United  States,  within  any 
circuit  where  the  violation  complained  of  was  or  is  being  committeed 
or  where  such  person  resides  or  carries  on  business,  for  the  enforce- 
ment of  its  order,  and  shall  certify  and  file  with  its  application  a 
transcript  of  the  entire  record  in  the  proceeding,  including  all  the 
testimony  taken  and  the  report  and  order  of  the  commission  or  board. 
Upon  such  filing  of  the  application  and  transcript  the  court  shall 
cause  notice  thereof  to  be  served  upon  such  person  and  thereupon 
shall  have  jurisdiction  of  the  proceeding  and  of  the  question  deter- 
mined therein,  and  shall  have  power  to  make  and  enter  upon  the 
pleadings,  testimony,  and  proceedings  set  forth  in  such  transcript  a 
decree  affirming,  modifying,  or  setting  aside  the  order  of  the  commis- 
sion or  board.  The  findings  of  the  commission  or  board  as  to  the 
facts,  if  supported  by  testimony,  shall  be  conclusive.  If  either  party 
shall  apply  to  the  court  for  leave  to  adduce  additional  evidence,  and 
shall  show  to  the  satisfaction  of  the  court  that  such  additional  evi- 
dence is  material  and  that  there  were  reasonable  grounds  for  the 
failure  to  adduce  such  evidence  in  the  proceedings  before  the  commis- 
sion or  board,  the  court  may  order  such  additional  evidence  to  be 
taken  before  the  commission  or  board  and  to  be  adduced  upon  the 
hearing  in  such  manner  and  upon  such  terms  and  conditions  as  to 
the  court  may  seem  proper.  The  commission  or  board  may  modify 
its  findings  as  to  the  facts,  or  make  new  findings,  by  reason  of  the 
additional  evidence  so  taken,  and  it  shall  file  such  modified  or  new 
findings,  which,  if  supported  by  testimony,  shall  be  conclusive,  and 


CLAYTON   ANTI-TRUST    LAW  603 

its  recommendation,  if  any,  for  the  modification  or  setting  aside  of 
its  original  order,  with  the  return  of  such  additional  evidence.  The 
judgment  and  decree  of  the  court  shall  be  final,  except  that  the  same 
shall  be  subject  to  review  by  the  Supreme  Court  upon  certiorari  as 
provided  in  section  two  hundred  and  forty  of  the  Judicial  Code. 

Any  party  required  by  such  order  of  the  commission  or  board  to 
cease  and  desist  from  a  violation  charged  may  obtain  a  review  of  such 
order  in  said  circuit  court  of  appeals  by  filing  in  the  court  a  written 
petition  praying  that  the  order  of  the  commission  or  board  be  set 
aside.  A  copy  of  such  petition  shall  be  forthwith  served  upon  the 
commission  or  board,  and  thereupon  the  commission  or  board  forth- 
with shall  certify  and  file  in  the  court  a  transcript  of  the  record  as 
hereinbefore  provided.  Upon  the  filing  of  the  transcript  the  court 
shall  have  the  same  jurisdiction  to  affirm,  set  aside,  or  modify  the 
order  of  the  commission  or  board  as  in  the  case  of  an  application  by 
the  commission  or  board  for  the  enforcement  of  its  order,  and  the 
findings  of  the  commission  or  board  as  to  the  facts,  if  supported  by 
testimony,  shall  in  like  manner  be  conclusive. 

The  jurisdiction  of  the  circuit  court  of  appeals  of  the  United  States 
to  enforce,  set  aside,  or  modify  orders  of  the  commission  or  board 
shall  be  exclusive. 

Such  proceedings  in  the  circuit  court  of  appeals  shall  be  given 
precedence  over  other  cases  pending  therein,  and  shall  be  in  every 
way  expedited.  No  order  of  the  commission  or  board  or  the  judgment 
of  the  court  to  enforce  the  same  shall  in  any  wise  relieve  or  absolve 
any  person  from  any  liability  under  the  anti-trust  Acts. 

Complaints,  orders,  and  other  processes  of  the  commission  or  board 
under  this  section  may  be  served  by  anyone  duly  authorized  by  the 
commission  or  board,  either  (a)  by  delivering  a  copy  thereof  to  the 
person  to  be  served,  or  to  a  member  of  the  partnership  to  be  served, 
or  to  the  president,  secretary,  or  other  executive  officer  or  a  director 
of  the  corporation  to  be  served;  or  (b)  by  leaving  a  copy  thereof  at 
the  principal  office  or  place  of  business  of  such  person;  or  (c)  by  reg- 
istering and  mailing  a  copy  thereof  addressed  to  such  person  at  his 
principal  office  or  place  of  business.  The  verified  return  by  the  per- 
son so  serving  said  complaint,  order,  or  other  process  setting  forth  the 
manner  of  said  service  shall  be  proof  of  the  same,  and  the  return 
post-office  receipt  for  said  complaint,  order,  or  other  process  regis- 
tered and  mailed  as  aforesaid  shall  be  proof  of  the  service  of  the  same. 

SEC.  12.  That  any  suit,  action,  or  proceedings  under  the  anti-trust 
laws  against  a  corporation  may  be  brought  not  only  in  the  judicial 
district  whereof  it  is  an  inhabitant,  but  also  in  any  district  wherein  it 
may  be  found  or  transacts  business;  and  all  process  in  such  cases  may 


604         MATERIALS    OF    CORPORATION    FINANCE 

be  served  in  the  district  of  which  it  is  an  inhabitant,  or  wherever  it 
may  be  found. 

SEC.  13.  That  in  any  suit,  action,  or  proceeding  brought  by  or  on 
behalf  of  the  United  States  subpoenas  for  witnesses  who  are  required 
to  attend  a  court  of  the  United  States  in  any  judicial  district  in  any 
case,  civil  or  criminal,  arising  under  the  anti-trust  laws  may  run  into 
any  other  district:  Provided,  That  in  civil  cases  no  writ  of  subpoena 
shall  issue  for  witnesses  living  out  of  the  district  in  which  the  court 
is  held  at  a  greater  distance  than  one  hundred  miles  from  the  place 
of  holding  the  same  without  the  permission  of  the  trial  court  being 
first  had  upon  proper  application  and  cause  shown. 

SEC.  14.  That  whenever  a  corporation  shall  violate  any  of  the  penal 
provisions  of  the  anti-trust  laws,  such  violation  shall  be  deemed  to  be 
also  that  of  the  individual  directors,  officers,  or  agents  of  such  cor- 
poration who  shall  have  authorized,  ordered,  or  done  any  of  the  acts 
constituting  in  whole  or  in  part  such  violation,  and  such  violation 
shall  be  deemed  a  misdemeanor,  and  upon  conviction  therefor  of  any 
such  director,  officer,  or  agent  he  shall  be  punished  by  a  fine  of  not 
exceeding  $5,000  or  by  imprisonment  for  not  exceeding  one  year,  or 
by  both,  in  the  discretion  of  the  court. 

SEC.  15.  That  the  several  district  courts  of  the  United  States  are 
hereby  invested  with  jurisdiction  to  prevent  and  restrain  violations 
of  this  Act,  and  it  shall  be  the  duty  of  the  several  district  attorneys 
of  the  United  States,  in  their  respective  districts,  under  the  direction 
of  the  Attorney  General,  to  institute  proceedings  in  equity  to  prevent 
and  restrain  such  violations.  Such  proceedings  may  be  by  way 
of  petition  setting  forth  the  case  and  praying  that  such  violation 
shall  be  enjoined  or  otherwise  prohibited.  When  the  parties  com- 
plained of  shall  have  been  duly  notified  of  such  petition,  the  court 
shall  proceed,  as  soon  as  may  be,  to  the  hearing  and  determination 
of  the  case;  and  pending  such  petition,  and  before  final  decree,  the 
court  may  at  any  time  make  such  temporary  restraining  order  or 
prohibition  as  shall  be  deemed  just  in  the  premises.  Whenever 
it  shall  appear  to  the  court  before  which  any  such  proceeding  may 
be  pending  that  the  ends  of  justice  require  that  other  parties  should 
be  brought  before  the  court,  the  court  may  cause  them  to  be  sum- 
moned whether  they  reside  in  the  district  in  which  the  court  is  held 
or  not,  and  subpoenas  to  that  end  may  be  served  in  any  district  by 
the  marshal  thereof. 

SEC.  16.  That  any  person,  firm,  corporation,  or  association  shall 
be  entitled  to  sue  for  and  have  injunctive  relief,  in  any  court  of  the 
United  States  having  jurisdiction  over  the  parties,  against  threat- 
ened loss  or  damage  by  a  violation  of  the  anti-trust  laws,  including 


CLAYTON   ANTI-TRUST   LAW  605 

sections  two,  three,  seven  and  eight  of  this  Act,  when  and  under  the 
same  conditions  and  principles  as  injunctive  relief  against  threat- 
ened conduct  that  will  cause  loss  or  damage  is  granted  by  courts 
of  equity,  under  the  rules  governing  such  proceedings,  and  upon 
the  execution  of  proper  bond  against  damages  for  an  injunction 
improvidently  granted  and  a  showing  that 'the  danger  of  irreparable 
loss  or  damage  is  immediate,  a  preliminary  injunction  may  issue: 
Provided,  That  nothing  herein  contained  shall  be  construed  to  entitle 
any  person,  firm,  corporation,  or  association,  except  the  United  States, 
to  bring  suit  in  equity  for  injunctive  relief  against  any  common 
carrier  subject  to  the  provisions  of  the  Act  to  regulate  commerce, 
approved  February  fourth,  eighteen  hundred  and  eighty-seven,  in 
respect  of  any  matter  subject  to  the  regulation,  supervision,  or  other 
jurisdiction  of  the  Interstate  Commerce  Commission. 

SEC.  17.  That  no  preliminary  injunction  shall  be  issued  without 
notice  to  the  opposite  party. 

No  temporary  restraining  order  shall  be  granted  without  notice  to 
the  opposite  party  unless  it  shall  clearly  appear  from  specific  facts 
shown  by  affidavit  or  by  the  verified  bill  that  immediate  and  irrepa- 
rable injury,  loss,  or  damage  will  result  to  the  applicant  before  notice 
can  be  served  and  a  hearing  had  thereon.  Every  such  temporary 
restraining  order  shall  be  indorsed  with  the  date  and  hour  of  issuance, 
shall  be  forthwith  filed  in  the  clerk's  office  and  entered  of  record, 
shall  define  the  injury  and  state  why  it  is  irreparable  and  why  the 
order  was  granted  without  notice,  and  shall  by  its  terms  expire  within 
such  time  after  entry,  not  to  exceed  ten  days,  as  the  court  or  judge 
may  fix,  unless  within  the  time  so  fixed  the  order  is  extended  for  a 
like  period  for  good  cause  shown,  and  the  reasons  for  such  extension 
shall  be  entered  of  record.  In  case  a  temporary  restraining  order 
shall  be  granted  without  notice  in  the  contingency  specified,  the  matter 
of  the  issuance  of  a  preliminary  injunction  shall  be  set  down  for  a 
hearing  at  the  earliest  possible  time  and  shall  take  precedence  of  all 
matters  except  older  matters  of  the  same  character;  and  when  the 
same  comes  up  for  hearing  the  party  obtaining  the  temporary  re- 
straining order  shall  proceed  with  the  application  for  a  preliminary 
injunction,  and  if  he  does  not  do  so  the  court  shall  dissolve  the  tem- 
porary restraining  order.  Upon  two  days'  notice  to  the  party  obtain- 
ing such  temporary  restraining  order  the  opposite  party  may  appear 
and  move  the  dissolution  or  modification  of  the  order,  and  in  that 
event  the  court  or  judge  shall  proceed  to  hear  and  determine  the 
motion  as  expeditiously  as  the  ends  of  justice  may  require. 

Section  two  hundred  and  sixty-three  of  an  Act  entitled  "An  Act  to 
j-odifv.  revise,  and  amend  the  laws  relating  to  the  judiciary,"  ap- 


606         MATERIALS    OF   CORPORATION   FINANCE 

proved  March  third,  nineteen  hundred  and  eleven,  is  hereby  repealed. 

Nothing  in  this  section  contained  shall  be  deemed  to  alter,  repeal, 
or  amend  section  two  hundred  and  sixty-six  of  an  Act  entitled  "An 
Act  to  codify,  revise,  and  amend  the  laws  relating  to  the  judiciary," 
approved  March  third,  nineteen  hundred  and  eleven. 

SEC.  18.  That,  except  as  otherwise  provided  in  section  16  of  this 
Act,  no  restraining  order  or  interlocutory  order  of  injunction  shall 
issue,  except  upon  the  giving  of  security  by  the  applicant  in  such  sum 
as  the  court  or  judge  may  deem  proper,  conditioned  upon  the  payment 
of  such  costs  and  damages  as  may  be  incurred  or  suffered  by  any 
party  who  may  be  found  to  have  been  wrongfully  enjoined  or  re- 
strained thereby. 

SEC.  19.  That  every  order  of  injunction  or  restraining  order  shall 
set  forth  the  reasons  for  the  issuance  of  the  same,  shall  be  specific  in 
terms,  and  shall  describe  in  reasonable  detail,  and  not  by  reference 
to  the  bill  of  complaint  or  other  document,  the  act  or  acts  sought  to 
be  restrained,  and  shall  be  binding  only  upon  the  parties  to  the  suit, 
their  officers,  agents,  servants,  employees,  and  attorneys,  or  those  in 
active  concert  or  participating  with  them,  and  who  shall,  by  personal 
service  or  otherwise,  have  received  actual  notice  of  the  same. 

SEC.  20.  That  no  restraining  order  or  injunction  shall  be  granted  by 
any  court  of  the  United  States,  or  a  judge  or  the  judges  thereof,  in  any 
case  between  an  employer  and  employees,  or  between  employers  and 
employees,  or  between  employees,  or  between  persons  employed  and 
persons  seeking  employment,  involving,  or  growing  out  of,  a  dispute 
concerning  terms  or  conditions  of  employment,  unless  necessary  to 
prevent  irreparable  injury  to  property,  or  to  a  property  right,  of  the 
party  making  the  application,  for  which  injury  there  is  no  adequate 
remedy  at  law,  and  such  property  or  property  right  must  be  described 
with  particularity  in  the  application,  which  must  be  in  writing  and 
sworn  to  by  the  applicant  or  by  his  agent  or  attorney. 

And  no  such  restraining  order  or  injunction  shall  prohibit  any  per- 
son or  persons,  whether  singly  or  in  concert,  from  terminating  any 
relation  of  employment,  or  from  ceasing  to  perform  any  work  or  labor, 
or  from  recommending,  advising,  or  persuading  others  by  peaceful 
means  so  to  do ;  or  from  attending  at  any  place  where  any  such  person 
or  persons  may  lawfully  be,  for  the  purpose  of  peacefully  obtaining  or 
communicating  information,  or  from  peacefully  persuading  any  person 
to  work  or  to  abstain  from  working;  or  from  ceasing  to  patronize  or 
to  employ  any  party  to  such  dispute,  or  from  recommending,  advis- 
ing, or  persuading  others  by  peaceful  and  lawful  means  so  to  do;  or 
from  paying  or  giving  to,  or  withholding  from,  any  person  engaged  in 
such  dispute,  any  strike  benefits  or  other  moneys  or  things  of  value; 


CLAYTON   ANTI-TRUST   LAW  607 

or  from  peaceably  assembling  in  a  lawful  manner,  and  for  lawful  pur- 
poses; or  from  doing  any  act  or  thing  which  might  lawfully  be  done 
in  the  absence  of  such  dispute  by  any  party  thereto;  nor  shall  any 
of  the  acts  specified  in  this  paragraph  be  considered  or  held  to  be 
violations  of  any  law  of  the  United  States. 

SEC.  21.  That  any  person  who  shall  willfully  disobey  any  lawful 
writ,  process,  order,  rule,  decree,  or  command  of  any  district  court  of 
the  United  States  or  any  court  of  the  District  of  Columbia  by  doing 
any  act  or  thing  therein,  or  thereby  forbidden  to  be  done  by  him,  if 
the  act  or  thing  so  done  by  him  be  of  such  character  as  to  constitute 
also  a  criminal  offense  under  any  statute  of  the  United  States,  or 
under  the  laws  of  any  State  in  which  the  act  was  committed,  shall  be 
proceeded  against  for  his  said  contempt  as  hereinafter  provided. 

SEC.  22.  That  whenever  it  shall  be  made  to  appear  to  any  district 
court  «r  judge  thereof,  or  to  any  judge  therein  sitting,  by  the  return 
of  a  proper  officer  on  lawful  process,  or  upon  the  affidavit  of  some 
credible  person,  or  by  information  filed  by  any  district  attorney,  that 
there  is  reasonable  ground  to  believe  that  any  person  has  been  guilty 
of  such  contempt,  the  court  or  judge  thereof,  or  any  judge  therein 
sitting,  may  issue  a  rule  requiring  the  said  person  so  charged  to 
show  cause  upon  a  day  certain  why  he  should  not  be  punished  there- 
for, which  rule,  together  with  a  copy  of  the  affidavit  or  information, 
shall  be  served  upon  the  person  charged,  with  sufficient  promptness 
to  enable  him  to  prepare  for  and  make  return  to  the  order  at  the  timo 
fixed  therein.  If  upon  or  by  such  return,  in  the  judgment  of  the 
court,  the  alleged  contempt  be  not  sufficiently  purged,  a  trial  shall 
be  directed  at  a  time  and  place  fixed  by  the  court :  Provided,  however. 
That  if  the  accused,  being  a  natural  person,  fail  or  refuse  to  make 
return  to  the  rule  to  show  cause,  an  attachment  may  issue  against 
his  person  to  compel  an  answer,  and  in  case  of  his  continued  failure 
or  refusal,  or  if  for 'any  reason  it  be  impracticable  to  dispose  of  the 
matter  on  the  return  day,  he  may  be  required  to  give  reasonable 
bail  for  his  attendance  at  the  trial  and  his  submission  to  the  final 
judgment  of  the  court.  Where  the  accused  is  a  body  corporate,  an 
attachment  for  the  sequestration  of  its  property  may  be  issued  upon 
like  refusal  or  failure  to  answer. 

In  all  cases  within  the  purview  of  this  Act  such  trial  may  be  by 
the  court,  or,  upon  demand  of  the  accused,  by  a  jury;  in  which  latter 
event  the  court  may  impanel  a  jury  from  the  jurors  then  in  attend- 
ance, or  the  court  or  the  judge  thereof  in  chambers  may  cause  a 
sufficient  number  of  jurors  to  be  selected  and  summoned,  as  provided 
by  law,  to  attend  at  the  time  and  place  of  trial,  at  which  time  a  jury 
shall  be  selected  and  impaneled  as  upon  a  trial  for  misdemeanor; 


608         MATERIALS    OF   CORPORATION   FINANCE 

and  such  trial  shall  conform,  as  near  as  may  be,  to  the  practice  in 
criminal  cases  prosecuted  by  indictment  or  upon  information. 

If  the  accused  be  found  guilty,  judgment  shall  be  entered  accord- 
ingly, prescribing  the  punishment,  either  by  fine  or  imprisonment, 
or  both,  in  the  discretion  of.  the  court.  Such  fine  shall  be  paid  to  the 
United  States  or  to  the  complainant  or  other  party  injured  by  the 
act  constituting  the  contempt,  or  may,  where  more  than  one  is  so 
damaged,  be  divided  or  apportioned  among  them  as  the  court  may 
direct,  but  in  no  case  shall  the  fine  to  be  paid  to  the  United  States 
exceed,  in  case  the  accused  is  a  natural  person,  the  sum  of  $1,000, 
nor  shall  such  imprisonment  exceed  the  term  of  six  months :  Provided, 
That  in  any  case  the  court  or  a  judge  thereof  may,  for  good  cause 
shown,  by  affidavit  or  proof  taken  in  open  court  or  before  such  judge 
and  filed  with  the  papers  in  the  case,  dispense  with  the  rule  to  show 
cause,  and  may  issue  an  attachment  for  the  arrest  of  the  person 
charged  with  contempt;  in  which  event  such  person,  when  arrested, 
shall  be  brought  before  such  court  or  a  judge  thereof  without  unneces- 
sary delay  and  shall  be  admitted  to  bail  in  a  reasonable  penalty  for 
his  appearance  to  answer  to  the  charge  or  for  trial  for  the  contempt ; 
and  thereafter  the  proceedings  shall  be  the  same  as  provided  herein 
in  case  the  rule  had  issued  in  the  first  instance. 

SEC.  23.  That  the  evidence  taken  upon  the  trial  of  any  persons  so 
accused  may  be  preserved  by  bill  of  exceptions,  and  any  judgment  of 
conviction  may  be  reviewed  upon  writ  of  error  in  all  respects  as  now 
provided  by  law  in  criminal  cases,  and  may  be  affirmed,  reversed,  or 
modified  as  justice  may  require.  Upon  the  granting  of  such  writ  of 
error,  execution  of  judgment  shall  be  stayed,  and  the  accused,  if 
thereby  sentenced  to  imprisonment,  shall  be  admitted  to  bail  in  such 
reasonable  sum  as  may  be  required  by  the  court,  or  by  any  justice,  or 
any  judge  of  any  district  court  of  the  United  States  or  any  court  of 
the  District  of  Columbia. 

SEC.  24.  That  nothing  herein  contained  shall  be  construed  to  relate 
to  contempts  committed  in  the  presence  of  the  court,  or  so  near 
thereto  as  to  obstruct  the  administration  of  justice,  nor  to  contempts 
committed  in  disobedience  of  any  lawful  writ,  process,  order,  rule, 
decree,  or  command  entered  in  any  suit  or  action  brought  or  prose- 
cuted in  the  name  of,  or  on  behalf  of,  the  United  States,  but  the 
same,  and  all  other  cases  of  contempt  not  specifically  embraced  within 
section  twenty-one  of  this  Act,  may  be  punished  in  conformity  to  the 
usages  at  law  and  in  equity  now  prevailing. 

SEC.  25.  That  no  proceeding  for  contempt  shall  be  instituted 
against  any  person  unless  begun  within  one  year  from  the  date  of 
the  act  complained  of;  nor  shall  any  such  proceeding  be  a  bar  to  any 


CLAYTON   ANTI-TRUST   LAW  609 

criminal  prosecution  for  the  same  act  or  acts;  but  nothing  herein 
contained  shall  affect  any  proceedings  in  contempt  pending  at  the 
time  of  the  passage  of  this  Act. 

SEC.  26.  If  any  clause,  sentence,  paragraph,  or  part  of  this  Act 
shall,  for  any  reason,  be  adjudged  by  any  court  of  competent  juris- 
diction to  be  invalid,  such  judgment  shall  not  affect,  impair,  or  in- 
validate the  remainder  thereof,  but  shall  be  confined  in  its  operation 
to  the  clause,  sentence,  paragraph,  or  part  thereof  directly  involved  in 
the  controversy  in  which  such  judgment  shall  have  been  rendered. 

Approved,  October  15,  1914. 


610         MATERIALS    OF    CORPORATION    FINANCE 


FEDERAL    TRADE    COMMISSION   LAW.1 

An  Act  To  create  a  Federal  Trade  Commission,  to  define  its  powers 
and  duties,  and  for  other  purposes. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the 
United  States  of  America  in  Congress  assembled,  That  a  commission 
is  hereby  created  and  established,  to  be  known  as  the  Federal  Trade 
Commission  (hereinafter  referred  to  as  the  commission),  which  shall 
be  composed  of  five  commissioners,  who  shall  be  appointed  by  the 
President,  by  and  with  the  advice  and  consent  of  the  Senate.  Not 
more  than  three  of  the  commissioners  shall  be  members  of  the  same 
political  party.  The  first  commissioners  appointed  shall  continue  in 
office  for  terms  of  three,  four,  five,  six,  and  seven  years,  respectively, 
from  the  date  of  the  taking  effect  of  this  Act,  the  term  of  each  to  be 
designated  by  the  President,  but  their  successors  shall  be  appointed 
for  terms  of  seven  years,  except  that  any  person  chosen  to  fill  a 
vacancy  shall  be  appointed  only  for  the  unexpired  term  of  the  com- 
missioner whom  he  shall  succeed.  The  commission  shall  choose  a 
chairman  from  its  own  membership.  No  commissioner  shall  engage 
in  any  other  business,  vocation,  or  employment.  Any  commissioner 
may  be  removed  by  the  President  for  inefficiency,  neglect  of  duty,  or 
malfeasance  in  office.  A  vacancy  in  the  commission  shall  not  impair 
the  right  of  the  remaining  commissioners  to  exercise  all  the  powers 
of  the  commission. 

The  commission  shall  have  an  official  seal,  which  shall  be  judicially 
noticed. 

SEC.  2.  That  each  commissioner  shall  receive  a  salary  of  $10,000  a 
year,  payable  in  the  same  manner  as  the  salaries  of  the  judges  of  the 
courts  of  the  United  States.  The  commission  shall  appoint  a  secre- 
tary, who  shall  receive  a  salary  of  $5,000  a  year,  payable  in  like  man- 
ner, and  it  shall  have  authority  to  employ  and  fix  the  compensation 
of  such  attorneys,  special  experts,  examiners,  clerks,  and  other  em- 
ployees as  it  may  from  time  to  time  find  necessary  for  the  proper 
performance  of  its  duties  and  as  may  be  from  time  to  time  appro- 
priated for  by  Congress. 

With  the  exception  of  the  secretary,  a  clerk  to  each  commissioner, 
the  attorneys,  and  such  special  experts  and  examiners  as  the  com- 
mission may  from  time  to  time  find  necessary  for  the  conduct  of  its 
work,  all  employees  of  the  commission  shall  be  a  part  of  the  classified 
civil  service,  and  shall  enter  the  service  under  such  rules  and  regula- 

i  Public— No.   203— 63d    Congress.      H.  R.  15613. 


611 

tions  as  may  be  prescribed  by  the  commission  and  by  the  Civil  Service 
Commission. 

All  of  the  expenses  of  the  commission,  including  all  necessary 
expenses  for  transportation  incurred  by  the  commissioners  or  by 
their  employees  under  their  orders,  in  making  any  investigation,  or 
upon  official  business  in  any  other  places  than  in  the  city  of  Wash- 
ington, shall  be  allowed  and  paid  on  the  presentation  of  itemized 
vouchers  therefor  approved  by  the  commission. 

Until  otherwise  provided  by  law,  the  commission  may  rent  suitable 
offices  for  its  use. 

The  Auditor  for  the  State  and  Other  Departments  shall  receive 
and  examine  all  accounts  of  expenditures  of  the  commission. 

SEC.  3.  That  upon  the  organization  of  the  commission  and  elec- 
tion of  its  chairman,  the  Bureau  of  Corporations  and  the  offices  of 
Commissioner  and  Deputy  Commissioner  of  Corporations  shall  cease 
to  exist ;  and  all  pending  investigations  and  proceedings  of  the  Bureau 
of  Corporations  shall  be  continued  by  the  commission. 

All  clerks  and  employees  of  the  said  bureau  shall  be  transferred 
to  and  become  clerks  and  employees  of  the  commission  at  their  pres- 
ent grades  and  salaries.  All  records,  papers,  and  property  of  the 
said  bureau  shall  become  records,  papers,  and  property  of  the  com- 
mission, and  all  unexpended  funds  and  appropriations  for  the  use 
and  maintenance  of  the  said  bureau,  including  any  allotment  already 
made  to  it  by  the  Secretary  of  Commerce  from  the  contingent  appro- 
priation for  the  Department  of  Commerce  for  the  fiscal  year  nineteen 
hundred  and  fifteen,  or  from  the  departmental  printing  fund  for 
the  fiscal  year  nineteen  hundred  and  fifteen,  shall  become  funds  and 
appropriations  available  to  be  expended  by  the  commission  in  the 
exercise  of  the  powers,  authority,  and  duties  conferred  on  it  by  this 
Act. 

The  principal  office  of  the  commission  shall  be  in  the  city  of  Wash- 
ington, but  it  may  meet  and  exercise  all  its  powers  at  any  other 
place.  The  commission  may,  by  one  or  more  of  its  members,  or  by 
such  examiners  as  it  may  designate,  prosecute  any  inquiry  necessary 
to  its  duties  in  any  part  of  the  United  States. 

SEO.  4.  That  the  words  defined  in  this  section  shall  have  the  fol- 
loiwng  meaning  when  found  in  this  Act,  to  wit: 

"Commerce"  means  commerce  among  the  several  States  or  with 
foreign  nations,  or  in  any  Territory  of  the  United  States  or  in  the 
District  of  Columbia,  or  between  any  such  Territory  and  another, 
or  between  any  such  Territory  and  any  State  or  foreign  nation,  or 
between  the  District  of  Colummbia  and  any  State  or  Territory  or 
foreign  nation. 


612         MATERIALS    OF    CORPORATION    FINANCE 

"Corporation"  means  any  company  or  association  incorporated  or 
unincorporated,  which  is  organized  to  carry  on  business  for  profit 
and  has  shares  of  capital  or  capital  stock,  and  any  company  or  asso- 
ciation, incorporated  or  unincorporated,  without  shares  of  capital  or 
capital  stock,  except  partnerships,  which  is  organized  to  carry  on 
business  for  its  own  profit  or  that  of  its  members. 

"Documentary  evidence"  means  all  documents,  papers,  and  corre- 
spondence in  existence  at  and  after  the  passage  of  this  Act. 

"Acts  to  regulate  commerce"  means  the  Act  entitled  "An  Act  to 
regulate  commerce,"  approved  February  fourteenth,  eighteen  hundred 
and  eighty-seven,  and  all  Acts  amendatory  thereof  and  supplementary 
thereto. 

"Anti-trust  acts"  means  the  Act  entitled  "An  Act  to  protect  trade 
and  commerce  against  unlawful  restraints  and  monopolies,"  approved 
July  second,  eighteen  hundred  and  ninety;  also  the  sections  seventy- 
three  to  seventy-seven,  inclusive,  of  an  Act  entitled  "An  Act  to 
reduce  taxation,  to  provide  revenue  for  the  Government,  and  for 
other  purposes,"  approved  August  twenty-seventh,  eighteen  hundred 
and  ninety-four ;  and  also  the  Act  entitled  "An  Act  to  amend  sections 
seventy-three  and  seventy-six  of  the  Act  of  August  twenty-seventh, 
eighteen  hundred  and  ninety-four,  entitled  'An  Act  to  reduce  taxation, 
to  provide  revenue  for  the  Government,  and  for  other  purposes,' " 
approved  February  twelfth,  nineteen  hundred  and  thirteen. 

SEC.  5.  That  unfair  methods  of  competition  in  commerce  are 
hereby  declared  unlawful. 

The  commission  is  hereby  empowered  and  directed  to  prevent  per- 
sons, partnerships,  or  corporations,  except  banks,  and  common  carriers 
subject  to  the  Acts  to  regulate  commerce,  from  using  unfair  methods 
of  competition  in  commerce. 

Whenever  the  commission  shall  have  reason  to  believe  that  any 
such  person,  partnership,  or  corporation  has  been  or  is  using  any 
unfair  method  of  competition  in  commerce,  and  if  it  shall  appear  to 
the  commission  that  a  proceeding  by  it  in  respect  thereof  would  be 
to  the  interest  of  the  public,  it  shall  issue  and  serve  upon  such  person, 
partnership,  or  corporation  a  complaint  stating  its  charges  in  that 
respect,  and  containing  a  notice  of  a  hearing  upon  a  day  and  at  a 
place  therein  fixed  at  least  thirty  days  after  the  service  of  said  com- 
plaint. The  person,  partnership,  or  corporation  so  complained  of 
shall  have  the  right  to  appear  at  the  place  and  time  so  fixed  and  show 
cause  why  an  order  should  not  be  entered  by  the  commission  requiring 
such  person,  partnership,  or  corporation  to  cease  and  desist  from  the 
violation  of  the  law  so  charged  in  said  complaint.  Any  person, 
partnership,  or  corporation  may  make  application,  and  upon  good 


TRADE    COMMISSION   LAW  613 

cause  shown  may  be  allowed  by  the  commission,  to  intervene  and 
appear  in  said  proceeding  by  counsel  or  in  person.  The  testimony 
in  any  such  proceeding  shall  be  reduced  to  writing  and  filed  in  the 
office  of  the  commission.  If  upon  such  hearing  the  commission  shall 
be  of  the  opinion  that  the  method  of  competition  in  question  is 
prohibited  by  this  Act,  it  shall  make  a  report  in  writing  in  which  it 
shall  state  its  findings  as  to  the  facts,  and  shall  issue  and  cause  to  be 
served  on  such  person,  partnership,  or  corporation  an  order  requiring 
such  person,  partnership,  or  corporation  to  cease  and  desist  fom 
using  such  method  of  competition.  Until  a  transcript  of  the  record 
in  such  hearing  shall  have  been  filed  in  a  circuit  court  of  appeals  of 
the  United  States,  as  hereinafter  provided,  the  commission  may  at 
any  time,  upon  such  notice  and  in  such  manner  as  it  shall  deem 
proper,  modify  or  set  aside,  in  whole  or  in  part,  any  report  or  any 
order  made  or  issued  by  it  under  this  section. 

If  such  person,  partnership,  or  corporation  fails  or  neglects  to  obey 
such  order  of  the  commission  while  the  same  is  in  effect,  the  commis- 
sion may  apply  to  the  circuit  court  of  appeals  of  the  United  States, 
within  any  circuit  where  the  method  of  competition  in  question  was 
used  or  where  such  person,  partnership,  or  corporation  resides  or 
carries  on  business,  for  the  enforcement  of  its  order,  and  shall  certify 
and  file  with  its  application  a  transcript  of  the  entire  record  in  the 
proceeding,  including  all  the  testimony  taken  and  the  report  and  order 
of  the  commission.  Upon  such  filing  of  the  application  and  transcript 
the  court  shall  cause  notice  thereof  to  be  served  upon  such  person, 
partnership,  or  corporation  and  thereupon  shall  have  jurisdiction  of 
the  proceeding  and  of  the  question  determined  therein,  and  shall  have 
power  to  make  and  enter  upon  the  pleadings,  testimony,  and  pro- 
ceedings set  forth  in  such  transcript  a  decree  affirming,  modifying,  or 
setting  aside  the  order  of  the  commission.  The  findings  of  the  com- 
mission as  to  the  facts,  if  supported  by  testimony,  shall  be  conclusive. 
If  either  party  shall  apply  to  the  court  for  leave  to  adduce  additional 
evidence,  and  shall  show  to  the  satisfaction  of  the  court  that  such 
additional  evidence  is  material  and  that  there  were  reasonable  grounds 
for  the  failure  to  adduce  such  evidence  in  the  proceeding  before 
the  commission,  the  court  may  order  such  additional  evidence  to  be 
taken  before  the  commission  and  to  be  adduced  upon  the  hearing 
in  such  manner  and  upon  such  terms  and  conditions  as  to  the  court 
may  seem  proper.  The  commission  may  modify  its  findings  as  to 
the  facts,  or  make  new  findings,  by  reason  of  the  additional  evidence 
so  taken,  and  it  shall  file  such  modified  or  new  findings,  which,  if 
supported  by  testimony,  shall  be  conclusive,  and  its  recommenda- 
tion, if  any,  for  the  modification  or  setting  aside  of  its  original  order, 


614         MATERIALS    OF    CORPORATION    FINANCE 

with  the  return  of  such  additional  evidence.  The  judgment  and  de- 
cree of  the  court  shall  be  final,  except  that  the  same  shall  be  subject 
to  review  by  the  Supreme  Court  upon  certiorari  as  provided  in  sec- 
tion two  hundred  and  forty  of  the  Judicial  Code. 

Any  party  required  by  such  order  of  the  commission  to  cease  and 
desist  from  using  such  method  of  competition  may  obtain  a  review 
of  such  order  in  said  circuit  court  of  appeals  by  filing  in  the  court  a 
written  petition  praying  that  the  order  of  the 'commission  be  set  aside. 
A  copy  of  such  petition  shall  be  forthwith  served  upon  the  commission, 
and  thereupon  the  commission  forthwith  shall  certify  and  file  in  the 
court  a  transcript  of  the  record  as  hereinbefore  provided.  Upon  the 
filing  of  the  transcript  the  court  shall  have  the  same  jurisdiction  to 
affirm,  set  aside,  or  modify  the  order  of  the  commission  as  in  the  case 
of  an  application  by  the  commission  for  the  enforcement  of  its  order, 
and  the  findings  of  the  commission  as  to  the  facts,  if  supported  by 
testimony,  shall  in  like  manner  be  conclusive. 

The  jurisdiction  of  the  circuit  court  of  appeals  of  the  United  States 
to  enforce,  set  aside,  or  modify  orders  of  the  commission  shall  be 
exclusive. 

Such  proceedings  in  the  circuit  court  of  appeals  shall  be  given 
precedence  over  other  cases  pending  therein,  and  shall  be  in  every 
way  expedited.  No  order  of  the  commission  or  judgment  of  the 
court  to  enforce  the  same  shall  in  any  wise  relieve  or  absolve  any 
person,  partnership,  or  corporation  from  any  liability  under  the  anti- 
trust acts. 

Complaints,  orders,  and  other  processes  of  the  commission  under 
this  section  may  be  served  by  anyone  duly  authorized  by  the  com- 
mission, either  (a)  by  delivering  a  copy  thereof  to  the  person  to  be 
served,  or  to  a  member  of  the  partnership  to  be  served,  or  to  the 
president,  secretary,  or  other  executive  officer  or  a  director  of  the 
corporation  to  be  served;  or  (b)  by  leaving  a  copy  thereof  at  the 
principal  office  or  place  of  business  of  such  person,  partnership,  or 
corporation;  or  (c)  by  registering  and  mailing  a  copy  thereof  adr 
dressed  to  such  person,  partnership,  or  corporation  at  his  or  its  prin- 
cipal office  or  place  of  business.  The  verified  return  by  the  person 
so  serving  said  complaint,  order,  or  other  process  setting  forth  the 
manner  of  said  service  shall  be  proof  of  the  same,  and  the  return  post- 
office  receipt  for  said  complaint,  order,  or  other  process  registered  and 
mailed  as  aforesaid  shall  be  proof  of  the  service  of  the  same. 

SEC.  6.    That  the  commission  shall  also  have  power — 

(a)  To  gather  and  compile  information  concerning,  and  to  investi- 
gate from  time  to  time  the  organization,  business,  conduct,  practices, 
and  management  of  any  corporation  engaged  in  commerce,  excepting 


TRADE    COMMISSION   LAW  615 

banks  and  common  carriers  subject  to  the  Act  to  regulate  commerce, 
and  its  relation  to  other  corporations  and  to  individuals,  associations, 
and  partnerships. 

(b)  To  require,  by  general  or  special  orders,  corporations  engaged 
in  commerce,  excepting  banks,  and  common  carriers  subject  to  the 
Act  to  regulate  commerce,  or  any  class  of  them,  or  any  of  them, 
respectively,  to  file  with  the  commission  in  such  form  as  the  commis- 
sion may  prescribe  annual  or  special,  or  both  annual  and  special, 
reports  or  answers  in  writing  to  specific  questions,  furnishing  to  the 
commission  such  information  as  it  may  require  as  to  the  organization, 
business,  conduct,  practices,  management,  and  relation  to  other  cor- 
porations, partnerships,  and  individuals  of  the  respective  corporations 
filing  such  reports  or  answers  in  writing.     Such  reports  and  answers 
shall  be  made  under  oath,  or  otherwise,  as  the  commission  may  pre- 
scribe, and  shall  be  filed  with  the  commission  within  such  reasonable 
period  as  the  commission  may  prescribe,  unless  additional  time  be 
granted  in  any  case  by  the  commission. 

(c)  Whenever  a  final  decree  has  been  entered  against  any  defendant 
corporation  in  any  suit  brought  by  the  United  States  to  prevent  and 
restrain  any  violation  of  the  anti-trust  Acts,  to  make  investigation 
upon  its  own  initiative,  of  the  manner  in  which  the  decree  has  been 
or  is  being  carried  out,  and  upon  the  application  of  the  Attorney 
General  it  shall  be  its  duty  to  make  such  investigation.     It  shall 
transmit  to  the  Attorney  General  a  report  embodying  its  findings  and 
recommendations  as  a  result  of  any  such  investigation,  and  the  report 
shall  be  made  public  in  the  discretion  of  the  commission. 

(d)  Upon  the  direction  of  the  President  or  either  House  of  Con- 
gress to  investigate  and  report  the  facts  relating  to  any  alleged  vio- 
lations of  the  anti-trust  Acts  by  any  corporation. 

(e)  Upon  the  application  of  the  Attorney  General  to  investigate 
and  make  recommendations  for  the  readjustment  of  the  business  of 
any  corporation  alleged  to  be  violating  the  antitrust  Acts  in  order  that 
the  corporation  may  thereafter  maintain  its  organization,  manage- 
ment, and  conduct  of  business  in  accordance  with  law. 

(f)  To  make  public  from  time  to  time  such  portions  of  the  in- 
formation obtained  by  it  hereunder,  except  trade  secrets  and  names 
of  customers,  as  it  shall  deem  expedient  in  the  public  interest;  and  to 
make  annual  and  special  reports  to  the  Congress  and  to  submit  there- 
with recommendations  for  additional  legislation;  and  to  provide  for 
the  publication  of  its  reports  and  decisions  in  such  form  and  manner 
as  may  be  best  adapted  for  public  information  and  \\ 

(g)  From  time  to  time  to  classify  corporations  and  to  make  rulos 
and  regulations  for  the  purpose  of  carrying  out  the  provisions  of  this 
Act 


616          MATERIALS    OF    CORPORATION    FINANCE 

(h)  To  investigate,  from  time  to  time,  trade  conditions  in  and  with 
foreign  countries  where  associations,  combinations,  or  practices  of 
manufacturers,  merchants,  or  traders,  or  other  conditions,  may  affect 
the  foreign  trade  of  the  United  States,  and  to  report  to  Congress 
thereon,  with  such  recommendations  as  it  deems  advisable. 

SEC.  7.  That  in  any  suit  in  equity  brought  by  or  under  the  direc- 
tion of  the  Attorney  General  as  provided  in  the  anti-trust  Acts,  the 
court  may,  upon  the  conclusion  of  the  testimony  therein,  if  it  shall  be 
then  of  opinion  that  the  complainant  is  entitled  to  relief,  refer  said 
suit  to  the  commission,  as  a  master  in  chancery,  to  ascertain  and  report 
an  appropriate  form  of  decree  therein.  The  commission  shall  proceed 
upon  such  notice  to  the  parties  and  under  such  rules  of  procedure  as 
the  court  may  prescribe,  and  upon  the  coming  in  of  such  report  such 
exceptions  may  be  filed  and  such  proceedings  had  in  relation  thereto 
as  upon  the  report  of  a  master  in  other  equity  causes,  but  the  court  may 
adopt  or  reject  such  report,  in  whole  or  in  part,  and  enter  such  decree 
as  the  nature  of  the  case  may  in  its  judgment  require. 

SEC.  8.  That  the  several  departments  and  bureaus  of  the  Govern- 
ment when  directed  by  the  President  shall  furnish  the  commission, 
upon  its  request,  all  records,  papers,  and  information  in  their  posses- 
sion relating  to  any  corporation  subject  to  any  of  the  provisions  of  this 
Act,  and  shall  detail  from  time  to  time  such  officials  and  employees  to 
the  commission  as  he  may  direct. 

SEC.  9.  That  for  the  purposes  of  this  Act  the  commission,  or  its 
duly  authorized  agent  or  agents,  shall  at  all  reasonable  times  have 
access  to,  for  the  purpose  of  examination,  and  the  right  to  copy  any 
documentary  evidence  of  any  corporation  being  investigated  or  pro- 
ceeded against ;  and  the  commission  shall  have  power  to  require  by  sub- 
poena the  attendance  and  testimony  of  witnesses  and  the  production 
of  all  such  documentary  evidence  relating  to  any  matter  under  in- 
vestigation. Any  member  of  the  commission  may  sign  subpoenas,  and 
members  and  examiners  of  the  commission  may  administer  oaths  and 
affirmations,  examine  witnesses,  and  receive  evidence. 

Such  attendance  of  witnesses,  and  the  production  of  such  docu- 
mentary evidence,  may  be  required  from  any  place  in  the  United 
States,  at  any  designated  place  of  hearing.  And  in  case  of  disobedi- 
ence to  a  subpoena  the  commission  may  invoke  the  aid  of  any  court  of 
the  United  States  in  requiring  the  attendance  and  testimony  of  wit- 
nesses and  the  production  of  documentary  evidence. 

Any  of  the  district  courts  of  the  United  States  within  the  jurisdic- 
tion of  which  such  inquiry  is  carried  on  may,  in  case  of  contumacy  or 
refusal  to  obey  a  subpoena  issued  to  any  corporation  or  other  person, 
issue  an  order  requiring  such  corporation  or  other  person  to  appear 


TRADE    COMMISSION    LAW  017 

before  the  commission,  or  to  produce  documentary  evidence  if  so  or- 
dered, or  to  give  evidence  touching  the  matter  in  question;  and  any 
failure  to  obey  such  order  of  the  court  may  be  punished  by  such  court 
as  a  contempt  thereof. 

Upon  the  application  of  the  Attorney  General  of  the  United  States, 
at  the  request  of  the  commission,  the  district  courts  of  the  United 
States  shall  have  jurisdiction  to  issue  writs  of  mandamus  command- 
ing any  person  or  corporation  to  comply  with  the  provisions  of  this 
Act  or  any  order  of  the  commission  made  in  pursuance  thereof. 

The  commission  may  order  testimony  to  be  taken  by  deposition 
in  any  proceeding  or  investigation  pending  under  this  Act  at  any 
stage  of  such  proceeding  or  investigation.  Such  depositions  may  be 
taken  before  any  person  designated  by  the  commission  and  having 
power  to  administer  oaths.  Such  testimony  shall  be  reduced  to  writ- 
ing by  the  person  taking  the  deposition,  or  under  his  direction,  and 
shall  then  be  subscribed  by  the  deponent.  Any  person  may  be  com- 
pelled to  appear  and  depose  and  to  produce  documentary  evidence 
in  the  same  manner  as  witnesses  may  be  compelled  to  appear  and 
testify  and  produce  documentary  evidence  before  the  commission  as 
hereinbefore  provided. 

Witnesses  summoned  before  the  commission  shall  be  paid  the  same 
fees  and  mileage  that  are  paid  witnesses  in  the  courts  of  the  United 
States,  and  witnesses  whose  depositions  are  taken  and  the.  persons 
taking  the  same  shall  severally  be  entitled  to  the  same  fees  as  are 
paid  for  like  services  in  the  courts  of  the  United  States. 

No  person  shall  be  excused  from  attending  and  testifying  or  from 
producing  documentary  evidence  before  the  commission  or  in  obedi- 
ence to  the  subpoena  of  the  commission  on  the  ground  or  for  the 
reason  that  the  testimony  or  evidence,  documentary  or  otherwise, 
required  of  him  may  tend  to  criminate  him  or  subject  him  to  a 
penalty  or  forfeiture.  But  no  natural  person  shall  be  prosecuted  or 
subjected  to  any  penalty  or  forfeiture  for  or  on  account  of  any  trans- 
action, matter,  or  thing  concerning  which  he  may  testify,  or  produce 
evidence,  documentary  or  otherwise,  before  .the  commission  in  obedi- 
ence to  a  subprcna  issued  by  it:  Provided,  That  no  natural  person 
so  testifying  shall  be  exempt  from  prosecution  and  punishment  for 
perjury  committed  in  so  testifying. 

SEC.  10.  That  any  person  who  shall  neglect  or  refuse  to  attend 
and  testify,  or  to  answer  any  lawful  inquiry,  or  to  produce  documen- 
tary evidence,  if  in  his  power  to  do  so,  in  obedience  to  the  subpoena  or 
lawful  requirement  of  the  commission,  shall  be  guilty  of  an  offense 
and  upon  conviction  thereof  by  a  court  of  competent  jurisdiction  shall 
be  punished  by  a  fine  of  not  less  than  $1,000  nor  more  than  $5,000,  or 


618         MATEEIALS    OF    CORPORATION    FINANCE 

by  imprisonment  for  not  more  than  one  year,  or  by  both  such  fine 
and  imprisonment. 

Any  person  who  shall  willfully  make,  or  cause  to  be  made,  any  false 
entry  or  statement  of  fact  in  any  report  required  to  be  made  under 
this  Act,  or  who  shall  willfully  make,  or  cause  to  be  made,  any  false 
entry  in  any  account,  record,  or  memorandum  kept  by  any  corpora- 
tion subject  to  this  Act,  or  who  shall  willfully  neglect  or  fail  to  make, 
or  to  cause  to  be  made,  full,  true,  and  correct  entries  in  such  accounts, 
records,  or  memoranda  of  all  facts  and  transactions  appertaining  to 
the  business  of  such  corporation,  or  who  shall  willfully  remove  out  of 
the  jurisdiction  of  the  United  States,  or  willfully  mutilate,  alter,  or  by 
any  other  means  falsify  any  documentary  evidence  of  such  corpora- 
tion, or  who  shall  willfully  refuse  to  submit  to  the  commission  or  to 
any  of  its  authorized  agents,  for  the  purpose  of  inspection  and  taking 
copies,  any  documentary  evidence  of  such  corporation  in  his  possession 
or  within  his  control,  shall  be  deemed  guilty  of  an  offense  against  the 
United  States,  and  shall  be  subject,  upon  conviction  in  any  court 
of  the  United  States  of  competent  jurisdiction,  to  a  fine  of  not  less 
than  $1,000  nor  more  than  $5,000,  or  to  imprisonment  for  a  term 
of  not  more  than  three  years,  or  both  such  fine  and  imprison- 
ment. 

If  any  corporation  required  by  this  Act  to  file  any  annual  or  special 
report  shall  fail  so  to  do  within  the  time  fixed  by  the  commission  for 
filing  the  same,  and  such  failure  shall  continue  for  thirty  days  after 
notice  of  such  default,  the  corporation  shall  forfeit  to  the  United 
States  the  sum  of  $100  for  each  and  every  day  of  the  continuance  of 
such  failure,  which  forfeiture  shall  be  payable  into  the  Treasury  of 
the  United  States,  and  shall  be  recoverable  in  a  civil  suit  in  the  name 
of  the  United  States  brought  in  the  district  where  the  corporation  has 
its  principal  office  or  in  any  district  in  which  it  shall  do  business.  It 
shall  be  the  duty  of  the  various  district  attorneys,  under  the  direction 
of  the  Attorney  General  of  the  United  States,  to  prosecute  for  the 
recovery  of  forfeitures.  The  costs  and  expenses  of  such  prosecution 
shall  be  paid  out  of  the  appropriation  for  the  expenses  of  the  courts 
of  the  United  States. 

Any  officer  or  employee  of  the  commission  who  shall  make  public 
any  information  obtained  by  the  commission  without  its  authority, 
unless  directed  by  a  court,  shall  be  deemed  guilty  of  a  misdemeanor, 
and,  upon  conviction  thereof,  shall  be  punished  by  a  fine  not  exceed- 
ing $5,000,  or  by  imprisonment  not  exceeding  one  year,  or  by  fine 
and  imprisonment,  in  the  discretion  of  the  court. 

SEC.  11.  Nothing  contained  in  this  Act  shall  be  construed  to  pre- 
vent or  interfere  with  the  enforcement  of  the  provisions  of  the  anti- 


TRADE   COMMISSION    LAW  619 

trust  Acts  or  the  Acts  to  regulate  commerce,  nor  shall  anything 
contained  in  the  Act  be  construed  to  alter,  modify,  or  repeal  the  said 
anti-trust  Acts  or  the  Acts  to  regulate  commerce  or  any  part  or  parts 
thereof. 

Approved,  September  26,  1914. 


2i 


620         MATEEIALS    OF    CORPORATION    FINANCE 


WHAT  AN  INVESTOR  SHOULD  KNOW  REGARDING 
A  PUBLIC  UTILITY.1 

TERRITORY: 

Location  of  property. 

Natural  resources  of  surrounding  territory. 

Transportation  facilities. 

Chances  for  competition. 

Whether  the  industries  established  in  the  territory  are  stable  or 

speculative. 
Growth  in  population. 

OPERATION: 

Gross  earnings,  operating  expenses,  net  earnings,  taxes,  interest 
charges  for  a  period  of  years. 

If  a  holding  company,  such  earnings  should  be  a  consolidated  state- 
ment, as  well  as  a  detailed  statement  of  earnings  of  all  the  sub- 
sidiaries. 

CAPITALIZATION: 

Balance  sheet  showing  liabilities  and  assets,  and,  in  the  case  of 
holding  companies,  a  consolidated  balance  sheet  to  show  especially 
the  assets  and  liabilities  of  subsidiaries. 

BONDS: 

In  the  case  of  bonds,  the  usual  fundamental  terms  of  the  mortgage, 
showing  property  secured,  sinking  or  improvement  funds,  rate  of 
interest,  provisions  as  to  income  tax,  market  value  of  securities 
junior  to  the  bonds. 

Terms  under  which  additional  bonds  can  be  issued. 

DIVIDENDS  PAID: 

Record  of  rates  over  a  series  of  years. 

RANGE  OF  PRICES  OF  SECURITIES: 
Record  of  fluctuations  over  a  series  of  years. 

LEGAL  FEATURES : 

General  legality  of  the  issue  of  all  securities  by  reputable  lawyers. 
Length  of  franchise  and  terms  thereof. 

MANAGEMENT: 

How  is  the  management  of  the  company  handled  ? 

i  From  Special  Public  Utilities  Number  of  The  Evening  Post  of  New  York, 
March  20,   1914. 


HOW   TO    ANALYZE   A    PUBLIC    UTILITY         621 

GENERAL: 

With  the  above  information  in  hand,  it  is  possible  to  make  a  careful 
analysis  to  show,  let  us  say,  the  percentage  of  increase  in  popula- 
tion, gross  earnings,  and  net  earnings,  and  the  ratio  per  dollar  of 
gross  earnings  of  the  combined  capitalization,  bonded  debt,  pre- 
ferred stock,  and  common  stock. 

Such  an  analysis  has  the  advantage  of  showing,  if  obtained  for  a 
series  of  years,  to  what  extent  the  company  is  developing. 


622         MATERIALS    OF   CORPORATION   FINANCE 

FORTY-SIXTH  REPORT  of  the  NIPPON  YUSEN  KAISHA 
(Japan  Mail  Steamship  Company,  Limited.) 

Presented  to  the  Shareholders  at  the 

HALF-YEARLY   ORDINARY   GENERAL   MEETING, 

held  at  Tokio,  on  Wednesday,  28th  May,  1913. 

Capital  Paid-up Yen    22,000,000 

Reserve  Fund,  Insurance  and  Structural  Repair  Fund,  etc Yen    30,807,224 

Reserve  for  Equalization  of  Dividends Yen      3,300,000 

Board  of  Directors 

Baron  Rempei  Kondo,  Managing  Director. 
Masayoshi  Kato,  Esq.,  Managing  Director. 
Toshinobu  Suda,  Esq.,  Managing  Director. 
Toru  Hori,  Esq.,  Managing  Director. 
Tamio  Hayashi,  Esq.,  Managing  Director. 

Kirrosuke  Harada,  Esq.  Tamotsu  Yatsui,  Esq. 

Renjiro  Nogishi,  Esq. 

President. 
Baron  Rempei  Kondo. 

Vice-President. 
Masayoshi  Kato,  Esq. 

To  the  Shareholders 
Gentlemen : 

The  Directors  submit  to  you  the  annexed  Statement  of  the  Liabili- 
ties and  Assets  of  the  Company,  and  the  Profit  and  Loss  Account  for 
the  Half-Year,  ended  March  31st,  1913 : 

The  Gross  Profits  of  the  Company  for  the  past  Half- Year  amount 
to  Yen  5,277,890.452,  out  of  which  there  has  been  paid: 

Depreciation  of  the  Company's  fleet  and  property Yen    1,036,594. 4M 

Insurance  Fund Yen       618,863. »70 

Ships'  Structural  Repair  Fund Yen       632,751."° 

Yen    2,288,209. "« 

leaving  a  balance  of  Yen  3,803,404.650,  including  Yen  813,723."° 
brought  forward  from  the  last  Account. 

The  Directors  now  propose  that  this  surplus  be  appropriated  as  fol- 
lows: 

Addition  to  Reserve  Fund Yen  149,484. OM 

Addition  to  Reserve  for  the  Annual  Reduction  of  Subsidies . . .  Yen  98,474 . M0 
Addition  to  Fund  for  the  Extension  of  Services  and  Improvement 

of  the  Fleet Yen  700,000. °M 

Reserve  for  Construction  and  Repairs  of  Building Yen  500,000. OOD 

Special  Reserve Yen  300,000.°° 


ANNUAL  REPORT,   JAPAN   MAIL   S.    S.   CO.       623 

From  the  remaining  balance  Yen  2,055,446.°*°  the  Directors  further 
propose  that  Yen  73,555.°°°  be  allowed  as  Directors'  and  Auditors'  fees, 
and  recommend  a  dividend  at  the  rate  of  ten  per  cent,  per  annum, 
which  will  absorb  Yen,  1,100,000.°°°,  leaving  a  balance  of  Yen  881,- 
89 1.080  to  be  carried  forward  to  the  next  Account 

REMPEI  KONDO, 
Head  Office,  Tokio,  28th  May,  1913.  Chairman. 


624 


MATERIALS    OF   CORPORATION   FINANCE 


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WESTINGHOUSE   ELEC.   &   MFG.    CO.    REPORT     627 

ANNUAL  REPORT  WESTINGFIOUSE  ELECTRIC  AND 
MANUFACTURING  COMPANY.  MARCII  31,  1911.' 

BOARD    OF    DIRECTORS. 

Term  Expiring  4th  Wednesday  of  July,  19il. 

Charles  F.  Brooker,  President,  American  Brass  Co.,  Ansonia,  Conn. 

James  S.  Kuhn,  Chairman  of  Board,  First  National  Bank,  Pitta- 
burg,  Pa. 

Edwin  F.  Atkins,  of  E.  Atkins  &  Co.,  Boston,  Mass. 

E.  M.  Heir,  First  Vice-President,  Westinghouse  Electric  &  Mfg.  Co. 
Term  Expiring  4th  Wednesday  of  July,  1912. 

Geo.  Westinghouse,  Pittsburg,  Pa. 

Robert  Mather,  Chairman  of  Board,  Westinghouse  Electric  &  Mfg  Co. 

Joseph  W.  Marsh,  President,  Standard  Underground  Cable  Co.,  Pitts- 
burg,  Pa. 

Albert  H.  Wiggin,  President,  Chase  National  Bank,  New  York,  N.  Y. 
Term  Expiring  4th  Wednesday  of  July,  1913. 

Richard  Delafield,  President,  National  Park  Bank,  New  York,  N.  Y. 

T.  W.  Lament,  of  J.  P.  Morgan  &  Co.,  New  York,  N.  Y. 

Anthony  N.  Brady,  Capitalist,  New  York,  N.  Y. 

J.  D.  Gallery,  Vice-President,  Philadelphia  Company,  Pittsburg,  Pa. 
Term  Expiring  4th  Wednesday  of  July,  1914. 

A.  G.  Becker,  President,  A.  G.  Becker  &  Co.,  Chicago,  111. 

Geo.  M.  Verity,  President,  The  American  Rolling  Mill  Co.,  Middle- 
town,  Ohio. 

William  McConway,  President,  The  McConway  &  Torley  Co.,  Pitts- 
burg, Pa. 

Charles  A  Moore,  President,  Manning,  Maxwell  &  Moore,  Inc.,  New 
York,  N.  Y. 

EXECUTIVE     COMMITTEE. 

Edwin  F.  Atkins,  Joseph  W.  Marsh, 

James  S.  Kuhn,  Robert  Mather, 

T.  W.  Lament,  Geo.  M.  Verity, 

Albert  H.  Wiggin. 


i  Of  this  report  Dr.  Dewing  says  in  his  Corporate  Promotion*  and  Reorgan- 
izations, (p.  211:)  "The  annual  report  of  March  31.  1911.  is  worthy  of  perma- 
nent preservation  for  its  fulness,  frankness,  and  the  willUfMM  of  Mr.  Mather 
to  express  opinions  of  the  'worth'  of  inventoried  investment*.     It  was  his  la«t 
report  and  shows  clearly  the  foundation  of  a  policy,  the  good  ro.ult*  of  i 
were  just  beginning  to  bear  fruit.     In  its  detailed  completeness  th«  pw 
writer  knows  not  its  equal  among  corporation  report*." 


628         MATERIALS    OF    CORPORATION    FINANCE 

PROXY     COMMITTEE. 

Chas.  Francis  Adams,  F.  W.  Roebling, 

James  N.  Jar  vie,  Jacob  H.  Schiff, 

Robert  S.  Smith. 

STOCK  TRANSFER  AGENTS. 

Bankers  Trust  Co.,  7  Wall  St.,  New  York,  N.  Y. 

Union  Trust  Co.,  Pittsburg,  Pa. 

New  England  Trust  Co.,  Boston,  Mass. 

REGISTRARS  OF  STOCK. 

The  Mercantile  Trust  Co.,  120  Broadway,  New  York,  N.  Y. 
Fidelity  Title  &  Trust  Co.,  Pittsburg,  Pa. 
Boston  Safe  Deposit  &  Trust  Co.,  Boston,  Mass. 

OFFICERS  AND  DEPARTMENTS. 

Officers. 

Robert  Mather,  Chairman  of  Board,  New  York. 
Edwin  F.  Atkins,  President,  New  York. 

E.  M.  Herr,  First  Vice-President,  Pittsburg. 

L.  A.  Osborne,  Second  Vice-President,  Pittsburg. 

Charles  A.  Terry,  Third  Vice-President,  New  York. 

G.  W.  Hebard,  Acting  Vice-President,  New  York. 

H.  D.  Shute,  Acting  Vice-President,  Pittsburg. 

James  C.  Bennett,  Comptroller  and  Secretary,  New  York. 

Warren  H.  Jones,  Assistant  Secretary,  New  York. 

T.  W.  Siemon,  Treasurer  and  Assistant  Secretar}^,  Pittsburg. 

H.  F.  Baetz,  Assistant  Treasurer,  Pittsburg. 

S.  H.  Anderson,  Acting  Assistant  Treasurer,  Pittsburg. 

F.  E.  Craig,  Auditor,  Pittsburg. 

W.  B.  Covil,  Jr.,  Assistant  Auditor,  Pittsburg. 

Manufacturing  Department. 
Tracy  Lyon,  Assistant  to  First  Vice-President. 
Alexander  Taylor,  Manager  of  Works. 
C.  B.  Auel,  Assistant  Manager  of  Works. 
J.  McA.  Duncan,  Assistant  Manager  of  Works. 
C.  W.  Johnson,  Assistant  Manager  of  Works. 
E.  R.  Norris,  Assistant  Manager  of  Works. 
E.  F.  Harder,  Superintendent  of  Newark  Works. 

Erecting  Department. 
W.  K.  Dunlap,  Assistant  to  First  Vice-President. 

G.  W.  Canney,  Superintendent  of  Erecting. 


WESTINGHOUSE   ELEC.   &   MFG.   CO.   REPORT     629 

Engineering  Department. 

H.  P.  Davis,  Assistant  to  First  Vice-President  and  Manager  of 
Engineering. 

B.  G.  Lamme,  Chief  Engineer. 
Chas.  F.  Scott,  Consulting  Engineer. 

Sales  Department. 
S.  L.  Nicholson,  Sales  Manager. 

C.  S.  Cook,  Manager,  Railway  and  Lighting  Department. 
Charles  Robbins,  Manager,  Industrial  and  Power  Department. 
G.  Brewer  Griffin,  Manager,  Detail  and  Supply  Department. 
Maurice  Coster,  Manager,  Export  Department. 

WESTINGHOUSE  ELECTRIC  &  MANUFACTURING  COMPANY. 

Operating  plants  at  East  Pittsburg,  Pa. ;  Newark,  N.  J. ;  Pittsburg, 
Pa.;  Cleveland,  Ohio.  Main  offices,  East  Pittsburg,  Pa,;  New  York 
offices,  165  Broadway. 

SUBSIDIARY   MANUFACTURING  COMPANIES. 

Westinghouse  Lamp  Company. — Walter  Gary,  General  Manager. 
Operating  plants  at  Bloomfield,  N.  J. ;  New  York  City.  Main  offices, 
Bloomfield,  N.  J. 

The  Bryant  Electric  Company — The  Perkins  Electric  Sivitch  Manu- 
facturing Company. — W.  C.  Bryant,  President,  Treasurer  and  General 
Manager.  Operating  plants  at  Bridgeport,  Conn.  Main  offices, 
Bridgeport,  Conn. 

R.  D.  Nuttall  Company. — F.  A.  Estep,  President  and  Treasurer. 
Operating  plant  at  Pittsburg,  Pa.  Main  offices,  Pittsburg,  Pa. 

PITTSBURO,  PA.,  JUNE  5,  1911. 

To  the  Stockholders  of  the  Westinghouse  Electric  £  Manufacturing 

Company: 

The  Directors  respectfully  present  herewith  their  report  of  the  opera- 
tions of  your  Company  and  of  its  subsidiary  Companies  for  the  fiscal 
year  ended  March  31,  1911.  The  Income  Account  for  the  year,  which 
includes  the  operations  of  all  the  subsidiary  Companies — sales  between 
Companies,  however,  being  eliminated — is  as  follows : 

GROBS  EARNINGS: 

Shipments  Billed $38,119,312.01 

COST  OF  SHIPMENTS: 

Factory  Costs,  including  all  Kxnonditun* 
for  Patterns,  Dies,  New  Small  Tools  and 
Other  Betterments  and  Extensions;  also 
Inventory  Adjustments  and  all  Selling, 
Administration,  General  and  DefdbpOMn 
Expenses 82,610,546.87 

NET  MANUFACTURING  PROFITS: *  5,008,765  1 4 


630 


MATERIALS    OF    CORPORATION    FINANCE 


OTHER  INCOME: 

Interest  and  Discount $    272,055.28 

Dividends  and  Interest  on  Sundry  Stocks 

and  Bonds  Owned 615,299 . 40 

Miscellaneous — Royalties,  etc 628,177 . 13 

TOTAL  INCOME 

DEDUCTIONS  FROM  INCOME: 

Interest  on  Bonds  and  Debentures $1,076,553 . 71 

Interest  on  Collateral  Notes 416,000 . 00 

Miscellaneous  Interest 92,933 . 04 

Property  and  Plant  Depreciations  Charged 

against  Income 371,668. 19 

Proportion  of  Expenses  Incidental  to  Bond 

and  Note  Issues 76,666.66 

Miscellaneous 209,369.37 

NET  INCOME — SURPLUS  FOR  THE  YEAR.. 


1,515,531.81 
7,124,296.95 


2,243,190.97 
$  4,881,105.98 


The  year's  business,  both  in  gross  earnings  and  net  income,  was  the 
largest  in  the  history  of  the  Company.  The  gross  earnings  exceeded 
those  of  the  preceding  fiscal  year  by  $8,870,630  and  were  greater  by 
$5,093,072  than  the  earnings  of  the  best  previous  year  in  the  Com- 
pany's existence.  A  condensed  comparative  statement  of  gross  earn- 
ings and  net  profits  for  the  past  six  years,  adjusted  to  the  basis  of  the 
foregoing  statement  of  income,  follows : 


YEAB  ENDED  MARCH  31 

1906 

1907 

1908 

1909 

1910 

1911 

Gross  Earnings  —  Ship- 

$24,081,601 
21,390,059 

$33,026,240 
28,846.665 

$32,844,829 
30,301,147 

$20,606,592 
19,955,808 

$29,248,682 
25,695,704 

$38,119,312 
32,510,547 

Cost   of   Shipments  —  In- 
cludes all  Selling,  Ad- 
ministration and  Gen- 

Net  Manufacturing  Prof- 
its        

$2,691,542 
959,786 

$4,179,575 
1,256,335 

$2,543,682 
1,555,697 

$650,784 
986,293 

$3,552,978 
1,616,561 

$5,608,765 
1,515,531 

Other  Income  

Total  Income  

$3,651,328 
493,081 

$5,435,910 
1,070,383 

$4,099,379 
1,087,453 

$1,637,077 
841,321 

$5,169,539 
419,692 

$7,124,296 
657,704 

Less  —  Inventory  Adjust- 
ments, Inactive  Appa- 
ratus and  Material 
Scrapped,      Bad     Ac- 
counts and  Extraordi- 
nary Items  of  Expense 
charged  to  Income  .... 

Net    Income   Applicable 
to  Interest  and  other 

$3,158,247 

«4,365,527 

$3,011,926 

$795,756 

$4,749,847 

$6,466,592 

Interest  Charges  

$1,137,592 
$2,020,6.=  5 

$1,592,353 
$2,773,174 

$2,061,091 
$950,835 

$2,200,771 

$1,405,015 

(Deficit) 

$1,689,183 
$3,060,664 

$1,585,487 
$4,881,105 

Net  Income  —  Surplus  for 
the  Year  

Your  Directors  feel  that  the  satisfactory  results  of  the  past  year, 
reached  as  they  were  during  a  period  of  somewhat  less  than  normal 
activity  in  other  lines  of  industry,  afford  sound  basis  for  continued 
hope  in  the  future  of  the  electrical  manufacturing  industry  and  in  the 


WESTINGHOUSE   ELEC.   &   MFG.    CO.    REPORT     631 

maintenance  by  your  Company  of  its  position  in  that  field.  It  is,  on 
the  other  hand,  a  fact  that  the  volume  of  business  now  offering  is  on  a 
diminishing  scale,  and  the  results  of  the  last  year,  therefore,  are  no 
certain  indication  of  a  continuance  for  the  future  of  gross  earnings 
and  net  profits  such  as  the  past  twelve  months  have  produced.  The 
business  taken  by  the  Company  during  February  and  March,  1911 — 
the  last  two  months  of  the  fiscal  year  covered  by  this  report — was 
somewhat  less  than  that  taken  during  the  same  months  of  1910,  and 
the  value  of  the  orders  booked  since  the  close  of  the  fiscal  year  does 
not  compare  favorably  with  that  of  the  corresponding  period  a 
year  ago. 

The  value  of  unfilled  orders  as  of  March  31,  1910,  was  $11,256,- 
196;  as  of  March  31,  1911.  this  value  stood  at  $7,616,058. 

Certain  other  conditions  affect  the  estimate  for  the  immediate  future 
of  the  earning  power  of  your  Company.  On  March  31,  1896,  your 
Company  entered  into  an  agreement  with  the  General  Electric  Com- 
pany whereby  for  a  period  of  fifteen  years  thereafter  each  Company 
licensed  the  other  under  the  patents  controlled  by  it  during  the  term 
of  the  agreement,  with  provision  for  the  payment  of  royalties  by  each 
on  the  basis  of  its  use  of  the  patents  of  the  other.  For  the  past  few 
years  under  the  operation  of  this  agreement  your  Company  has  re- 
ceived substantial  sums  by  way  of  royalties.  This  agreement  ex- 
pired by  limitation  of  time  on  April  30,  1911.  No  renewal  of  it  is 
contemplated.  This  source  of  revenue,  therefore,  cannot  now  be 
counted  upon. 

Other  patent  license  agreements  with  manufacturers  of  mining  loco- 
motives, small  motors,  fuses,  switches  and  sockets,  under  which  your 
Company  has  been  working  for  some  years,  have  recently  been  can- 
celled on  the  suggestion  that  they  might  be  questioned  as  being  in  vio- 
lation of  the  Federal  anti-trust  laws,  notwithstanding  they  were  orig- 
inally made  and  have  been  maintained  under  advice  of  counsel  that 
assured  your  Company  of  their  validity. 

Your  Directors  have  had  steadily  in  mind  the  purpose  of  strengthen- 
ing your  Company's  position  in  every  possible  direction.  To  that  end 
they  have  authorized  considerable  increase  in  the  expenditures  of  the 
selling  organization,  for  increasing  the  number  of  salesmen  in  the  field, 
for  remuneration  to  its  representatives  adequate  to  secure  the  best 
effort  on  their  part,  for  the  extension  of  advertising,  and  to  provide 
for  proper  warehouse  facilities  for  carrying  stocks  at  distributing 
points.  This  has  added  considerably  to  the  aggregate  selling  expense, 
but  the  results,  we  believe,  have  been  justified  in  the  increased  volume 
of  business  obtained.  It  is  a  matter  of  simple  computation,  on  the 
basis  of  the  operations  of  the  past  two  years,  to  ascertain  the  point  at 


632         MATERIALS   OP   CORPORATION   FINANCE 

which  the  volume  of  gross  business  fails  to  provide  a  surplus  over  op- 
erating expenses  and  fixed  charges.  It  is  vital  that  your  business 
should  not  drop  to  that  point. 

With  the  same  purpose  in  view  fairly  large  expenditures  have  been 
authorized  for  the  work  of  new  development  and  for  improvement  in 
current  types  of  apparatus.  This  work  has  been  particularly  marked 
with  respect  to  the  redesigning  of  direct  current  motors,  alternating 
current  and  direct  current  mill  and  crane  motors,  small  power  motors, 
high  speed  turbo-generators,  circuit  breakers,  railway  equipment  and 
heating  and  cooking  apparatus.  Your  Directors  feel  that  this  is  an 
item  of  expenditure  which,  owing  to  the  position  of  your  Company, 
it  would  be  unwise  at  any  time  to  curtail.  It  must  be  borne  in  mind 
that  your  Company  must  keep  pace  in  technical  skill  and  inventive  in- 
genuity with  its  competitors  even  though  their  combined  capital  and 
manufacturing  facilities  are  greatly  in  excess  of  yours.  The  cost  of  all 
new  development  and  redesigning  is  charged  monthly  as  a  part  of  the 
current  costs. 

During  the  past  year  additional  real  estate  adjoining  the  Newark 
plant  has  been  acquired,  so  that  your  Company  now  owns  substan- 
tially all  of  the  city  square  on  which  the  factory  is  located.  Upon  part 
of  this  additional  real  estate  an  extension  to  the  plant  is  in  course  of 
construction  upon  a  plan  which  contemplates  ultimately  occupying  all 
the  newly  acquired  area  with  an  harmonious  structure.  The  exten- 
sion now  being  built  will  increase  the  manufacturing  floor  space  of 
this  plan  about  30  per  cent. 

The  New  York  City  plant  is  now  in  full  operation  by  the  Westing- 
house  Lamp  Company  in  the  production  of  Tungsten  lamps,  the  equip- 
ment of  the  building  for  that  purpose,  referred  to  in  the  last  report, 
having  been  fully  completed. 

The  additions  to  the  Bridgeport,  Conn.,  plant  under  way  at  the 
end  of  the  previous  fiscal  year  have  also  been  carried  to-  com- 
pletion. 

During  the  year  the  R.  D.  Nuttall  Company,  which  has  heretofore 
occupied  rented  premises  in  Pittsburg,  completed  negotiations  for  the 
purchase  of  an  existing  manufacturing  plant  on  Fifty-fourth  Street,  in 
Pittsburg,  Pa.,  comprising  approximately  five  acres.  This  plant,  with 
some  additions  to  its  equipment  now  in  progress,  will  furnish  the 
Nuttall  Company  with  ample  facilities  for  many  years  to  care  for  its 
growing  business.  This  transaction  will  be  taken  on  the  books  of  the 
Company  during  April,  1911. 

Your  Company  operates  an  iron  foundry  at  Pittsburg,  Pa.,  on  leased 
premises.  In  anticipation  of  the  termination  of  its  lease,  and  because 
the  plant  is  poorly  adapted  to  the  Company's  needs,  plans  have  been 


WESTINGHOUSE   ELEC.   &   MFG.   CO.   REPORT     633 

completed  during  the  year  for  the  erection  of  a  new  foundry  at  Traf- 
ford  City,  about  six  miles  east  of  the  main  factory  of  your  Company  at 
East  Pittsburg.  Approximately  sixty-three  acres  of  land  have  been 
acquired  for  this  and  othet  possible  purposes,  at  a  total  cost  of 
$184,500.  Your  Company  has  further  acquired,  for  the  purpose  of 
insuring  communication  between  tre  proposed  new  foundry  and  its 
plant  at  East  Pittsburg,  sixty  per  cent  of  the  capital  stock  of  the 
Interworks  Railway  Company,  owning  and  operating  a  line  of  railway 
between  East  Pittsburg  and  Trafford  City.  Plans  have  been  pre- 
pared for  the  erection  of  foundry  and  pattern  buildings  at  Trafford 
City,  at  an  aggregate  cost  of  approximately  $1,250,000. 

Your  Company  was  made  party  defendant,  together  with  the  Gen- 
eral Electric  Company,  the  National  Lamp  Company  and  a  number  of 
other  lamp  manufacturers,  to  a  bill  in  equity  recently  filed  by  the 
United  States  under  the  provisions  of  the  Sherman  anti-trust  law. 
This  bill  proceeds  on  the  theory  that  certain  agreements  and  acta  of  the 
lamp  manufacturers,  defendants  in  the  suit,  constitute  a  combination 
in  restraint  of  trade.  While  it  would  not  be  proper  to  discuss  in  this 
report  the  matters  involved  in  this  proceeding,  your  Directors  feel  jus- 
tified in  saying  that  your  Company's  operations  have  been  such  that 
the  outcome  of  the  suit  is  not  likely  to  seriously  affect  the  conduct  of 
its  lamp  business. 

The  surplus  as  of  March  31,  1910,  was  $5,668,948.23.  This  lias 
been  increased  during  the  year  by  various  items  of  profit  detailed  in 
the  statement  of  Profit  and  Loss,  to  $6,349,255.92.  Adding  the  net 
income  for  the  year,  $4,881,105.98,  there  resulted  a  surplus  with  which 
your  Directors  had  to  deal  as  of  the  end  of  the  fiscal  year,  of 
$11,230,361.90. 

Against  this  surplus  have  been  charged  dividends  on  the  Preferred 
Stock,  for  the  year  at  the  rate  of  7  per  cent,  per  annum  and  a  balance 
of  8^4  per  cent,  accumulated  but  unpaid  in  previous  years,  together 
aggregating  $629,795.25.  In  the  adjustment  of  the  account  Property 
and  Plant  (hereinafter  referred  to)  and  in  establishing  a  direct  liabil- 
ity for  bonds  of  the  Walker  Company  guaranteed  by  your  Company 
(hereinafter  explained),  there  resulted  charges  against  Surplus  ag- 
gregating $1,193,297.79,  the  items  comprising  which  are  shown  sepa- 
rately in  the  statement  of  Profit  and  Loss.  Charges  against  Surplus 
in  connection  with  reserves  for  notes  and  accounts  receivable  were 
made  during  the  year,  aggregating  $589,774.05.  M.icellaneouH 
charges  against  Profit  and  Loss  amounted  to  $355.00.  The  total  of 
the  charges  enumerated  is  $2,413,222.09.  There  were  also  written  off 
as  depreciations  of  investments,  the  following: 


634         MATERIALS    OF   CORPORATION   FINANCE 

STOCKS : 

Westinghouse  Electric  Company,  Ltd.,  London $  500,000.00 

Societe  Anonyme  Westinghouse   (French  Company)    . .  218,974.00 

The  Westinghouse  Machine  Company. .  .• 93,538.60 

BONDS : 

Lackawanna  &  Wyoming  Valley  Rapid  Transit  Co 2,000,000.00 

MISCELLANEOUS  STOCKS  AND  BONDS 40,302.31 


TOTAL    .. $2,852,914.91 

As  a  result  of  these  depreciations  the  Surplus  as  of  March  31,  1911, 
shown  in  the  Balance  Sheet,  is  $5,964,224.90. 

The  Consolidated  Balance  Sheet  as  of  March  31,  1911,  follows : 

ASSETS 
PROPERTY  AND  PLANT: 

Factory  Plants,  including  Real  Estate,  Ma- 
chinery, Equipment,  etc $17,692,145.61 

SINKING  FUND: 

With  Trustee  for  Redemption  of  Convertible 

Sinking  Fund,  5%,  Gold  Bonds 445 . 48 

INVESTMENTS: 

Stocks,  Bonds,  Debentures,  Collateral  Trust 
Notes,  etc.,  including  those  of  Affiliated 
European    and    Canadian    Westinghouse 

Companies 24,034,635.99 

CURRENT  ASSETS: 

Cash $  6,634,677.07 

Cash  on  Deposit  to  Pay  Interest  Coupons . .  27,340.00 
Cash  on  Deposit  to  Pay  Dividends  on  Pre- 
ferred Stock 940.62 

Notes  Receivable 2,946,551 .46 

Accounts  Receivable 9,494,731 . 06 

Due  from  Subscribers  to  Capital  Stock 53,928.77 

TOTAL  CURRENT  ASSETS 19,158,168 .98 

WORKING  AND  TRADING  ASSETS: 

Raw  Materials  and  Supplies,  Finished  Parts 
and  Machines,  Work  in  Progress,  Goods  on 
Consignment  and  Apparatus  with  Cus- 
tomers   14,321,474.01 

OTHER  ASSETS: 

Patents,  Charters  and  Franchises $  6,074,985 .17 

Insurance,  Taxes,  etc.,  Paid  in  Advance. .  . .  120,321.78 

Deferred   Charge — Expenses   Incidental   to 

Issue  of  Bonds  and  Notes 993,333.34 

TOTAL  OTHER  ASSETS 7,188,640.29 

TOTAL  ASSETS $82,395.610.36 

LIABILITIES 
CAPITAL  STOCK: 

Preferred $  3,998,700.00 

Assenting — In  Hands  of 

Puolic $35,187,587.50 

In  Treasury. . . . .     1,607.000.00     36,694,587.50 
TOTAL  CAPITAL  STOCK $40,694,287 . 50 


WESTINGHOUSE   ELEC.   &   MFG.    CO.    REPORT     635 

FUNDED  DEBT: 

Convertible  Sinking  Fund,  5%,  Gold  Bonds, 
due  January  1,  1931 

In  Hands  of  Public $19,691,000.00 

lu  Treasury 266,000.00    $19,957,000.00 

Debenture  Certificates,  5%,  due  July  1, 1913.        1,800,000.00 
Bonds — Walker  Company,  due  January  1, 

1916,  Guaranteed  by  W.  E.  &  M.  Co 850,000.00 

TOTAL  FUNDED  DEBT 22,607,000  00 

COLLATERAL  NOTES: 

Six  Per  Cent  Collateral  Notes,  due  August  1, 

1913.      $  4,000,000.00 

Five  Per  Cent  Collateral  Notes,  due  October 

1,  1917 2,720,000.00 

TOTAL  COLLATERAL  NOTES 6,720  000  00 

LONG  TERM  NOTES: 

Four  Year  5%  Notes,  due  January  1,  1913.  $     429,900.00 
Five  Year  5%  Notes,  due  January  1,  1914.  429,500.00 

Six  Year  5%  Notes,  due  January  1,  1915. . .  425,500.00 

Fifteen  Year  5%  Notes,  due  January  1, 1924.  98,750 . 00 

TOTAL  LONG  TERM  NOTES 1,383,650.00 

REAL  ESTATE  MORTGAGES  ASSUMED  IN  PUB- 
CHASE  OP  PROPERTY 228,200.00 

CURRENT  LIABILITIES: 

Accounts  Payable $  2,454,674.83 

Interest,  Taxes,  Wages,  Rebates,  etc.,  Ac- 
crued, Not  Due 572,803. 75 

Dividends  on  Preferred  Stock,  Payable  April 

15,  1911 139,954.50 

Unpaid  Dividends  on  Preferred  Stock 940 . 62 

TOTAL  CURRENT  LIABILITIES 3, 168,373 . 70 

RESERVE: 

For  Adjustments  of  Inventories,  Notes  and 

Accounts  Receivable,  etc 1,630,774.26 

PROFIT  AND  Loss: 

Surplus 5,964,224.90 

TOTAL  LIABILITIES $82,395,510.36 


NOTE — There  is  a  Contingent  Liability  for  Notes  Receivable  discounted  by 
Subsidiary  Companies  amounting  to  $16,703.87. 


Your  Directors  present  the  following  explanation  of  important  items 
in  the  Balance  Sheet,  with  the  view  of  informing  the  Stockholders  as 
fully  as  possible,  without  entering  into  unnecessary  details,  as  to  the 
character  and  value  of  the  Company's  assets  and  the  extent  and  nature 
of  its  liabilities.  This  information  is  given  both  in  recognition  of  the 
duty  of  corporate  directors  to  give  their  stockholders  the  fullest  prac- 
ticable publicity  as  to  the  corporation's  affairs  and  for  the  purpose  of 
enabling  the  stockholders  to  form  for  themselves  an  intelligent  judg- 
ment as  to  the  advisability  of  distributing  the  Company's  current 
earnings  by  way  of  dividends  on  the  assenting  stock. 


636         MATERIALS    OF    CORPORATION    FINANCE 

ASSETS 
I— PROPERTY  AND  PLANT— $17,692,145.61 

This  item  represents  the  present  value  of  the  real  estate,  buildings, 
machinery  and  equipment  comprising  your  manufacturing  plants  at 
East  Pittsburg,  Pa.,  Newark,  N.  J.,  Pittsburg,  Pa.,  Cleveland,  Ohio, 
Bloomfield,  N.  J.,  New  York,  N.  Y.,  and  Bridgeport,  Conn.;  also 
storage  and  warehouse  properties  at  distributing  points  throughout  the 
country. 

During  the  past  year  your  Directors  caused  to  be  made  by  the 
American  Appraisal  Company  of  Milwaukee,  Wis.,  a  complete  inven- 
tory and  appraisal  of  the  buildings,  machinery  and  equipment  of  all 
your  plants.  A  like  appraisal  of  the  real  estate  was  made  through 
local  agencies.  The  appraisal  of  the  buildings,  machinery  and  equip- 
ment was  made  to  ascertain,  first,  the  cost  as  of  the  date  of  appraisal 
of  reproducing  the  buildings,  machinery  and  equipment,  new;  and 
second,  the  present  sound  values,  after 'charging  against  the  reproduc- 
tive cost  all  depreciations  in  buildings,  machinery  and  equipment  as 
determined  by  the  judgment  and  estimate  of  the  Appraisal  Company. 
These  sound  values  thus  ascertained  by  the  Appraisal  Company,  are 
the  figures  appearing  in  th,,  Balance  Sheet. 

The  aggregate  of  the  item  Property  and  Plant  in  the  Balance  Sheet 
as  of  March  31,  1910,  was  $14,974,629.20.  There  is  an  increase  in  this 
item  of  $2,717,516.41.  This  increase  is  chiefly  due  to  the  following: 
Your  plants  at  Newark,  New  York  City  and  Cleveland  have  heretofore 
appeared  in  the  Balance  Sheet,  not  under  "Property  and  Plant,"  but 
under  "Investments,"  for  the  reason  that  your  Company's  control  of 
these  properties  was  represented  by  the  ownership  of  securities  of  other 
corporations  that  held  title  to  them.  Title  to  the  Newark  plant  was 
held  by  The  United  States  Electric  Lighting  Company,  all  of  whose 
stock  is  now  owned  by  your  Company,  to  the  New  York  plant  by  The 
Consolidated  Electric  Light  Company,  substantially  all  of  whose  stock 
is  likewise  owned,  and  to  the  Cleveland  plant  by  the  Walker  Foundry 
Company,  all  of  whose  stock  your  Company  also  owns.  The  Cleve- 
land plant  is  subject  to  the  lien  of  a  mortgage  securing  $850,000  of 
bonds  of  the  Walker  Company,  a  former  owner  of  the  plant.  These 
bonds,  though  guaranteed  as  to  principal  and  interest  by  the  West- 
inghouse  Electric  &  Manufacturing  Company,  have  never  appeared  as 
a  direct  obligation  of  your  Company,  though  reference  has  been  made 
in  former  reports  to  this  guaranty  as  a  contingent  liability.  During 
the  past  year  title  has  been  taken  by  the  Westinghouse  Electric  & 
Manufacturing  Company  to  the  Cleveland  plant,  subject  to  the  $850,- 
000  bonds.  Steps  are  in  progress  to  convey  to  the  Westinghouse  Elec- 


WESTIXGHOUSE   ELEC.   &   MFG.    CO.    KKl'ORT     637 

trie  &  Manufacturing  Company  the  Newark  plant  and  it  is  intended 
that  similar  action  shall  be  taken  with  reference  to  the  New  York 
City  plant.  In  view  of  this  situation  it  was  determined  to  write  into 
the  account  "Property  and  Plant,"  the  appraised  value  of  the  build- 
ings, machinery  and  equipment  comprising  each  of  these  plants,  elimi- 
nating from  investments  the  items  heretofore  representing  your  stock 
control  of  these  properties,  and  taking  upon  the  books  of  the  Westing- 
house  Electric  &  Manufacturing  Company  as  its  direct  obligation,  ita 
guaranty  of  the  Walker  Company  bonds.  This  difference  between  for- 
mer book  values  and  present  appraised  values,  aggregating  $1,193,- 
297.79,  has  been  charged  against  Surplus,  partly  as  depreciation  of 
Investments,  and  partly  as  an  adjustment  due  to  establishing  on  the 
books  as  a  direct  liability  the  guaranty  of  the  bonds  of  the  Walker 
Company. 

Your  Directors  have  determined  that  for  the  current  fiscal  year 
depreciation  charges  to  provide  for  obsolescence  of  buildings  shall  be 
made  monthly  at  the  annual  rate  of  two  per  cent,  of  the  reproductive 
cost  thereof,  providing  for  all  other  depreciations  of  Property  and 
Plant  by  charging  monthly  to  operating  expenses  the  cost  of  all  re- 
newals, replacements  and  maintenance  of  both  buildings  and  ma- 
chinery and  equipment.  As  to  the  former,  this  is  a  new  policy.  As  to 
the  latter,  this  determination  is  but  a  continuance  of  past  practices,  as 
a  result  of  the  application  of  which  to  the  operations  of  the  past  year, 
$2,271,471.41  were  charged  out  of  earnings,  as  part  of  current  operat- 
ing expenses,  on  account  of  depreciation  of  buildings,  machinery  and 
equipment. 

II— SINKING  FUND— $445.48 

This  item  represents  the  balance  uninvested  of  sinking  fund  pay- 
ments made  to  the  Trustee,  in  accordance  with  the  requirements  of  the 
indenture  controlling  the  Company's  issue  of  Convertible  Sinking  Fund 
Five  Per  Cent.  Gold  Bonds. 

Ill— INVESTMENTS— $24,034,635.99 
A— Securities  of  Westinghouse  Electric  &r  Manufacturing  Co. 

There  are  included  in  this  account  securities  of  Westinghouae  Elec- 
tric &  Manufacturing  Company  carried  at  their  face  values  as  follows : 

Capital  stock— assenting $1,507,048.00 

Convertible  sinking  fund  bonds  . .        266,000.00 

Bond  scrip 1,150.80 

Total $1,774,198.50 

The  assenting  capital  stock  was  acquired  partly  by  the  several  sub- 
sidiary Companies  in  settlement  of  account*  due  them  by  the  Westing- 


638         MATEEIALS    OF    CORPORATION    FINANCE 

house  Electric  &  Manufacturing  Company  at  the  time  of  the  receiv- 
ership, and  partly  in  settlement  of  disputed  relations  existing  at  and 
after  the  receivership  between  the  Westinghouse  Electric  &  Manu- 
facturing Company  and  Security  Investment  Company.  The  stock  is 
carried  as  an  investment  with  the  intent  that  at  a  favorable  time  it  shall 
be  resold. 

The  convertible  sinking  fund  bonds  have  been  acquired  and  are  held 
in  anticipation  of  sinking  fund  requirements.  The  bond  scrip  repre- 
sents scrip  purchased  to  be  exchanged  for  bonds,  also  to  be  held  for 
sinking  fund  purposes. 

B — Securities  of  Subsidiary  Companies 

The  following  are  known  as  the  "Subsidiary  Companies"  of  West- 
inghouse Electric  &  Manufacturing  Company : 

Westinghouse  Lamp  Company ; 

The  Bryant  Electric  Company  (The  Perkins  Electric  Switch  Manu- 
facturing Co.) ; 

R.  D.  Nuttall  Company; 

Westinghouse  Electric  &  Manufacturing  Company  of  Texas. 

None  of  these  Companies  has  any  funded  debt.  All  the  shares  of 
stock  of  each  of  them  is  owned  by  Westinghouse  Electric  &  Manu- 
facturing Company,  but  none  of  these  stocks  appear  as  investments  in 
the  consolidated  balance  sheet  herewith  presented.  Instead,  the  assets 
and  liabilities  of  each  of  the  subsidiary  companies  are  included  under 
their  several  appropriate  headings  in  the  consolidated  balance  sheet. 

The  ownership  by  The  Bryant  Electric  Company  of  all  the  capital 
stock  ($125,000)  of  The  Perkins  Electric  Switch  Manufacturing  Com- 
pany, is  carried  on  the  books  of  The  Bryant  Electric  Company  at 
$2,000,000.  This  item  is  included  in  "Investments"  in  the  consolidated 
balance  sheet,  after  deducting  the  par  amount  of  the  outstanding  capi- 
tal stock,  at $1,875,000.00 

This  item  can  be  considered  as  having  value  only  as  goodwill. 

C — Foreign  Companies 

Since  1889  your  Company  has  from  time  to  time  invested  large 
amounts  of  its  capital  in  establishing  and  maintaining  companies  for 
the  manufacture  and  sale  of  Westinghouse  electrical  apparatus  in  for- 
eign countries.  Since  no  detailed  report  of  these  efforts  and  of  their 
results  has  heretofore  been  made  to  the  stockholders,  your  Directors 
deem  this  an  opportune  time  to  inform  the  stockholders  concerning 
them,  and  also  as  to  the  values  at  which  the  resulting  investments  now 
stand  upon  the  books. 


WESTINGHOUSE   ELEC.   &   MFG.   CO.   REPORT     639 

The  first  foreign  Company,  organized  July  11, 1889,  wa» 
Westinghouse  Electric  Company,  Limited 

(a  corporation  of  Great  Britain) 
Its  issued  capital  consists  of: 

Preference  shares £189,550  ($   919,317.50) 

Ordinary  shares    £275,000  ($1,333,750.00) 

The  entire  issued  capital  of  this  company  was  eventually  acquired  by 
Westinghouse  Electric  &  Manufacturing  Company,  and  as  of  March  31, 
1909,  was  carried  as  an  investment  on  your  books  at  an  aggregate  book 
value  of  $1,773,084.05.  This  book  value  represented  expenses  incurred 
from  1889  to  1906  in  the  efforts  to  establish  the  manufacture  and  sale 
of  your  Company's  apparatus  in  foreign  countries.  This  expense  in- 
cluded the  cost  of  taking  out  and  maintaining  patents  in  foreign  coun- 
tries on  the  inventions  and  improvements  of  the  home  company.  From 
time  to  time  the  patents  issued  by  the  various  foreign  countries  in  which 
manufacturing  companies  were  organized,  as  hereinafter  described, 
were  transferred  to  such  companies.  As  of  March  31, 1910,  the  assets 
of  Westinghouse  Electric  Company,  Ltd.,  consisted  (aside  from  some 
small  holdings  of  shares  in  other  companies,  of  little  or  no  value)  of  the 
patents  owned  by  it  in  Germany,  Austria,  Hungary,  Norway,  Sweden 
and  Denmark,  and  in  certain  licenses  granted  by  it  under  some  of 
these  patents.  The  income  of  the  company  is  and  has  long  been  in- 
sufficient to  pay  the  expenses  of  its  operations  and  the  upkeep  of  its 
patents.  During  the  fiscal  year  ended  March  31,  1910,  your  Directors 
deemed  it  wise  to  write  off  from  the  book  value  of  this  item  $773,- 
084.05  and  during  the  fiscal  year  just  ended  there  has  been  written  off 
an  additional  $500,000.00  making  a  total  depreciation  of  this  item  of 
$1,273,084.05,  leaving  the  book  value  of  this  investment  as  of  March 

31,  1911 $500,000.00 

Further  depreciation  of  this  item  must  be  contemplated. 

The  next  foreign  company,  organized  July  10,  1899,  was 
The  British  Westinghouse  Electric  &  Manufacturing  Co.,  Ltd. 
(a  corporation  of  Great  Britain) 

This  company  by  1903  had  completed  the  construction  and  equip- 
ment of  immense  works  for  the  manufacture  of  electrical  apparatus, 
steam  turbines  and  gas  engines.  The  buildings  comprise  machine 
shops,  an  iron  foundry,  a  steel  foundry  and  forge,  a  brass  foundry, 
a  malleable  iron  foundry  and  office  buildings,  at  Trafford  Park,  near 
Manchester,  England.  The  company's  buildings  occupy  a  total  floor 
area  of  27  acres.  Its  real  estate  holdings  comprise  133  acres  which 
it  holds  under  an  annual  rent  charge  of  £7,740  ($37,539),  to  be 
increased  on  January  1,  1915,  in  perpetuity,  to  £8,845  ($42,898.25). 


640 


MATERIALS    OF    CORPORATION    FINANCE 


The  company's  original  capital,  issued  from  time  to  time  from  1900 

tc  1906,  consisted  of 

Ordinary  shares £    750,000   ($  3,637,500) 

Preference  shares £2,500,000  ($12,125,000) 

4%  Mortgage  debenture  stock. .  £1,241,353   ($  6,020,562) 

Total £4,491,353   ($21,783,062) 

The  ordinary  shares  were  issued  in  payment  for  patents,  manufac- 
turing information  and  territorial  rights.  The  preference  shares  and 
the  mortgage  debenture  stock  were  sold  for  cash  at  substantially  par, 
and  the  aggregate  of  their  face  value,  £3,741,353  ($18,145,562), 
represents  approximately  the  amount  of  money  spent  in  producing 
the  facilities  of  the  British  Company  and  in  paying  the  losses  incurred 
in  its  operations  prior  to  1907.  In  January,  1907,  because  of  losses 
thus  far  incurred,  the  capital  of  the  company  was  reduced  by  £1,375,- 
000  ($6,668,750).  In  1908  there  was  a  further  authorized  issue  of 
£300,000  ($1,455,000)  of  6%  prior  lien  debentures,  of  which 
£250,000  ($1,212,500)  were  issued.  Of  this  issue  £16,400  ($79,540) 
have  been  retired  under  sinking  fund  provisions,  leaving  outstanding 
£233,600  ($1,132,960)  as  of  December  31,  1910. 
The  present  capitalization  is : 

Preference  shares £1,500,000   ($  7,275,000) 

Ordinary  shares £    375,000   ($  1,818,750) 

4%  Mortgage  debenture  stock..  £1,241,353   ($  6,020,562) 
6%  Prior  lien  debentures £    233,600   ($  1,132,960) 

Total £3,349,953   ($16,247,272) 

The  operations  of  the  British  Company  have  been  quite  uniformly 
unprofitable,  as  is  shown  by  the  table  of  gross  earnings  and  net  in- 
come, which  follows: 


YEAR  ENDED  DECEMBER  31 


Grosa     Earn- 
ings —  Ship- 
ments Bil'd 

Net  Profit 
from  Oper- 
ations   

Other  Income 
Total  Income 

Interest 
Charges  .  .  . 

Net     Surplus 
for  the  Year 

1904 

1905 

1906 

1907 

1908 

1909 

1910 

£1,464,695 

£1,334,815 

£1,054,189 

£1,121.432 

£1,068,559 

£984,709 

£1,206,366 

4,289 
2,813 

126,784 
(loss) 
3,228 

310,524 
(loss) 
1,231 

17,836 
(loss) 
1,668 

12,626 
2,760 

51,623 
17,435 

62,372 
19,891 

7,102 
37,298 

123,556 
(loss) 

43,476 

309,293 
(loss) 

56,764 

16,168 
(loss) 

64,033 

15,386 
62,607 

69,058 
64,556 

82,263 
64,184 

£30,196 
(loss) 
($146,450 

£  167,032 
(loss) 
($810,105) 

£  366,057 
(loss) 
($1,775,376 

£  80,201 
(loss) 
($388,974) 

£  47,221 
(loss) 
($229,021) 

£4,502 
($21,834) 

£  18,079 
($87,683) 

WESTINGHOUSE   ELEC.   &   MFG.   CO.   REPORT     641 

A  further  reduction  of  the  British  Company's  capital  seems  to  be 
forecasted  by  the  necessity  for  providing  for  payment  of  an  award 
against  it  aggregating  with  costs  substantially  more  than  £100,000 
($485,000),  in  an  arbitration  proceeding,  recently  decided,  between 
the  -British  Company  and  the  London  Underground  Railway. 

The  Income  Account  for  the  year  ended  December  31,  1910,  follows: 

To  Interest  on  6  per  cent.  Prior  Lien  Bonds  to  December  31, 

1910 14,358      0      0 

To  Proportion  of  Issue  Expenses  of  6  per  cent.  Prior  Lien 

Debentures  written  off 660      0      0 

To  Interest  on  4  per  cent.  Mortgage  Debenture  Stock '. '.'.        49,654      2      4 

To  Expenses  on  Surplus  Land  and  Buildings 5,364     13      5 

To  Amount  Written  off  Works,  Machinery, 

Plant,  etc £  9,423    11     6 

To   Additional  Sum   Reserved  for  General 

Depreciation 15,000      0    0 

24,423     11      6 

To  Profit  for  Year,  Including  Prior  Lien  Redemption  Ac- 
count   18,078  12  8 

£112,538     19     11 

£  a.     d. 

By  Profit  for  Year,  Including  Estimated  Profit  Accrued  to 
Date  on  Contracts  in  Progress,  Interest  Received,  etc., 
after  Providing  for  the  Expenses  of  Management,  Direc- 
tors' Fees,  for  Bad  and  Doubtful  Debts,  Maintenance  of 
Buildings,  Machinery,  etc.,  and  all  other  Working  Charges  1 10, 133  17  8 

By  Interest  on  Deposits  and  Loans U,:i70      7      3 

By  Transfer  Fees 34     15      0 


£112,538      19     11 

The  improved  situation  and  prospects  of  the  British  Company  re- 
flected by  the  results  of  its  operations  for  the  past  year,  seem  to  assure 
the  ability  of  the  company  to  meet  its  fixed  charges  represented  by 
the  interest  on  its  two  classes  of  debentures,  but  do  not  give  promise 
of  an  early  return  on  either  its  preference  or  ordinary  shares.  The 
balance  sheet  of  the  company  as  of  December  31,  last,  follows: 

ASSETS 
PROPERTY  AND  PLANT: 

Buildings,  Fixtures  and  Land  ................................    £   935,182 

Machinery,  Plant  and  Furniture,  Tools  and  Dies,  Patterns,  Draw- 
ings, etc.,  Trafford  Park  ..................................         752,258 

Office  Furniture  and  Equipment  —  London  and  Branch  Office*.  .  .  4,199 


TOTAL 


INVESTMENTS: 

Clyde  Valley  Electrical  Power  Company.  Ltd.—  Shard  .........    £  200,79fl 

Traction  &  Power  Securities  Company,  Ltd.  —  Shares  ........ 

Miscellaneous  Shares  and  Debentures  ........................ 

TOTAL..  ......    £  286,414 


642         MATERIALS   OF   CORPORATION    FINANCE 

CURRENT  ASSETS: 

Cash  at  Bankers  and  on  Loan £     92,792 

Cash  with  Cashiers,  Agents  and  others 21,744 

Notes  Receivable 6,753 

Accounts  Receivable 559,628 

TOTAL £   680,917 

WORKING  AND  TRADING  ASSETS: 

Materials  and  Supplies,  Finished  Product,  Work  in  Progress,  etc.  £   516,100 


OTHER  ASSETS: 

Patents  and  Good-will £   375,000 

Insurance,  Taxes  and  Royalties  Paid  in  Advance 14,039 

Suspense  Account — Prior  Lien  Debenture  Issue  Expenses 12,977 

Development  of  Rateau  Turbines 6,894 

TOTAL £   408,910 

TOTAL  ASSETS £3,583,980 


LIABILITIES 
CAPITAL: 

Share  Capital: 

Preference  Shares £1,500,000 

Ordinary  Shares 375,000 

TOTAL £1,875,000 

Debentures: 

6%  Prior  Lien £    233,600 

4%  Mortgage  Stock 1,241,353 


TOTAL £1,474,953 

CURRENT  LIABILITIES: 

Current  Accounts £    130,615 

Taxes  and  Rents,  Royalties,  etc 17,585 

Advances  Received  on  Contracts  in  Progress 2,009 

Interest  Accrued 28,331 


TOTAL £    178,540 

RESERVE  ACCOUNTS  AND  SURPLUS £     55,487 

TOTAL  LIABILITIES £3,583,980 

Of  the  outstanding  capital  of  the  British  Company  the  Westing- 
house  Electric  &  Manufacturing  Company  owns  the  following: 

Preference  shares £536,112   ($2,600,143) 

Ordinary  shares   £190,230  ($    922,615) 

4%  Mortgage  debenture  stock £675,000  ($3,273,750) 

Of  these,  the  ordinary  shares  do  not  appear  on  your  books  as  an 
investment  of  any  value.    The  preference  shares,  having  a  par  value 


WESTINGHOUSE   ELEC.   &   MFG.   CO.   REPORT     643 

(after  the  reduction  of  capital  in  1907)  of  $2,600,143  were  carried 
on  your  books  as  an  investment  until  1910  at  a  book  value,  represent- 
ing the  original  cost  of  acquisition,  of  $4,458,083.  As  of  March  31, 
1910,  your  Directors  wrote  off  for  depreciation  of  this  item  the  sum 
of  $3,564,563.  Its  book  value  as  of  March  31,  1911,  is  $893,520.00. 
The  shares  have  a  present  market  value  on  the  London  Stock  Exchange 
of  21  shillings  per  share  of  the  par  value  of  £3  each,  which  makes 
the  present  aggregate  market  value  of  this  item  approximately  the 
book  value. 

The  4%  Debenture  stock,  having  a  par  value  of  $3,273,750,  is 
carried  on  the  books  as  an  investment  at  the  cost  of  acquisi- 
tion, $3,137,104.84.  It  yields  a  return  of  4%  on  par.  Recent  sales 
on  the  London  Stock  Exchange  have  been  at  the  price  of  62% 
of  par. 

On  November  28,  1901,  there  was  organized  under  French  law 
Societe  Anonyme  Westinghouse,  of  Paris 

(French  Company). 
Its  outstanding  capital  is : 

Preference  shares Frs.  10,000,000  ($1,930,000) 

Ordinary  shares Frs.  10,000,000  ($1,930,000) 

5%  Debentures Frs.     7,500,000  ($1,447,500) 

The  French  Company  operates  a  factory  at  Havre,  France,  where 
it  manufactures  a  general  line  of  electrical  apparatus  and  certain 
condensing  apparatus  for  steam  engines  and  turbines.  It  also  has 
a  factory  at  Freinville,  near  Paris,  where  it  manufactures  Westing- 
house  air  brakes.  Its  territory  includes  France,  Belgium,  Holland, 
Switzerland,  Spain  and  Portugal.  The  operations  of  the  company 
have  been  steadily  unprofitable;  and,  while  it  earns  and  pays  the 
interest  on  its  debentures,  only  once,  for  the  year  1908,  has  it  paid 
a  dividend  on  its  preference  shares.  It  underwent  one  reduction  of 
capital  in  1907,  whereby  its  ordinary  shares  were  reduced  from  Frs. 
20,000,000  ($3,860,000)  to  Frs.  10,000,000  ($1,930,000).  In  1909 
it  increased  its  issue  of  preference  shares  by  Frs.  5,000,000  ($965,000). 
Since  January  1,  1911,  it  has  increased  its  5%  debenture  issue  from 
Frs.  7,500,000  ($1,447,500)  to  Frs.  10,000,000  ($1,930,000). 
proposes  at  its  annual  general  meeting  in  June,  1911,  again  to 
reduce  its  capital  by  a  reduction  of  the  ordinary  shares  from  Frs. 
10,000,000  ($1,930,000)  to  Frs.  4,000,000  ($772,000).  Statement 
of  its  gross  and  net  earnings  for  the  years  1906  to  1910,  inclusive, 
follows : 


644 


MATERIALS    OF    CORPORATION    FINANCE 


Gross  Earnings — Shipments  Billed . . . 

Net  Profit  from  Operations 

Other  Income 

Total  Income 

Interest  Charges 

Net  Surplus  for  the  Year 


YEAR  ENDED  DECEMBER  31 


1906 


Francs 
9,864,092 


730,021 

(loss) 

83,581 


646,440 

(loss) 

29,825 


676,265 

(loss) 

($130,519) 


1907 


Francs 
10,350,733 


1,183,941 

(loss) 

183,163 


1,000,778 

(loss) 

351,644 


1,352,422 

(loss) 
($261,017) 


1908 


Francs 
15,184,819 


670,785 
211,629 


882,414 
604,881 


277,533 
($53,563) 


1909 


Francs 
13,207,311 


288,125 

(loss) 

726,120 


437,995 
513,327 


75,332 

(loss) 

($14,539) 


1910 


Francs 
14,031,636 


23,243 

(loss) 

412,205 


388.C62 
397,359 


8,397* 

(loss) 

($1,620) 


*Preliminary — final  reports  not  yet  received. 

A  condensed  preliminary  balance  sheet  of  the  French  Company 
as  of  December  31,  1910,  which  does  not  take  into  account  the  increase 
in  its  debenture  issue,  or  the  proposed  reduction  of  share  capital, 
follows : 

ASSETS 

PROPERTY  AND  PLANT:  Francs 

Real  Estate  and  Buildings 3,621,769 

Machinery,  Tools,  Patterns,  Fixtures  and  Office  Furniture 4,537,979 

Patents 3,985,000 

TOTAL 12,144,748 

INVESTMENTS: 

Italian  Company *2,969,694 

Miscellaneous 748,949 

TOTAL 3,718,643 

CURRENT  ASSETS: 

Cash  with  Bankers 157,258 

Cash  with  Cashier,  Agents,  et  al 84,559 

Cash  Guarantees  and  Advances 224,287 

Notes  Receivable 36,250 

Accounts  Receivable 8,466,677 

TOTAL 8,969,031 

WORKING  AND  TRADING  ASSETS: 

Raw  Materials  and  Supplies,  Finished  Product,  Work  in  Progress, 

etc 7,842,535 

DEFERRED  CHARGES 178,501 

TOTAL  ASSETS 32,853,458 

LIABILITIES 

CAPITAL  STOCK:  Francs 

Ordinary  Shares 10,000,000 

Preference  Shares 10,000,000 

5%  Debentures 7,500,000 


TOTAL  CAPITAL  AND  FUNDED  DEBT 27,500,000 


WI.STIXGHOUSE    ELEC.   &   MFG.    CO.    REPORT      645 

CURRENT  LIABILITIES: 

Notes  Payable 473,091 

Accounts  Payable 3,207,077 

Advances  on  Account  of  Apparatus  to  be  Delivered LOOO^SM 

Interest,  etc 193,662 

TOTAL 4,964,389 

RESERVES,  PROFIT  AND  Loss,  ETC 389,069 

TOTAL  LIABILITIES 32,853,458 

*1,000  Shares  (par  value  Lire  250,000)  deposited  with  Banker*  aa  security  for  guarantees  on 
contracts  undertaken. 

NOTE — As  of  December  31,  1910,  the  French  Company  had  a  contingent  liability  for  ruar 
anteea  and  endorsements  made  for  account  of  the  Italian  Company  to  the  amount  of  Kr».  1,570,014* 

Of  the  outstanding  capital  of  the  French  Company,  the  Westing- 
house  Electric  &  Manufacturing  Company  owns: 

Preference  shares  Frs.  4,628,750  ($   893,348) 

Ordinary  shares   Frs.  2,883,750  ($    556,563) 

5%  Debentures Frs.  7,500,000  ($1,447,500) 

With  the  exception  of  Frs.  3,478,750  ($671,398)  of  preference 
shares,  these  were  all  acquired  prior  to  1907.  During  the  Receiver- 
ship of  your  Company  (1907-1908)  the  Court  authorized  the  Re- 
ceivers to  advance  $1,300,000  to  the  French  Company.  These  advances 
were  not  actually  made  during  the  Receivership,  but  in  1909  your 
Company  took  at  par  Frs.  3,478,750  ($671,398)  of  the  preference 
shares  issued  that  year. 

The  debentures  are  carried  on  your  books  as  an  in- 
vestment at  cost  $1,430,730.37 

The  preference  shares  are  likewise  carried  among 

investments  at  cost 896,536.51 

Prior  to  March  31,  1910,  the  ordinary  shares  were  carried  as  an 
investment  at  cost,  $494,032.21.  During  the  year  ended  March  31, 
1910,  there  was  written  off  as  depreciation  of  this  item  $275,057.21. 
During  the  last  fiscal  year  there  was  written  off  a  further  sum  of 
$218,974.00,  leaving  the  book  value  of  the  ordinary  shares  as  of 
March  31,  1911 *1-00 

Your  Directors  hope  that  with  careful  management  the  debenture* 
and  the  preference  shares  of  the  French  Company  may  be  made  worth 
their  face  values.  There  is  no  market  quotation  for  any  of  thm 
securities. 

On  March  11,  1907,  there  was  organized  under  Italian  law,  a*  a 
subsidiary  of  the  French  Company, 

Societa  Italiana  Westinghoott 
(Italian  Company). 

The  outstanding  capital  of  this  company  consists  of: 


646 


MATEEIALS    OF    CORPORATION   FINANCE 


Ordinary  shares Lire  4,000,000   ($772,000)    ' 

Of  these  the  French  Company 

owns  approximately Lire  3,000,000   ($579,000) 

For  the  purpose  of  capitalizing  certain  advances  recently  made  to  it 
by  the  French  Company  and  the  Westinghouse  Electric  &  Manu- 
facturing Company,  the  Italian  Company  is  about  to  create  an  issue 
of  Lire  4,000,000  ($772,000)  of  5%  debentures.  Of  this  issue 
approximately  Lire  1,500,000  ($289,500)  will  be  received  by  the 
French  Company  and  Lire  2,500,000  ($482,500)  by  the  Westing- 
house  Electric  &  Manufacturing  Company.  These  debentures  will 
in  next  year's  balance  sheet  of  your  Company  appear  among  Invest- 
ments; meanwhile  the  amounts  advanced  as  of  March  31,  1911,  appear 
in  the  balance  sheet  under  the  items  Notes  and  Accounts  Eeceivable 
at  $289,746.12. 

The  Italian  Company  in  1907-8  constructed  a  factory  at  Vado, 
Ligure,  Italy,  for  the  primary  purpose  of  executing  important  con- 
tracts for  the  electrification  of  certain  of  the  Italian  State  Railways. 
Delays  by  the  Italian  Government  in  carrying  out  its  program  for 
the  improvement  of  its  railway  lines  has  temporarily  disappointed  the 
expectations  with  which  this  company  was  organized  and  its  plant 
created,  so  that  it  is  now  looking  to  the  general  market  for  orders  for 
electrical  apparatus  to  keep  its  works  in  operation. 

Statement  of  its  earnings  and  profits  and  its  balance  sheet  as  of 
December  31,  1910,  follows: 


YEAR  ENDED  DECEMBER  31 


Gross  Earnings — Shipments  Billed. . . 


1908 

Lire 

2,325,678 


1909 

Lire 

2,899,718 


1910 

Lire 

3,688,241 


Net  Profit  from  Operations 104,611         318,786     (loss)  121,590 


TOTAL  INCOME  

245,821 

492,439 

347,443 

Deductions     from     Income  —  Interest 
and  Other  Charges  

75,077 

255,225 

518,121 

Net  Surplus  for  the  Year. 


170,744         237,214     (loss)  170,678 
($  32,953)    ($  45,782)          ($  32,940) 


ASSETS 
PROPERTY  AND  PLANT:  Lire 

Real  Estate  and  Buildings 1,329,626 

Other  Real  Estate 665,148 

Machinery,  Tools,  Patterns,  Fixtures  and  Furniture 2,466,522 

Patents 1,049,917 


TOTAL 5,511,213 


WESTINGHOUSE   ELEC.   &   MFG.   CO.   KEPOBT    647 

CURRENT  AND  WORKING  ASSETS: 

Cash  with  Cashier  and  Banks.  .  22  174 

Cash  with  Agents,  etc.  ...  iin'-iic 

Cash  Guarantees,  etc  ............  367  S31 

Accounts  and  Notes  Receivable  .......  2  995*850 

Inventories  '    '  ''  ''  ''      ' 


TOTAL  ................................................       4,642,178 

DEFERRED  CHARGES  ........................  ti  i  7u"j 


TOTAL  ASSETS 10,215,156 

LIABILITIES 

CAPITAL  STOCK:  Lire 

Ordinary  Shares 4,000,000 


CURRENT  LIABILITIES: 
Notes  Payable: 

Issued  for  Cash 3,091,014  (1) 

Miscellaneous 361  579 

Accounts  Payable .' .'  2,563,'643  (2) 

Bank  Overdraft 93|l91 

Miscellaneous — Including  Interest 50,155 

TOTAL 6,159,582 

LEGAL  RESERVE  AND  PROFIT  AND  Loss 65,574 

TOTAL  LIABILITIES 10,215,166 

(1)  Includes  notes  for  L.  1,500,000  held  by  American  Co.  far  cash  advanced.     The  balance 
is  held  almost  exclusively  by  Italian  banks  and  in  part  is  secured  by  guarantee  of  the  Frenoh  Co. 

(2)  Includes  account  due  the  French  Co.  amounting  to  approximately  L.  1,250,000. 

In  July,  1906,  there  was  organized  under  the  laws  of  France 
Societe  Electrique  Westinghouse  de  Russie 

(Russian  Company). 
The  outstanding  capital  of  this  company  is: 

Cash  shares  Frs.     7,000,000  ($1,351,000) 

Apport  shares  Frs.  13,000,000  ($2,509,000) 

5%  Debentures Frs.  14,000,000  ($2,702,000) 

This  company  was  organized  primarily  to  execute  a  contract 
amounting  to  over  Rs.  10,000,000  ($5,150,000)  for  the  electrification 
of  the  St.  Petersburg  tramways.  For  the  purpose  of  this  work  the 
Russian  Company  acquired  the  electric  manufacturing  plant  in  Mos- 
cow of  the  Compagnie  Centrale  d'Electricite  of  Paris.  Part  of  the 
purchase  price  was  deferred  and  secured  by  a  mortgage  on  the  plant, 
of  which  there  is  still  due  approximately  Fra.  750,000  ($144,750) 
maturing  in  three  nearly  equal  instalments  on  July  25,  1911,  January 
25,  1912,  and  July  25,  1912.  Upon  the  organization  of  the  Russian 
Company  the  Westinghouse  Electric  &  Manufacturing  Company  ad- 
vanced to  it  sums  aggregating  $895,888.12,  of  which  there  remains 


648         MATEEIALS    OF   COEPOEATION    FINANCE 

due  to  this  Company  $290,000.00.  The  Westinghouse  Electric  & 
Manufacturing  Company  purchased  from  the  Kussian  Company  its 
issue  of  Frs.  14,000,000  ($2,702,000)  of  5%  debentures  at  83%  of 
par,  the  cost  aggregating  $2,243,243.24.  It  also  subscribed  for 
Frs.  3,600,000  ($694,800)  cash  shares  of  the  Kussian  Company  at 
par,  the  payment  for  this  subscription  aggregating  $696,322.35.  The 
apport  shares  of  which  your  company  owns  Frs.  1,240,000  ($239,320) 
par  value,  cost  $198,962.05.  The  Eussian  Company  owes  the  West- 
inghouse Electric  &  Manufacturing  Company  on  open  account  for 
materials  $32,355.81.  There  remains  unpaid  also  the  interest  on  the 
debentures  from  October  1,  1908,  to  April  1,  1911,  aggregating 
$324,324.30.  The  total  investment  in  and  accounts  due  by  the  Eus- 
sian Company  at  the  close  of  the  last  fiscal  year  therefore  aggregate 
$3,785,207.75.  Of  this,  prior  to  March  31,  1910,  there  were  carried 
on  your  books  as  Investments: 

Cash  shares  at  cost $696,322.35 

Apport  shares 198,962.05 

5%  Debentures  at  cost 2,243,243.24 

As  of  March  31,  1910,  the  investment  in  the  cash  and  apport  shares 
was  written  off  to  $1.00  for  each  class  of  shares,  leaving  as  of  March 

31,  1911,  the  book  value  of  this  investment $2,243,245.24 

Further  depreciation  of  this  investment  may  be  required. 

Other  items  are  carried  against  the  Eussian  Company  in  other 
accounts  as  follows: 

Accounts  Eeceivable $32,355.81 

Notes  Eeceivable  290,000.00 

The  unpaid  interest  on  the  debentures  has  not  been  entered  on  the 
books  of  your  Company. 

The  execution  of  the  St  Petersburg  contract  resulted  in  a  loss  of 
approximately  Es.  2,000,000  ($1,030,000).  In  its  other  operations 
the  losses  of  the  Eussian  Company  have  aggregated  Bs.  1,584,425 
($815,978).  The  aggregate  losses  in  the  operations  of  the  Eussian 
Company  to  date  therefore  are  in  excess  of  $1,800,000.  There  are 
other  losses  not  yet  definitely  ascertained,  due  to  the  differences  be- 
tween the  actual  value  of  the  Moscow  plant  and  the  price  paid  for  it, 
and  to  depreciations  occurring  since  the  property  was  acquired  not 
yet  entered  on  the  books. 

The  City  of  St.  Petersburg  is  withholding  from  the  amount  due  by 
it  to  the  Eussian  Company  an  aggregate  of  over  Es.  700,000  ($360,- 
500)  by  way  of  fines  imposed  for  alleged  delays  in  the  performance  of 
the  contract  and  the  company  is  urging  a  large  claim  for  extras.  There 


WESTING  HOUSE   ELEC.   &   MFG.   CO.   REPORT     649 

is  reason  to  hope  that  the  fines  may  be  substantially  remitted.  Until 
these  disputes  are  adjusted  and  payment  made,  it  is  obviously  im- 
possible to  predict  how  much  of  our  investment  in  the  Russian  Com- 
pany can  be  realized.  The  maintenance  of  the  company  as  a  going 
concern  is  necessary  pending  the  negotiations  with  the  Municipality 
of  St.  Petersburg,  and  for  this  purpose  your  Directors  have  found  it 
necessary  to  provide  it  with  funds.  These  advances,  approximating 
$110,322  to  March  31,  1911,  are  secured  by  mortgage.  During  the 
past  year,  improvement  in  the  operations  and  increase  of  the  busi- 
ness of  the  Moscow  plant  encourage  the  hope  that  it  may  at  least  earn 
its  operating  expenses. 

On  September  6,  1906,  there  was  organized  under  Austrian  laws 
Westinghouse  Metallfaden-Gluhlampen-Fabrik  Gesell- 

schaft,  m.b.H  (Austrian  Company) 

The  outstanding  capital  stock  of  this  company  is  Kronen  1,600,000 
($324,800).  Of  this  Kronen  1,230,000  ($249,690)  are  owned  by  the 
Westinghouse  Electric  &  Manufacturing  Company  and  Westinghouse 
Lamp  Company  and  are  carried  among  investments  at  the  cost  of 

acquisition  aggregating $250,626.75 

The  Austrian  Company  operates  a  factory  for  the  manufacture  of 
tungsten  lamps  at  Atzgersdorf  near  Vienna.  Its  operations  have  so 
far  been  measurably  profitable,  and  the  shares  owned  by  your  Company 
may  safely  be  considered  worth  their  book  value. 

The  balance  sheet  of  the  Austrian  Company  as  of  February  28, 
1911,  follows: 

ASSETS 
PROPERTY  AND  PLANT:  Kronen 

Real  Estate  and  Buildings 603,13 

Machinery,  Tools,  Patterns,  Fixtures  and  Furniture .'.       827,634 

Patents 1 

TOTAL ' 1,330,772 

CURRENT  AND  WORKING  ASSETS: 

Cash  with  Bankers .!  "  J 

Cash  with  Cashiers,  etc 3.».414 

Accounts  Receivable •  •  x"  ,  .>  u 

Inventories '« !' AA? 

Insurance,  Taxes,  etc.,  Paid  in  Advance VC*;Y; 

TOTAL  CURRENT  AND  WOBKJNO  ABSBTB.  . 

TOTALASSETS 8.241.900 

LIABILITIES 
CAPITAL: 

Capital  Stock 


650         MATERIALS   OF   CORPORATION   FINANCE 

CURRENT  LIABILITIES: 

Accounts  Payable 836,836 

Loan— Union  Bank 30,000 

Dividend 240,000 

TOTAL 1,106,836 

RESERVE  ACCOUNTS,  PROFIT  AND  Loss,  ETC 535,064 

TOTAL  LIABILITIES 3,241,900 

At  the  time  of  the  organization  of  the  Austrian  Lamp  Com- 
pany, there  was  organized  The  Westinghouse  Metal 
Filament  Lamp  Company,  Ltd.  (London 
Lamp  Company) 

with  a  capitalization  of  £10,000  ($48,500)  of  which  80%  is  owned  by 
the  Westinghouse  Lamp  Company,  one  of  your  subsidiary  companies, 

and  is  carried  on  the  books  of  that  company  at  cost $38,800.00 

The  London  Lamp  Company  was  organized  to  control  the  patents 
covering  the  tungsten  lamp  manufacturing  processes  for  the  territory 
outside  of  that  of  the  Austrian  Lamp  Company.  It  is  believed  that 
the  book  value  of  this  investment  will  be  realized. 

At  various  times  from  1903  to  1908  the  Westinghouse  Electric  & 
Manufacturing  Company  acquired  shares  in 

Canadian  Westinghouse  Company,  Limited 
(organized  under  the  laws  of  Canada) 

Capital— Authorized    $5,000,000.00 

Capital— Issued     4,376,600.00 

Of  the  latter  the  Westinghouse  Electric  &  Manufacturing  Company 
owns  $1,710,000,  of  which  $500,000  was  acquired  in  consideration  of 
the  transfer  of  patent  rights  and  manufacturing  information  for 
Canada.  The  balance,  $1,210,000,  has  been  acquired  from  time  to 
time  at  par  for  cash.  The  shares  are  carried  on  your  books  as  an  in- 
vestment at  par $1,710.000.00 

Canadian  Westinghouse  Company,  Ltd.,  operates  a  manufacturing 
plant  at  Hamilton,  Ontario,  Canada.  It  manufactures  a  general  line 
of  electrical  apparatus  and  in  addition  the  Westinghouse  air  brake. 
It  has  been  uniformly  and  increasingly  successful  and  has  paid  divi- 
dends regularly  since  1903  at  the  rate  of  6%  per  annum,  with  an 
extra  1%  paid  for  1910.  The  shares  may  safely  be  considered  worth 
in  excess  of  their  book  value.  The  general  balance  sheet  and  state- 
ment of  profit  and  loss  both  as  of  December  31,  1910,  follow: 


WESTINQHOUSE    ELEC.   &   MFG.    CO.   REPORT     651 

GENERAL  BALANCE  SHEET 
ASSETS 

'*•  •  • '  J  n-ii  :t,"". *   376,565.29 

Accounts  and  Bills  Receivable 1  276  527  14 

PROPERTY  AND  PLANT: 

(Includes  Air  Brake  and  Electric  Properties,  Real  Estate, 
General  Office  Building,  Equipment,  Sundries  and  Patent*, 

Rights  and  Licenses) 2,764,403  05 

Inyentory  of  Materials  and  Products  on  Hand,  December  31, 

-• •    1,626,884 .31 

Insurance  Unexpired  and  Taxes  Paid  in  Advance 10,679.94 

TOTAL  ASSETS $6,055,059.73 

LIABILITIES 

Capital  Stock $4,376,600.00 

Accounts  Payable 501,846.51 

Reserve  for  Depreciation  of  Property  and  Plant 400,000  00 

Reserve  for  Inventory  Adjustment 50,000. 00 

Profit  and  Loss  Account 726,613.22 

TOTAL  LIABILITIES $6,055,059.73 

PROFIT  AND  LOSS  ACCOUNT 

Balance  Brought  Forward  January  1,  1910 $   536,103.83 

Net  Earnings,  Fiscal  Year  Ended  December  31, 1910     $697,393 . 56 
LESS: 

Dividends  1910 $306,362.00 

Reserve  for  General  Depreciation 

of  Property  and  Plant 100,000 . 00 

Reserve  lor  I  nventory  Adj  ustment       30,000 . 00 

Written  off  Property  and  Plant. . .       70,522 . 21       508,884 . 21       190,509 . 35 

Balance  Carried  Forward  January  1,1911 $726,613.227 

D — Other  Manufacturing  Companies. 
The  Westinghouse  Machine  Company. 

On  February  28,  1910  the  Westinghouse  Electric  &  Manufacturing 
Company  acquired  $250,000  par  value,  of  the  capital  stock  of  The 
Westinghouse  Machine  Company,  as  part  consideration  of  the  adjust- 
ment of  relations  heretofore  referred  to  between  your  Company  and 
the  Security  Investment  Company.  These  shares  were  taken  on  the 
books  at  the  time  of  acquisition  at  a  value  of  $218,538.60  As  of 
March  31,  1911  your  Directors  wrote  off  for  depreciation  of  this  item 
$93,538.60,  leaving  the  book  value  of  these  shares  in  investments 

at $125,000.00 

Nernst  Lamp  Company. 

On  October  28,  1909  the  Westinghouse  Electric  &  Manufacturing 
Company  acquired  $500,000  of  Ncrnst  Lamp  Company  5%  first  mort- 
gage bonds  at  par.  These  were  taken  in  pursuance  of  the  terms  of  an 
adjustment  by  the  Nernst  Lamp  Company  with  all  of  ita  creditors,  by 
virtue  of  which  it  was  discharged  from  the  hands  of  receivers.  The 
claim  thus  adjusted  represented  in  part  moneys  advanced  and  mate- 
22 


652         MATERIALS   OF   CORPORATION    FINANCE 

rials  furnished  to  the  Nernst  Lamp  Company,  and  in  part  an  unpaid 
balance  on  the  sale  in  1907  by  the  Westinghouse  Electric  &  Manu- 
facturing Company  to  the  Nernst  Lamp  Company  of  the  property 
known  as  the  Garrison  Alley  factory  in  Pittsburgh,  Pa.  These  bonds 

are  carried  on  your  books  at  par $500,000.00 

The  Nernst  Lamp  Company  is  a  subsidiary  of  The  Westinghouse 
Machine  Company,  which  owns  all  of  its  capital  stock. 

E — The  Traction  &  Power  Securities  Company,  Ltd. 

The  Receivers  of  the  Westinghouse  Electric  &  Manufacturing  Com- 
pany on  December  31,  1907,  acquired  at  par  £169,150  ($820,377),  of 
the  capital  stock  of  The  Traction  &  Power  Securities  Company,  Ltd., 
from  The  British  Westinghouse  Electric  &  Manufacturing  Company, 
Ltd.,  in  payment  of  certain  notes,  open  account  and  interest. 

The  Traction  &  Power  Securities  Company,  Ltd.,  was  organized  in 
1901  under  the  laws  of  Great  Britain  as  a  securities  holding  company. 
Its  issued  and  outstanding  capital  is 

Ordinary  shares £854,100  ($4,142,385) 

The  assets  of  The  Traction  &  Power  Securities  Company  Ltd.,  consist 
almost  wholly  of : 

(a)  £620,000  ($3,007,000)  face  value  4%  prior  lien  debentures  of 
the  Mersey  Railway,  an  electrically  operated  railway  extending  through 
the  tunnel  under  the  Mersey  River,  from  Liverpool  to  Birkenhead 
The  Mersey  Railway  earns  a  small  surplus  over  and  above  the  interest 
on  these  debentures.     Market  sales  of  the  debentures  have  recently 
been  made  in  small  lots  at  about  81. 

(b)  £344,470  ($1,670,679)  par  value,  ordinary  shares  of  The  Clyde 
Valley  Electrical  Power  Company.     The  latter  company  owns  and 
operates  two  power  plants,  one  at  Motherwell  and  the  other  at  Yoker, 
on  the  Clyde  River  near  Glasgow,  Scotland.     For  additions  to  its 
plant  the  Clyde  Valley  Company  has  recently  incurred  indebtedness, 
secured  by  mortgage  to  The  Traction  &  Power  Securities  Company,  of 
over  £140,000  ($679,000)  which  will  probably  be  increased  before  the 
work  is  completed,  to  £200,000  ($970,000).     Some  adjustment  of  its 
capital  to  provide  for  the  funding  of  this  temporary  loan  will  be  nec- 
essary before  the  Clyde  Valley  Company  can  pay  dividends,  although 
it  is  now  earning  substantial  profits  above  its  operating  expenses  and 
fixed  charges.     There  is  no  present  market  for  the  shares  and  no 
exact  basis  on  which  to  estimate  their  value. 

It  is  obvious  that  the  value  of  The  Traction  &  Power  Securities 
Company's  shares  owned  by  your  Company  depends  upon  the  future 
of  the  Mersey  Railway  and  The  Clyde  Valley  Electrical  Power  Com- 
pany. Until  there  can  be  established  a  market  value  for  the  deben- 
tures of  the  former  and  the  shares  of  the  latter,  the  value  of  The  Trac- 


WESTINGHOUSE   ELEC.   &   MFG.    CO.   BEPORT     653 

tion  &  Power  Securities  Company  shares  is  undeterminable.  It  is  be- 
lieved, that  eventually  they  may  be  made  worth  substantially  par,  but 
there  is  at  present  no  market  for  them.  These  shares  are  carried  on 

the  books  of  your  Company  as  of  March  31, 1911  at $820,135.00 

F — Power  Companies. 
Niagara,  Lockport  &  Ontario  Power  Company. 

Your  Company  owns  $912,000,  par  value,  of  the  First  Mortgage  5% 
bonds,  and  $1,000,000,  par  value,  of  the  five  year  5%  coupon  notes  of 
Niagara,  Lockport  &  Ontario  Power  Company,  and  owns  or  controls 
substantially  55%  of  the  outstanding  capital  stock  of  that  company. 
These  securities  are  carried  on  your  books  as  investments,  the 

bonds  at   $912,000.00 

the  notes  at  907,219.64 

and  the  stock  at  2.00 

These  bonds,  notes,  and  stock  were  acquired,  chiefly  in  exchange  for 
collateral  notes  of  the  Iroquois  Construction  Company  bought  by  your 
Company  in  October,  1907,  and  partly  in  payment  of  advances  made 
prior  to  and  during  the  receivership  of  your  company  to  finance  the 
construction  of  the  transmission  line  of  the  Niagara,  Lockport  &  On- 
tario Power  Company,  extending  from  Niagara  Falls  to  Syracuse  and 
intermediate  points.  This  company  is  engaged  in  the  transmission 
and  sale  of  electric  power  generated  at  Niagara  Falls  by  the  Ontario 
Power  Company,  in  which  your  company  has  no  interest  The  Nia- 
gara, Lockport  &  Ontario  Power  Company  is  earning  and  paying 
the  interest  on  both  its  notes  and  bonds  and  its  business  shows  a  con- 
tinuous growth.  It  would  seem  that  the  book  values  of  these  invest- 
ments should  eventually  be  realized.  Following  is  a  comparative 
statement  of  the  operations  and  earnings  of  the  company  during  the 
three  and  one-half  years  ended  December  31,  1910. 


Six  months  ended  December  31, 
1907  

Total                  Grow                Net 
Receipts               Income             Income 

$    196,22663    $    7,676.63*    $  67,811.  51* 

Year  ended  December  31,  1908.  .  .  . 
Year  ended  December  31,  1909.  .  .  . 
Year  ended  December  31,  1910.  ... 
'Deficit 

592.103.10      216,525.87           »-•>:.,  ;<<i 
8^3,773.80      44S.5i:i.:U         251,956.47 
1,051,521.50      555,634.12        361,621.10 

Atlanta  Water  &  Electric  Power  Company. 

On  October  1,  1907,  the  Westinghouse  Electric  &  Manufacturing 
Company  acquired  at  par  $400,000  of  the  capital  stock  of  the  Atlanta 
Water  &  Electric  Power  Company,  being  part  of  an  issue  of  $1,500,000 
outstanding.  These  shares  are  carried  on  your  books  at  cost  $400,000. 
This  book  value  should  eventually  be  approximately  realized  but  there 
is  no  present  market  for  the  shares. 


654 


MATERIALS    OF   COKPOKATION   FINANCE 


This  company  operates  an  hydraulic  electric  power  plant  near  At- 
lanta, Ga.  Its  power  is  sold  on  long  term  contracts  to  the  company 
operating  the  local  traction  lines  and  the  light  and  power  company  in 
Atlanta.  It  earns  regularly  a  surplus  over  and  above  the  4%  dividend 
paid  on  its  stock.  A  statement  of  its  earnings  for  six  years  ended 
December  31,  1910,  follows : 


Gross  Earnings  .  .  . 
Operating  expense 
and  Taxes 

Net  Earnings  
Other  Income  .... 

YEAR  ENDED  DECEMBER  31 

1905 
$134,609.28 
28,024.94 

1906 
$177,994.89 
35,900.37 

1907 
$170,265.03 
30,756.99 

1908 
$176,908.02 
34,633.91 

1909 
$183,981.03 
39,423.52 

1910 
$181,783.58 
33,917.06 

$106,584  .  34 

$142,094.52 
1,339.97 

$139,508.04 
2,388.04 

$142,274.11 
2,832.12 

$144,557.51 
2,569.02 

$147,866.52 
6,578.07 

Total  Income  .  . 

Interest    (5%    on 
$1,350,000  bonds). 
Reserve    for    De- 
preciation   

$106,584  .  34 

$143,434.49 

$141,896.08 

$145,106.23 

$147,126.53 

$154,444.59 

$67,500.00 

$67,500.00 

$67,500.60 
25,000.00 
176.00 

$67,500.00 
25,000.00 
72.07 

$67,500.00 
15,000.00 
748.20 

$67,500.00 
15,000.00 
79.87 

Other  Income 
Charges  

1,500.00 

625.00 

Total  Income 

$69,000.00 

$68,125.00 

$92,676.00 

$92,572.07 

$83,248.20 

$82,579.87 

Surplus     for     the 
Year  

$37,584.34 

$75,309.49 

$49,220.08 

$52,534.16 

$63,878.33 

$71,864.72 

Your  company  owns  and  carries  as  investments  the  following  securi- 
ties of  other  power  companies : 


Catskill  Illuminating  &  Power  Co.  stock 

Sierra  Power  Co.  stock 

Telluride  Power  Co.  stock 

Cascade  (1906)  Power  Co.  stock 

Idaho-Oregon  Light  &  Power  Co.  bonds. 
Idaho-Oregon  Light  &  Power  Co.  stock . 

Central  Georgia  Power  Co.  bonds 

Central  Georgia  Power  Co.  stock 


Par  Value      Book  Value 

$  25,350.00$  25,223.24 
9,000.00       8,100.00 
5,000.00 
45,607.44 
30,000.00 
2,500.00 


180,500.00 
90,250.00 


1,250.00 
2,000.00 
21,000.00 
500.00 
153,424.00 
1.00 


Total  book  value $211,498.24 

These  bonds  and  stocks  were  practically  all  acquired  in  payment  for. 
apparatus  sold.  It  is  expected  that  the  book  values  will  be  realized  in 
time. 

The  ownership  of  the  securities  of  power  companies  above  described 
constitutes  the  sole  foundation  in  fact  for  the  statements  from  time  to 
time  appearing  in  current  periodicals  and  Government  reports  of  the 
connection  of  your  company  with  a  so-called  "water  power  trust." 

G — Traction  Companies 

Lackawanna  &  "Wyoming  Valley  Eapid  Transit  Company 
On  various  dates  in  1904  and  1908  the  Westinghouse  Electric  & 
Manufacturing  Company  acquired  at  par  5%  bonds  of  the  Lacka- 


WESTINGHOUSE   ELEC.   &  MFG.   CO.   REPORT     655 

wanna  &  Wyoming  Valley  Rapid  Transit  Company  to  an  aggregate 
face  value  of  $6,174,000.00.  Until  March  31,  1911,  these  bonds  were 
carried  in  Investments  at  cost,  $6,147,042.07,  but  on  that  date  your 
Directors  authorized  that  there  be  written  off  this  item  for  deprecia- 
tion the  sum  of  $2,000,000.00  making  the  book  value  in  the  present 

balance  sheet $4,147,042.07 

At  this  value  it  is  hoped  that  this  investment  may  eventually  be 
liquidated. 

Your  company  also  owns  $4,885,600  (out  of  a  total  issue  of  $6,000,- 
000)  of  the  capital  stock  of  the  Lackawanna  &  Wyoming  Valley  Rapid 
Transit  Company,  carried  on  the  books  at $1.00 

The  Lackawanna  &  Wyoming  Valley  Rapid  Transit  Company  owns 
all  the  securities  of  five  subsidiary  companies,  which  in  turn  own  a  line 
of  double  track,  electrically  operated  railway  extending  from  Wilkes- 
Barre  to  Scranton,  Pa.,  a  total  distance  of  operated  double  track  of 
22.63  miles.  The  cost  of  constructing  and  equipping  this  property 
was  $7,097,091.  There  are  two  issues  of  5%  bonds  outstanding 
against  the  property.  Of  the  first  issue,  secured  by  a  prior  lien  upon 
most  of  the  property,  there  are  $888,000  outstanding,  of  which  $100,- 
000  are  included  in  the  $6,174,000  stated  above  as  owned  by  your  com- 
pany, and  the  others  are  owned  by  outside  interests.  The  company's 
net  earnings  have  never  been  sufficient  to  pay  the  entire  interest  on  its 
outstanding  bonds.  A  consolidated  statement  of  the  operations  of  its 
subsidiary  companies  follows : 


YEAR  ENDED  JANUAHT  31 


• 

1907 

1908 

IMP 

1910 

1011 

Gross  Earnings  

$$57,  174.  16 

$511,491.31 

$545,122.58 

$561.990.38 

$590.959.46 

Operating    Expense*   and 
Taxes  

2S3.418.87 

270,443.73 

833.000.  47 

844.108.44 

MMTI  H 

Net  Earnings  

$203.757.29 

$241,047.58 

$212,110.  11 

$217381.94 

JJIO.-.M,     (,1 

Your  company  owns  also  the  following  securities  of  other  traction 
and  miscellaneous  companies,  the  final  realization  of  which  it  i«  be- 
lieved will  approximate  the  book  values : 


Name 

Grand  Rapids,  Grand  Haven  A  Muskegon 
way  Co             '  

Date 
Acquired 
Rail- 
Oct.      1,  1907 

Book  Value 
at  Dale 
Acquired 

$500.000.00 
139.400.00 
100.00 
53.100.00 
2.490.00 
100,000.00 

Rook  Value 
M.rrh  31. 
1911 

$500,00000 
139.400  00 
100.00 
52.100  00 
2.49000 
8MOOOO 

(Bonds,  par  value  $500.000  00.) 

Jan.  23,1911 

(Bonds,  nar  value  $1»J4,000) 
Pittsburg  &  Westmoreland  St.  Railway  Co.. 
(Stork,  par  value  $100) 

May  25.  1910 
Mar.  81.  1911 

(Bonds,  par  value  $S7,000) 

Sept.  23,  1902 

(Bonds,  par  value  $3,000) 

1906*  1907 

(Stock,  par  value  $150.000) 

656 


MATERIALS    OF   CORPORATION    FINANCE 


Name 


MISCELLANEOUS  COMPANIES 

Date 
Acquired 


Book  Value 
at  Date 
Acquired 


Book  Value 

March  31, 

1911 


Consumers  Electric  Co Mar.  23,  1908  3,990.00  3,990.00 

(Bonds,  par  value  $7,000) 
Cutter  Electrical  &  Manufacturing  Co Oct.   29,  1909  59,865.00  59,865.00 

(Stock,  par  value  $57,300) 
H-O  Company,  The Dec.     1,1909  24,700.00  24,700.00 

(Bonds,  par  value  $24,700) 

(Stock,  par  value     3,458) 
Laurentide  Mica  Co.,  Ltd.,  The Dec.  31,  1904  25,000.00  25,000.00 

(Stock,  par  value  $25,000) 
Lehigh  Valley  Transit  Co Oct.    17,  1906  1,224 .09  300.00 

(Stock,  par  value  $1,224.09) 
Montgomery  County  Rapid  Transit  Co May    9,1910  100.00  100.00 

(Bonds,  par  value  $13,600) 
Portales  Irrigation  Co Feb.   16,1911  126,167.60  126,167.50 

(Bonds,  par  value  $160,600) 
Prescott  Company,  The Jan.  20,  1910  190.00  100.00 

(Stock,  par  value  $190) 
Sing  Sing  Electric  Lighting  Co Oct.    22,  1895  25,000 . 00  25,000 . 00 

(Bonds,  par  value  $25,000) 
Southern  Iron  &  Steel  Co Dec.     2,1909  1,740.13  871.56 

(Bonds,  par  value   $   870.56) 

(Stock,  par  value       1,305 . 85) 
Titan  Steel  Casting  Co June  14,  1910  41,801.00  41,801.00 

(Stock,  par  value  $292,200) 
Toledo  &  Indiana  Railway  Co.. Feb.  24,  1910  1,722.49  1,722.49 

(Bonds,  par  value  $2.500) 
United  Water,  Gas  &  Electric  Co Jan.    17,1910  135.87  25.00 

(Stock,  par  value  $135.87) 
Walker  Electric  Co Oct.   29,1909  28,665.00  28,665.00 

(Stock,  par  value  $28,700) 
Whitewater  Electric  Light  Co June  30,  1901  4,000.00  1,600.00 

(Stock,  par  value  $4,000) 
Miscellaneous  Companies — Bonds  and  Stocks  at  $1 . 00  each,  total 14 . 00 


MISCELLANEOUS  INVESTMENTS 

East  Pittsburg  Club  and  Casino  properties,  East  Pittsburg,  Pa 

Interworks  Railway  Company 

(This  investment  has  already  been  referred  to  under  Property  and  Plant) 
Vacant  real  Estate  at  Bloomfield,  N.  J 


32,726.34 
105,810.94 

4,426.00 
Total  Book  Value  of  All  Investments $24,034,635.99 

IV— CURRENT  ASSETS— $19,158,168.98 

Little  comment  seems  required  upon  this  item  of  the  balance  sheet. 
It  is  the  established  practice  of  your  company  to  create  monthly  on  a 
fixed  basis  a  reserve  for  notes  and  accounts  receivable.  During  the 
year  the  amount  credited  to  this  reserve  in  excess  of  bad  debts  charged 
off  was  $89,774.05.  As  of  March  31,  1911,  your  Directors  created 
an  additional  reserve  for  notes  and  accounts  receivable  of  $500,000 
making  the  aggregate  of  this  reserve  at  the  end  of  the  fiscal  year 
$589,774.05.  It  is  believed  that  this  adequately  provides  for  all  prob- 
able shrinkage  in  the  book  value  of  notes  and  accounts  receivable, 
except,  possibly,  in  respect  of  a  note  of  Security  Investment  Company 
carried  at  a  book  value  approximating  $600,000,  which  may  call  for 
further  consideration  when  the  affairs  of  that  company  become  more 
definitely  adjusted. 

V — WORKING  AND  TRADING  ASSETS — $14,321,474.01 
These  figures  represent  actual  present  values  at  cost  or  less,  based  on 
an  actual  inventory  carefully  taken  as  of  December  31,  1910. 


WESTINGHOUSE   ELEC.   &   MFG.   CO.   REPORT     657 

VI— OTHER  ASSETS— $7,188,640.29 

Of  this  total  $6,074,985.17  is  the  cost  of  patents,  charters  and  fran- 
chises. Considering  the  important  relation  which  the  Company's 
patents  in  the  aggregate  bear  to  its  business,  your  Directors  are  now 
disposed  to  recommend  a  reduction  of  their  book  value. 

The  deferred  charges,  representing  discount  and  other  expenses  in- 
cidental to  the  issuance  of  your  convertible  bonds  and  collateral  notes, 
are  being  written  off  in  stated  monthly  amounts  adequate  to  amortize 
the  account  during  the  life  time  of  the  respective  issues. 

LIABILITIES 

The  only  item  on  the  liabilities  side  of  the  balance  sheet  that  calls 
for  any  comment  is  that  of  Collateral  Notes.  The  $6,000,000  six  per 
cent,  notes  outstanding  a  year  ago  were  reduced  to  $4,000,000  by  the 
payment  of  $2,000,000  on  August  1,  1910. 

The  collateral  securing  the  six  per  cent,  notes  maturing  August  1, 
1913,  is  as  follows : 

$6,000,000  face  value  5%  first  lien  and  consolidated  mortgage  gold 
bonds  of  the  Lackawanna  &  Wyoming  Valley  Rapid 
Transit  Company. 
$950,000  par  value  assenting  capital  stock  of  the  Westinghouse 

Electric  &  Manufacturing  Company. 

£675,000  face  value  4%  mortgage  debenture  stock  of  The  British 

Westinghouse  Electric  &  Manufacturing  Company,  Ltd. 

£236,100  par  value  preference  shares  of  The  British  Westinghouse 

Electric  &  Manufacturing  Company,  Ltd. 
$500,000  face  value  5%  first  mortgage  bonds  of  the  Grand  Hapids, 

Grand  Haven  &  Muskegon  Railway. 
$160,000  par  value  capital  stock  of  the  Canadian  Westinghouse 

Company,  Ltd. 

The  collateral  securing  the  $2,720,000  five  per  cent,  notes  maturing 
October  1,  1917,  is  as  follows: 

Frs.  10,500,000  face  value  5%  debentures  Societe  Electrique  West- 
inghouse de  Russie  (Russian  Company). 

Frs.     7,395,000  face  value  5%  debentures  Societe  Anonyme  West- 
inghouse, of  Paris  (French  Company). 
$322,000  par  value  capital  stock  of  the  Canadian  Westinghouse 

Company,  Ltd. 
$21,000  face  value  5%   convertible  bonds  of  the  Westinghouae 

Electric  &  Manufacturing  Company. 
$699.45  cash. 
The  Long  Term  Notes  aggregating  $1,283,650  are  unsecured. 


658         MATERIALS    OF   CORPORATION   FINANCE 

By  reference  to  the  foregoing  description  of  the  securities  compris- 
ing the  collateral  for  the  six  per  cent,  and  five  per  cent,  collateral  notes 
it  will  be  seen  that,  with  the  possible  exception  of  the  shares  of  assent- 
ing capital  stock  of  the  Westinghouse  Electric  &  Manufacturing  Com- 
pany, the  collateral  securing  these  notes  is  not  readily  saleable.  Your 
company  must  therefore  contemplate  the  necessity,  as  these  notes 
mature,  either  of  extending  them  with  the  same  collateral,  or  of  pro- 
viding other  means  of  meeting  them  than  through  the  sale  of  the  col- 
lateral. There  can,  in  the  nature  of  things,  be  but  two  such  other 
sources:  first,  through  the  issuance  of  additional  capital  securities 
either  by  way  of  bonds,  securities  or  stock ;  or,  second,  through  the  use 
of  the  company's  earnings. 

This  is  a  question  seriously  to  be  considered  before  the  earnings  of 
your  company,  gratifying  as  they  have  been  for  the  last  year  and  satis- 
factory as  they  were  for  the  preceding  year,  are  applied  to  the  payment 
of  dividends  on  the  assenting  stock. 

After  a  careful  consideration  of  all  of  the  circumstances,  having 
due  regard  for  the  true  condition  of  our  balance  sheet,  hereinbefore 
minutely  described  to  you,  the  elements  of  uncertainty  as  to  the  im- 
mediate future  of  your  company's  business,  the  need  for  cash  for  new 
foundry  facilities,  for  extension  of  the  Newark  plant  and  other  factory 
improvements,  and  the  necessity  of  making  wise  provision  for  shortly 
maturing  obligations,  your  Directors  have  felt  that  it  is  not  wise  at 
the  present  time  to  weaken  your  company's  position  by  diverting  its 
surplus  earnings,  even  in  part,  to  the  payment  of  dividends  on  the 
assenting  stock.  Whenever  a  change  in  conditions  shall  lead  your 
Directors  to  feel  that  a  different  attitude  can  safely  be  assumed,  the 
question  will  be  reconsidered  and  determined  in  the  light  of  such 
change ;  meanwhile  your  Directors  trust  that,  with  the  aid  of  the  very 
intimate  information  which  this  report  gives  as  to  the  situation  and 
affairs  of  their  company,  the  stockholders  in  general  will  be  led  to  the 
same  conclusion. 

The  books  and  accounts  of  the  company  and  of  its  subsidiary  com- 
panies have  been  audited  by  Messrs.  Haskins  &  Sells,  Certified  Public 
Accountants,  and  their  certificate  is  made  a  part  of  this  report. 

The  thanks  of  the  Board  are  extended  to  officers  and  employes  for 
the  loyal  and  enthusiastic  service  that  has  made  the  results  of  the  year 
possible. 

By  order  of  the  Board  of  Directors. 

ROBERT  MATHER, 

Chairman- 


WESTINGHOUSE   ELEC.   &   MFG.   CO.   REPORT     659 
HASKINS   &    SELLS 

CERTIFIED  PUBLIC   ACCOUNTANTS 
NEW   YORK 

30   BBOAD   STBCET 

LONDON,  E.  C. 
30  Coleman  Street 

CHICAGO  ST.  LOUIS  CLEVELAND 

Harris  Trust  Building.     Third  National  Bank  Building.      Williamson  Building. 

PITTSBURGH  BALTIMORE 

Farmers  Bank  Building.         Equitable  Building. 

Cable  Address  "HASKELLS" 

NEW  YORK,  May  22,  1911. 

To  the  Board  of  Directors,  Westinghouse  Electric  &  Manufacturing 
Co.,  New  York. 

We  have  made  an  audit,  for  the  year  ended  March  31,  1911,  of  the 
books  and  accounts  of  the  Westinghouse  Electric  &  Manufacturing 
Company  and  the  following  subsidiary  companies,  viz. :  Westinghouse 
Lamp  Company,  The  Bryant  Electric  Company,  The  Perkins  Electric 
Switch  Manufacturing  Company,  the  R.  D.  Nuttall  Company  and  the 
Westinghouse  Electric  &  Manufacturing  Company  of  Texas. 

We  have  verified  the  Cash,  the  Notes  Receivable  and  the  Stocks  and 
Bonds  owned,  by  count  or  by  proper  certificates  from  the  depositaries. 
We  have  also  verified,  from  the  companies'  records,  the  Accounts  Re- 
ceivable. 

The  investments  are  stated  at  the  book  value,  which  is  considerably 
less  than  their  aggregate  cost. 

The  inventories  of  Raw  Materials  and  Supplies,  Finished  Parts  and 
Completed  Apparatus,  and  Work  in  Progress  were  accurately  and  prop- 
erly taken  at  cost,  and 

WE  HEREBY  CERTIFY  that,  on  the  basis  stated,  the  accompanying 
Consolidated  General  Balance  Sheet  of  March  31,  1911,  of  the  W«t- 
inghouse  Electric  &  Manufacturing  Company  and  subsidiary  com- 
panies named  above,  properly  represents  the  financial  condition  on  that 
date,  that  the  accompanying  statement  of  Income  and  Profit  and  Loss 
for  the  year  ended  March  31,  1911,  correctly  states  the  result  of  opera- 
tions for  that  period,  and  that  the  books  of  the  companies  are  in  agree- 
ment with  these  statements. 

(Signed)     HASKINS  &  SELLS, 

Certified  Public  Accountants. 


660         MATERIALS    OF   CORPORATION   FINANCE 

WESTINGHOUSE    ELECTRIC    &    MANUFACTURING    COMPANY    AND 
SUBSIDIARY    COMPANIES    IN   THE    UNITED   STATES 


ASSETS 
PROPERTY  AND  PLANT: 

Factory  Plants,  including  Real  Estate,  Ma- 
chinery Equipment,  etc $17,692,145.61 

SINKING  FUND: 

With  Trustee  for  Redemption  of  Convertible 
Sinking  Fund,  5%,  Gold  Bonds 445 . 48 

INVESTMENTS  : 

Stocks,  Bonds,  Debentures,  Collateral  Trust 
Notes,  etc.,  including  those  of  Affiliated 
European  and  Canadian  Westinghouse 
Companies 24,084,635 .99 

CURRENT  ASSETS: 

Cash $6,634,677.07 

Cash  on  Deposit  to  Pay  Interest  Coupons. . .  27,340.00 
Cash  on  Deposit  to  Pay  Dividends  on  Pre- 
ferred Stock 940.62 

Notes  Receivable 2,946,551 .46 

Accounts  Receivable 9,494,731 .06 

Due  from  Subscribers  to  Capital  Stock 53,928.77 

TOTAL  CURRENT  ASSETS 19,158,168.98 

WORKING  AND  TRADING  ASSETS: 

Raw  Materials  and  Supplies,  Finished  Parts 
and  Machines,  Work  in  Progress,  Goods  on 
Consignment  and  Apparatus  with  Custom- 
ers   14,321,474.01 

OTHER  ASSETS: 

,     Patents,  Charters  and  Franchises $6,074,985 . 17 

Insurance,  Taxes,  etc.,  Paid  in  Advance 120,321 .78 

Deferred    Charge — Expenses    Incidental    to 

Issue  of  Bonds  and  Notes 993,333 .34 

TOTAL  OTHER  ASSETS 7, 188,640 . 29 

TOTAL  ASSETS $82,395,510.36 

LIABILITIES 

.    <f 

CAPITAL  STOCK: 

Preferred $  3,998,700.00 

Assenting — In  Hands  of  Pub- 
lic  $35,187,587.50 

In  Treasury 1,507,000.00    36,694,587.50 

TOTAL  CAPITAL  STOCK $40,693,287 . 50 


WESTINGHOUSE   ELEC.   &   MFG.    CO.    REPOBT     661 


FUNDED  DEBT: 

Convertible  Sinking  Fund,  5%,  Gold  Bonda, 
due  January  1,  1931: 

In  Hands  of  Public $19,691,000.00 

In  Treasury 286,000.00  $19,957,000.00 

Debenture  Certificates,  5%,  due  July  1, 1913.       1,800,000.00 
Bonds — Walker  Company,  due  January  1, 

1916;  Guranteed  by  W.'E.  &  M.  Co 850,000.00 

TOTAL  FUNDED  DEBT 22,607,000 .00 

COLLATERAL  NOTES: 

Six  Per  Cent.  Collateral  Notes,  due  August  1, 

1913 $  4,000,000.00 

Five  Per  Cent.  Collateral  Notes,  due  October 

1,  1917 2,720,000.00 

TOTAL  COLLATERAL  NOTES 6,720,000.00 

LONG  TERM  NOTES: 

Four  Year  5%  Notes  due  January  1,  1913. . .  $  429,900.00 

Five  Year  5%  Notes  due  January  1,  1914.. . .  429,500.00 

Six  Year  5%  Notes  due  January  1,  1915 425,500.00 

Fifteen  Year  5%  Notes  due  —January  1,  1924.  98,750.00 

TOTAL  LONG  TERM  NOTES 1,383,650.00 

REAL  ESTATE  MORTGAGES  ASSUMED  IN  PUR- 
CHASE OF  PROPERTY 228,200  00 

CURRENT  LIABILITIES: 

Accounts  Payable $  2,454,674.83 

Interest,  Taxes,  Wages,  Rebates,  etc.,  Ac- 
crued, Not  Due 572,803.75 

Dividends  on  Preferred  Stock,  Payable  April 

15,  1911 139,954.50 

Unpaid  Dividends  on  Preferred  Stock 940.62 

TOTAL  CURRENT  LIABILITIES 3,168,373.70 

RESERVE  : 

For  Adjustments  of  Inventories,  Notes  and 
Accounts  Receivable,  etc 1,630,774 .26 

PROFIT  AND  Loss: 

Surplus 5,964,224.90 

TOTAL  LIABILITIES.  .  $vj  .(•.:,  :,KI  :u, 


"here  u  a  Contingent  Liability  for  Note*  Receivable  discounted  by  Subsidiary  Com- 
tio<  to  $16,703.87 


Nora — There  u  a  Co 

anioun 


662 


MATERIALS    OF   CORPORATION   FINANCE 


WESTINGHOUSE    ELECTRIC    &    MANUFACTURING     COMPANY    AND 
SUBSIDIARY    COMPANIES    IN   THE    UNITED    STATES 

CONSOLIDATED  STATEMENT  OF  INCOME  AND  PROFIT  AND  Loss  FOE  THE  YEAR 

ENDED  MARCH  31,  1911 
GROSS  EARNINGS: 

Shipments  Billed $38,119,312.01 

COST  OF  SHIPMENTS: 

Factory  Costs,  Including  all  Expenditures  for 
Patterns,  Dies,  New  Small  Tools  and  Other 
Betterments  and  Extensions;  also  Inven- 
tory Adjustments  and  all  Selling,  Admin- 
istration, General  and  Development  Ex- 
penses   32,510,546. 87 

NET  MANUFACTURING  PROFITS $  5,608,765 . 14 

OTHER  INCOME: 

Interest  and  Discount $272,055 . 28 

Dividends  and  Interest  on  Sundry  Stocks 
and  Bonds  Owned 615,299 . 40 

Miscellaneous— Royalties,  etc 628,177. 13        1,515,531 .81 

TOTAL  INCOME $  7,124,296.95 

DEDUCTIONS  FROM  INCOME: 

Interest  on  Bonds  and  Debentures $1,076,553 . 71 

Interest  on  Collateral  Notes 416,000 . 00 

Miscellaneous  Interest 92,933.04 

Property  and  Plant  Depreciations  Charged 

Against  Income 371,668. 19 

Proportion  of  Expenses  Incidental  to  Bond 

and  Note  Issues 76,666.66 

Miscellaneous 209,369.37        2,243,190.97 

NET  INCOME — SURPLUS  FOR  THE  YEAR $  4,881,105.98 

PROFIT  AND  Loss  CREDITS: 

Profit  and  Loss— Surplus,  March  31,  1910 . .     $5,668,948 . 23 
Profit  on  Bonds  and  Debenture  Certificates 

Purchased 5,200.43 

Adjustment  of  Property  and  Plant  Accounts 

to  Appraised  Values 459,399. 10 

Collection  of  Accounts  Receivable  Previously 

Written  off 172,335.75 

Miscellaneous 43,372.41        6,349,255.92 

GROSS  SURPLUS $11,230,361.90 

PROFIT  AND  Loss  CHARGES: 

Dividends  on  Preferred  Capital  Stock: 

For  the  Current  Year $   279,909.00 

Accumulated  Prior  to  the  Current  Year . .          349,886 . 25 
Depreciation  of  Securities: 

The  United  States  Electric  Lighting  Com- 
pany—Stock      $431,091 . 61 

The  Consolidated  Electric 
Light  Company — Stocks 
and  Bonds 307,121 .27  738,212.88 

Difference  Between  Direct  Liability  estab- 
lished for  Walker  Company  Bonds  and 
Appraised,  Sound  Value  of  Property 

Mortgaged 455,084.91 

Depreciation  of  Securities  Owned 2,852,914.91 

Reserved  for  Notes  and  Accounts  Receivable  589,774 . 05 

Miscellaneous 355.00        5,266,137.00 


SURPLUS,  MARCH  31,  1911,  per  Balance  Sheet 


$  5,964,224.90 


N.   Y.,   N.    H.    &    H.    HR.   CO.    REPORT,    1914 

Forty-third  Year 
GENERAL  STATEMENT 

OF   THE   AFFAIRS    OF 

THE  NEW  YORK,  NEW  HAVEN  AND  HARTFORD  RAIL- 
ROAD   COMPANY 

For  the  Year  Ending  June  30,  1914 
CONTENDS 

PAOB8 

Berkshire  Street  Ry.  Co.,  Income  Account  and  Balance  Sheet 749 

Central  New  England  Ry.  Co.,  Income  Account  and  Balance  Sheet 751 

The  Connecticut  Co.,  Income  Account  and  Balance  Sheet 753 

Directors 654 

The  Hartford  and  New  York  Transportation  Co.,  Income  Account  and 

Balance  Sheet 755 

Housatonic  Power  Co.,  Income  and  Balance  Sheet 757 

Millbrook  Co.,  Income  Account  and  Balance  Sheet 759 

New  Bedford,  Martha's  Vineyard  and  Nantuckot  Steamboat  Co.,  In- 
come Account  and  Balance  Sheet 761 

The  New  England  Navigation  Co.,  Income  Account,  Balance  Sheet,  and 

Investments : 763 

The  New  England  Steamship  Co.,  Income  Account,  Balance  Sheet,  and 

Description  of  Floating  Equipment 766 

The  New  York,  New  Haven  and  Hartford  Railroad  Co. : 

Additions  and  Betterments 7'J.r> 

Bonded  Debt  and  Collateral  Gold  Note* 

Debentures 

Equipment 

Funded  Debt  of  Leased  Roads 724 

General  Balance  Sheet  and  List  of  Contingent  Liabilities 

General  Information  Regarding  the  Various  Properties 

Income  Account 

Marketable  Securities 720 

Mileage  and  Changes  during  the  Year 

Miscellaneous  Investment* 

Operating  Revenues  and  Operating  Expenses  and  Ratios 

Profit  and  Loss  Account 

Rentals  of  Leased  Lines 

Securities  of  Proprietary,  Affiliated  and  Controlled  Companies 

Securities  Issued  or  Assumed 

Statistics  (Various) 

New  York  and  Stamford  Ry.  Co.,  Income  Account  and  Balance  8b«et . .  7<'>'.i 

New  York,  Westchester  and  Boston  Ry.  Co.,  Income  Account  and 

Balance  Sheet 

Officers 

The  Rhode  Island  Co.,  Income  Account  and  Balance  Hh«ft 
Waterbury  Gas  Light  Co.,  Income  Account  and  Balance  Shwt  . 

Watertown  Gas  Co.,  Income  Account  and  Balance  Sheet 

The  Westchester  Street  R.  R.  Co.,  Income  Account  and  Balance  Sheet. 
Westport  Water  Co.,  Income  Account  and  Balance  Sheet 


664 


THE  NEW  YORK,   NEW  HAVEN  AND   HARTFORD   RAIL- 
ROAD COMPANY 


DIRECTORS 
Sept.  29,  1914. 


William  Skinner, 
D.  Newton  Barney,     . 
Robert  W.  Taft, 
James  S.  Hemingway, 
A.  Heaton  Robertson, 
Frederick  F.  Brewster, 
Henry  K.  McHarg,     . 
T.  DeWitt  Cuyler,      . 
Edward  Milligan, 
Francis  T.  Maxwell    . 
Samuel  Rea, 
Morton  F.  Plant, 
John  T.  Pratt,      . 
Howard  Elliott,   . 
W.  Murray  Crane, 
Arthur  T.  Hadley, 
James  L.  Richards, 
Augustus  S.  May, 
Arthur  E.  Clark, 
J.  Korace  Harding, 


Holyoke,  Mass. 
Farmington,  Conn. 
Providence,  R.  I. 
New  Haven,  Conn. 
New  Haven,  Conn. 
New  Haven,  Conn. 
Stamford,  Conn. 
Philadelphia,  Pa. 
Hartford,  Conn. 
Rockville,  Conn. 
Philadelphia,  Pa. 
Groton,  Conn. 
New  York,  N.  Y. 
Boston,  Mass. 
Dalton,  Mass. 
New  Haven,  Conn. 
Boston,  Mass. 
New  Haven,  Conn. 
New  Haven,  Conn. 
New  York,  N.  Y. 


THE  NEW  YORK,  NEW  HAVEN  AND   HARTFORD   RAIL- 
ROAD   COMPANY 

General  Offices  of  the  Company  are  maintained  at  Boston  in  the 
South  Station;  at  New  Haven  in  the  Company's  Office  Building; 
and  at  New  York  in  the  Grand  Central  Terminal  Building. 


OFFICERS 
Sept.  29th,  1914 


Howard  Elliott,  Chairman  of  the  Board,         ....  Boston,  Mass. 

Howard  Elliott,  President, New  Haven,  Conn. 

E.  G.  Buckland,  Vice-President  and  General  Counsel,         .  New  Haven,  Conn. 

Benjamin  Campbell,  Vice-President, New  Haven,  Conn. 

A.  R.  Whaley,  Vice-President,         ......  New  York,  N.  Y. 

A.  E.  Clark,  Secretary, .        .  New  Haven,  Conn. 

C.  H.  Hempstead,  Assistant  Secretary,          ....  New  Haven,  Conn. 

A.  S.  May,  Treasurer, New  Haven,  Conn. 

T.  F.  Paradise,  Assistant  Treasurer, New  Haven,  Conn. 

A.  W.  Bowman,  Assistant  Treasurer,      .        .        .        .        .  New  Haven,  Conn. 

J.  M.  Tomlinson,  General  Auditor, New  Haven,  Conn. 

A.  Mackrille,  Assistant  General  Auditor, New  Haven,  Conn. 

J.  C.  Sweeney,  General  Attorney, New  Haven,  Conn. 

B.  I.  Spock,  Counsel, New  Haven,  Conn. 

F.  A.  Farnham,  Counsel,  .        .        .        .        .        .        .  Boston,  Mass. 

N.  W.  Smith,  Counsel,       .  Providence,  R.  I. 

C.  M.  Sheafe,  Jr.,  Counsel, New  York,  N.  Y. 

A.  A.  Maxwell,  Commissioner,  Real  Estate  Right  of  Way  and 

Taxes, New  Haven,  Conn. 

A.  B.  Smith,  General  Passenger  Agent, New  Haven,  Conn. 

F.  C.  Coley,  First  Assistant  General  Passenger  Agent,        .  New  Haven,  Conn. 

A.  H.  Seaver,  Assistant  General  Passenger  Agent,       .       .  New  York,  N.  Y. 


N.   Y.,   N.   H.   &   H.   RR.   CO.    REPORT,   1914        665 


E.  L.  Wilson,  Assistant  General  Passenger  Agent, 

G.  A.  Morton.  General  Baggage  Agent, 

L.  H.  Kentfield,  General  Freight  Agent,        .       . 

G.  M.  Wood,  Assistant  General  Freight  Agent,    . 

H.  H.  Benedict,  Assistant  General  Freight  Agent, 

H.  A.  Fabian,  Manager  of  Purchases  and  Supplies, 

E.  Gagel,  Chief  Engineer,         .       .       .  '-v- . 

W.  S.  Murray.  Consulting  Electrical  Engineer, 

C.  L.  Bardo,  General  Manager, 

C.  N.  Woodward,  General  Superintendent, 

J.  A.  Dioege,  General  Superintendent,    . 

G.  W.  Wildin,  Mechanical  Superintendent, 

W.  J.  Backes.Engineer,  Maintenance  of  Way, 

E.  G.  Riggs,  Executive  Assistant,    . 

A.  G.  Webb,  Superintendent  Dining  Cars, 


Boston,  Man. 

N.-W    H:iY.-Ii,  Conn. 

New  Haven,  Conn. 
Boston,  Man. 
New  York,  N.  Y. 
Boston,  Man. 
New  Haven,  Conn. 
New  Haven,  Conn. 
New  Haven,  Conn. 
Boston,  Man. 
New  Haven,  Conn. 
New  Haven,  Conn. 
New  Haven,  Conn. 
New  York  N.  Y. 
New  York,  N.  Y. 


THE  NEW  YORK,  NEW  HAVEN  AND  HARTFORD  RAIL- 
ROAD   COMPANY 

General  Offices 
NEW  HAVEN,  Conn.,  September  29,  1914. 

To  the  Stockholders  of  the  New  York,  New  Haven  and  Hartford 

Railroad  Company: 

The  Board  of  Directors  herewith  submits  its  report  for  the  fiscal 
year  ending  June  30,  1914,  with  such  data  relating  to  the  railway 
and  other  corporations  embraced  in  the  System  or  in  which  it  has  an 
interest  as  will  show  the  results  of  operations  for  the  year  and  of 
their  financial  condition  at  the  close  of  the  year. 


666 


MATERIALS    OF   COEPORATION   FINANCE 


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PERATING  REVENUE: 
Freight  Revenue  
Passenger  Revenue  
All  other  Revenue  from  Tra 
Revenue  from  Operations  ot 

TOTAL  OPERATING  RE^ 

PERATJNG  EXPENSES: 
Maintenance  of  Way  and  St 
Maintenance  of  Equipment. 
Traffic  Expenses  
Transportation  Expenses  .  .  . 
General  Expenses  

TOTAL  OPERATING  Exi 

NET  OPERATING  REVE 
NET  REVENUE  FROM  OUTSI 

TOTAL  NET  REVENUE. 
RAILWAY  TAX  ACCRUA 

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N.    Y.,   N.    H.    &   H.    RR.   CO.    REPORT,    1914        667 


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668         MATERIALS    OF    COEPOEATIOX    FINANCE 

OPERATING  RESULTS 

Miles  Operated. — There  was  a  decrease  in  average  miles  of  road 
operated  of  46.20  miles.  The  average  miles  of  track  maintained  was 
4,397.75  compared  with  4,452.55  the  previous  year,  a  decrease  of 
54.80  miles.  These  decreases  were  mainly  due  to  giving  up  certain 
trackage  rights  on  the  Boston  &  Albany  and  Boston  &  Maine  and  to 
the  Central  New  England  assuming  the  operation  of  the  line  between 
Danbury,  Connecticut,  and  Hopewell  Junction,  New  York.  Details 
of  changes  in  mileage  as  of  June  30,  1914,  compared  with  June  30, 
1913,  will  be  found  on  page  731. 

Revenues  and  Expenses. — The  general  business  depression  during 
the  greater  part  of  the  fiscal  year  caused  a  decrease  in  the  operating 
revenue  of  $1,995,810.26,  while  operating  expenses  increased  $1,288,- 
010.84,  resulting  in  a  decrease  in  net  operating  revenue  of  $3,283,- 
821.10. 

Freight  revenue  decreased  $1,595,601.49,  4.7%,  and  passenger  reve- 
nue $495,627.40,  1.8%.  Express  revenue  fell  off  $307,378.75,  9.7%, 
due  partly  to  reduced  express  rates  ordered  by  the  Interstate  Com- 
merce Commission,  effective  February  1st,  1914,  and  to  the  increase 
in  shipments  by  Parcel  Post,  for  which  no  adequate  compensation  has 
as  yet  been  received.  There  was  an  increase  of  $198,177.34  in  other 
passenger  train  revenue,  mainly  due  to  the  inclusion  of  a  full  year's 
receipts  from  the  Pullman  Company  and  extra  fares  on  Limited 
trains,  the  previous  year's  accounts  having  been  credited  with  only 
six  months'  proportion,  as  the  Pullman  contract  became  effective 
January  1st,  1913.  Net  revenue  from  outside  operations  decreased 
$559,967.17,  largely  because  the  Pullman  Company  operated  equip- 
ment formerly  operated  by  the  railroad.  Revenues  from  operations 
other  than  transportation,  after  deducting  decrease  of  about  $100,- 
000.00  account  of  falling  off  in  revenue  from  discharging,  wharfage, 
hoisting  and  car  service,  shows  a  net  increase  of  $100,074.39,  largely 
on  account  of  additional  rentals  at  Grand  Central  Terminal.  In  this 
connection,  however,  it  should  be  noted  that  the  net  payment  for  en- 
trance to  and  use  of  the  passenger  terminal  at  New  York  for  the 
year  ending  June  30th,  1914,  amounted  to  $3,150,947,  as  compared 
with  $2,983,969,  for  1913.  The  net  charge  against  the  Company 
during  1914  was  equivalent  to  about  31  cents  for  each  passenger  into 
and  out  of  the  terminal. 

Maintenance  of  Way  and  Structures. — This  account  increased 
$937,974.14,  caused  in  part  by  higher  wages  and  in  part  by  the 
larger  amount  of  renewals  required  because  of  work  that  was  deferred 
in  previous  years. 

There  were  2,060,485  ties  laid  in  renewals  as  compared  with  1,814,- 


N.   Y.,   N.   H.   &   H.   RR.    CO.    REPORT,    1914        669 

190  in  the  previous  year,  an  increase  of  14%.  This  includes  157,907 
creosoted  ties  with  screw  spikes  and  tie  plates  put  in  between  New 
Haven  and  Woodlawn  and  on  the  Harlem  River  Branch,  compared 
with  123,672  last  year,  an  increase  of  28%.  There  were  25,783  tons 
of  new  rail  laid,  an  increase  over  the  previous  year  of  3,173  tons, 
or  14%. 

Removal  of  snow  and  ice  cost  $108,378.90  more  than  in  the  pre- 
vious year,  and  the  maintenance  of  the  electric  power  transmission 
system  cost  $154,969.00  more.  Much  work  was  done  on  signals  and 
interlocking  plants. 

The  track,  bridges  and  structures  of  the  company  are  in  safe  and 
serviceable  condition,  but  expenses  for  maintenance  of  way  must  be 
liberal  because  of  the  heavy  equipment  and  the  great  number  and 
speed  of  trains. 

Maintenance  of  Equipment. — This  account  increased  $788,789.54, 
due  to  some  increase  in  wages,  work  on  electric  locomotives  deferred 
in  1912,  increase  in  repairs  to  freight  cars  of  $351,985.82,  and  an 
increase  in  the  charges  for  depreciation  of  $476,738.67. 

Since  July  1st,  1913,  charges  to  depreciation  have  been  made  as 
required  by  the  Interstate  Commerce  Commission,  based  on  the  orig- 
inal cost  of  equipment,  as  follows : 

2  %  on  Steam  Locomotives              Total  charge  for  year $298,633 . 94 

2  %  on  Electric  Locomotives                           "        "      "    76,923.03 

2  %  on  Passenger  Train  Cars               "          u        "      "    302,927.62 

21%  on  Steel  Freight  Train  Cars   \     «          «        «      «  oec  777  «i 

2  j  %  on  Wood  Freight  Train  Cars  /  VfyTrfM 

3  %  on  Floating  Equipment  "        *      *    88,526. 11 

2i%  on  Work  Equipment,  Steel     \     «          a        «      «  20 'VT?  28 

2j%  on  Work  Equipment,  Wood  /  ^J,ot 

TOTAL $1,773,365. 79 

The  equipment  of  the  Company,  other  than  the  freight  cars,  is  in 
good  condition.  In  1906-07-08  a  large  number  of  new  freight  cars 
were  purchased,  about  20,000,  and  heavy  repairs  are  now  needed  on 
these  cars  and  charges  for  this  class  of  work  will  be  heavy  for  sev- 
eral years  to  come.  Because  of  the  decreased  volume  of  business  this 
class  of  work  was  deferred  and  there  are  about  2,500  more  bad  order 
freight  cars  on  the  road  than  should  be  the  case  under  normal  con- 
ditions. Repairs  are  now  being  made  more  rapidly  and  the  number 
of  bad  order  cars  is  decreasing. 

Traffic  Expenses. — This  account  decreased  $80,290.35. 

Transportation  Expenses. — This  account  decreased  $334,583.45. 
The  miles  run  by  trains  of  all  classes  were  25,254,718,  a  decrease  of 
1,559,166.  The  cost  per  revenue  train  mile  for  transportation  ex- 
penses was  $1.12,  compared  with  $1.07  for  last  year,  an  increase  of  5 
cents,  or  4.7%.  The  average  number  of  passengers  per  train  was  96, 


670         MATERIALS    OF   CORPORATION   FINANCE 

an  increase  of  1,  and  the  average  number  of  tons  of  revenue  freight 
per  revenue  train  mile  was  303.96,  an  increase  of  13.01  tons,  or  4.5%. 
There  was  an  increase  in  wages,  the  greater  part  of  which  was  the 
result  of  awards  under  Federal  Arbitration  Acts,  and  increases  in 
forces  at  engine  terminals  so  as  to  take  better  care  of  power  and 
insure  greater  regularity  of  service. 

The  cost  of  fuel  decreased  $356,045.96. 

Injuries  to  persons  required  the  large  sum  of  $1,181,735.59,  an 
increase  of  $37,966.92,  due  to  the  settlements  for  the  sad  and  dis- 
astrous accidents  in  1912-1913.  Of  the  $1,181,735.59,  $318,324.93 
was  charged  to  the  Accident  and  Casualty  Operating  Reserve,  and 
the  balance,  $863,410.66  to  Operating  Expenses.  There  remains  in 
the  Accident  and  Casualty  Operating  Reserve  $1,042,597.17,  which 
will  be  used  to  take  care  of  the  unadjusted  personal  injury  claims 
prior  to  the  current  fiscal  year,  so  that  the  charges  to  Operating  Ex- 
penses account  personal  injuries  for  the  current  fiscal  year  will  prob- 
ably be  materially  less  than  for  the  past  fiscal  year. 

Loss  and  Damage  accounts  of  all  kinds  amounted  to  $1,966,492.64, 
or  8  cents  per  train  mile. 

Very  earnest  efforts  have  been  made  during  the  year  to  reduce  acci- 
dents and  damage  and  to  improve  the  practice  in  the  consumption  of 
fuel. 

General  Expenses. — This  account  decreased  $23,879.04,  although 
the  Company  had  to  sustain  unusual  burdens,  the  result  of  negotia- 
tions with  the  Federal  Government  and  investigations  by  the  Public 
Service  Commission  of  Massachusetts,  the  Department  of  Justice  of 
the  United  States  and  the  Interstate  Commerce  Commission. 

The  Federal  Act  requiring  valuation  of  railways  increased  expenses 
$24,176.77,  and  this  expense  will  be  more  during  the  coming  year. 
The  Commissioners  advise  that  they  will  begin  to  value  the  property 
of  the  Company  April  1st,  1915,  and  by  that  date  the  Company  ex- 
pects to  have  completed  the  resurvey  of  1,000  miles  of  road. 

FINANCIAL 

Capital  Stock. — Of  the  total  authorized  outstanding  capital  stock 
of  1,800,170  shares,  228,991  shares  are  in  the  treasury  and  1,479 
shares  are  owned  by  The  Rhode  Island  Company.  During  the  past 
fiscal  year  there  has  been  no  increase  in  the  capital  stock.  A  divi- 
dend of  \\%  was  paid  Sept.  30,  1913,  and  charged  to  Profit  and 
Loss  Account. 

Temporary  Financing. — In  1913  the  Company  had  a  large  floating 
debt,  because  of  the  Massachusetts  law  prohibiting  any  funded  debt 
exceeding  in  amount  the  paid  in  capital  of  the  Company.  This  law 


N.    Y.,   N.    H.   &   H.   RB.    CO.    REPORT,    1914        671 

was  changed  in  July,  1913,  so  as  to  permit  the  issue  of  bonds  to  an 
amount  equal  to  twice  the  amount  of  the  capital  stock. 

In  order  to  fund  the  floating  debt  under  this  new  law  and  to  pro- 
vide for  the  purchase  of  steel  passenger  cars  and  for  other  improve- 
ments the  Directors  in  July,  1913,  arranged  for  an  issue  of  six  per 
cent,  convertible  debentures  to  the  amount  of  $67,552,000,  to  be 
offered  to  the  holders  of  the  stock  and  the  outstanding  convertible 
debentures  of  the  Company.  General  financial  conditions  at  that 
time  were  not  favorable,  and  to  make  certain  that  the  Company 
would  have  its  money  when  needed  the  Directors  caused  this  proposed 
issue  of  debentures  to  be  underwritten.  The  stockholders  approved 
this  arrangement  at  a  meeting  August  22,  1913. 

The  issue  of  these  debentures  though  opposed  before  the  Public 
Service  Commission  of  Massachusetts,  was  on  October  14th,  1913, 
finally  approved  by  that  Commission.  An  appeal  was  taken  from 
this  decision  to  the  Supreme  Court  of  Massachusetts,  which  on  Jan- 
uary 9th,  1914,  decided  that  the  proposed  issue  was  not  lawful. 

There  were  $40,000,000  of  notes  maturing  on  December  1st,  1913, 
and  $5,000,000  of  bonds  maturing  February  1st,  1914.  Therefore,  it 
became  necessary  pending  the  decision  on  the  application  for  the 
issue  of  the  proposed  six  per  cent,  convertible  debentures  to  borrow 
on  November  18th,  1913,  $45,000,000  to  retire  the  notes  maturing  on 
December  1st,  1913,  and  the  bonds  maturing  on  February  1st,  1914. 
Later  other  amounts  were  borrowed  to  pay  for  new  equipment  and 
for  improvements  which  could  not  be  stopped  or  postponed,  the  whole 
amount  to  be  provided  aggregating  nearly  $54,000,000,  all  payable 
prior  to  July  26th,  1914.  The  decision  of  the  Massachusetts  Supreme 
Court  made  necessary  an  alternative  plan  of  immediate  financing,  to 
take  care  of  the  maturing  short  term  notes  and  to  meet  capital  re- 
quirements until  1915. 

With  the  assistance  of  Messrs.  J.  P.  Morgan  &  Co.,  the  First  Na- 
tional Bank  and  the  National  City  Bank  of  New  York,  and  Messrs. 
Kidder,  Peabody  &  Co.,  Lee,  Higginson  Co.,  of  Boston,  there  were 
sold  $50,000,000  of  Notes  dated  May  1st,  1914,  as  follows: 

$20,000,000.— The  New  York,  New  Haven  and  Hartford  Railroad 
Company  One  Year  5%  Collateral  Gold  Notes,  callable  at  100£%. 

$10,000,000.— The  Harlem  River  and  Port  Chester  Railroad  Com- 
pany One  Year  5%  Gold  Notes,  Series  "A,"  guaranteed  by  The  New 
York,  New  Haven  and  Hartford  Railroad  Company  as  to  principal 
and  interest,  callable  at  100£%. 

$20,000,000.— The  New  England  Navigation  Company  Three  Year 
6%  Collateral  Gold  Notes,  callable  at  101$%,  all. dated  May  1st, 
1914. 


672         MATERIALS    OF   CORPORATION   FINANCE 

The  Bankers  further  agreeing  to  take  within  six  months'  time,  at 
their  option,  $10,000,000  of  One  Year  6%  Notes  of  The  New  York, 
New  Haven  and  Hartford  Railroad  Company  without  collateral.  The 
collateral  pledged  under  the  New  Haven  and  Navigation  Company 
notes,  mentioned  above,  consisted  of  some  of  the  securities  in  the 
treasuries  of  the  companies. 

It  was  expected  to  market  some  of  the  collateral  and  to  retire  the 
notes  in  part.  From  the  proceeds  of  collateral  sold,  notes  to  the 
amount  of  $435,000  have  been  cancelled;  but  the  war  and  general 
financial  conditions  made  further  sales  of  securities  impossible. 

Your  directors  have  had  in  mind  the  urgent  necessity  for  a  broad 
plan  for  permanent  financing,  but  the  laws  are  conflicting  and  circum- 
stances and  conditions  have  not  been  favorable. 

Increase  in  Debt. — The  outstanding  indebtedness  of  the  Company 
and  its  leased  lines  in  the  hands  of  the  public  (not  including  that  held 
in  the  treasuries  of  subsidiary  companies)  has  been  increased  during 
the  year  by  the  amount  of  $4,522,250.00,  as  follows : 

INCREASES 

Five  per  cent.  Collateral  Gold  Notes $19,927,000.00 

Providence  Securities  Company  4%  gold  de- 
bentures assumed  as  a  direct  instead  of  an  in- 
direct liability,  (heretofore  on  obligation  of 
The  New  England  Navigation  Co.) 19,180,000 .00 

Six  per  cent,  six  months  notes  dated  Nov.  18, 
1913  (balance  matured  but  notes  not  pre- 
sented by  holders) 40.000.00 

Six  per  cent.threelmonths  note  dated  April  13,1914         400,000 . 00 

Five  per  cent,  six  months  notes  dated  January  14, 

1914 2,000,000.00 

Five  per  cent,  six  months  notes  dated  January  26, 

1914 250,000.00 

Four  and  one-half  per  cent,  five  year  promissory 

notes  dated  May  7,  1914 222,000.00 

Five  per  cent,  six  months  notes  dated  June  26,1914         550,000 . 00 

Five  per  cent,four  months  note  dated  June  26,1914         375,000 . 00 

The  Harlem  River  &  Port  Chester  R.  R.  Co.  one 
year  5%  gold  notes,  guaranteed  by  The  New 
New  York,  New  Haven  &  Hartford  Railroad 

Company 10,000,000 .00 

$52,944,000.00 

DECREASES 

New  Haven  St.  Ry.  5%  first  mortgage  bonds,  paid 

in  August,  1913 $599,000.00 

Four  per  cent,  non-convertible  debentures,  paid 

Feb.  1   1914 5,000,000.00 

New  Haven  St.  Ry.  5%  convertible  mortgage 

bonds,  paid  in  June,  1914 229,000.00 

Four  and  one-half  per  cent,  notes,  paid  in  July, 

1913 2,575,000.00 

Five  per  cent,  notes,  paid  in  November  and 

December,  1913 39,995,000.00 

Note  in  favor  of  City   of  New  Haven,  paid 

September  16,  1913 23,750.00 

48,421,750.00 

Total  Increase. . ,  $4,522,250.00 


N.   Y.,   N.    H.   &   H.   RR.    CO.    REPORT,    1914        673 

Maturing  Debt. — There  will  mature  betwaen  October  1st,  1914,  and 
June  30th,  1915,  the  following  obligations  for  which  your  Company 
is  responsible : 

October  26th,  1914,      Five  per  cent,  four  months  note $375,000 . 00 

December  1st,  1914,     Middletown  Horse  R.  R.  5%  1st  Mortgage 

Bonds 1.50,000.00 

December  26th,  1914,  Five  per  cent,  six  months  notes 550,000 .00 

January  14th,  1915,     Five  per  cent,  six  months  notes 1,000,000 .00 

January  27th,  1915,     Five  per  cent,  six  months  notes 200,000 .00 

May  1st,  1915,  Five  per  cent,  one  year  Collateral  Gold 

notes 

Total  issue $20,000,000 .00 

Less,  paid  off 435,000 . 00 

$19,565,000.00 

May  1st,  1915,  The  Harlem  River  &  Port  Chester  Railroad 
Co.  Five  per  cent,  one  year  Gold  Notes, 
Series  "A" 10,000,000.00 

Total $31,840,000.00 

A  statement  of  your  Company's  Contingent  Liabilities  in  the  hands 
of  the  public  is  shown  in  this  report.  All  of  the  companies  therein 
mentioned  were  able  to  meet  their  obligations  for  interest  and  divi- 
dends without  recourse  to  your  Company's  guaranty  except  the  Boston 
Railroad  Holding  Company  and  the  New  York,  Westchester  and  Bos- 
ton Railway  Company. 

Insurance  Funds. — As  no  appropriations  have  been  made  by  the 
New  Haven  Company  to  the  Fire  Insurance  and  Coal  Insurance  Funds 
since  June  30,  1911,  the  current  losses  being  charged  to  Operating 
Expenses,  it  was  thought  unnecessary  to  continue  these  Funds,  and 
they  were  cancelled  and  contracts  for  insurance  placed ;  the  securities 
and  assets  of  the  various  Funds  turned  into  the  treasury  of  the  New 
Haven  Company,  and  the  reserve  in  those  funds  credited  to  the  Profit 
and  Loss  Account  of  the  New  Haven  Company. 

No  appropriation  has  beeen  made  to  the  Accident  and  Casualty 
Fund  since  June  30,  1911,  and  it  was  cancelled.  For  the  1913  fiscal 
year  there  was  charged  to  the  Accident  and  Casualty  Reserve  $337,- 
744.21,  for  the  1914  fiscal  years  $318,324.93,  leaving  $1,042,597.17, 
which  has  been  set  up  as  a  reserve  to  take  care  of  unadjusted  personal 
injury  claims  prior  to  July  1,  1914. 

The  New  England  Steamship  Company  Marine  Insurance  Fund 
was  cancelled  and  contracts  for  insurance  placed,  the  securities  and  as- 
sets turned  into  the  treasury  of  the  Steamship  Company  and  the  re- 
serve in  the  Fund  credited  to  the  Profit  and  Loss  Account  of  the 
Steamship  Company.  The  securities  were  subsequently  sold  to  the 
New  Haven  Company. 

Merchants  and  Miners  'Transportation  Company. — Because  of  the 
attitude  of  the  Federal  authorities  and  the  very  serious  financial  con- 


674         MATERIALS    OF   CORPORATION   FINANCE 

dition  of  this  Company,  the  securities  of  the  Merchants  and  Miners 
Transportation  Company  were  sold  in  April,  1914.  Additional  Capi- 
tal was  needed  to  finance  the  Merchants  and  Miners  Transportation 
Company  which  the  New  Haven  Company  was  unable  to  furnish.  On 
account  of  unfavorable  conditions  the  sale  resulted  in  a  loss  of 
$3,594,500.00. 

These  securities  were  held  by  The  New  England  Navigation  Com- 
pany and  their  cost  was  reflected  in  the  capital  stock  of  that  company. 
The  capital  stock  of  The  New  England  Navigation  Company  was  re- 
duced by  35,945  shares,  the  New  Haven  Company's  investment  in  the 
Navigation  Company  was  reduced  a  like  amount,  and  the  amount  of 
the  reduction  in  value  of  the  New  Haven  Company's  investment  in 
the  Navigation  Company  was  charged  to  the  Profit  and  Loss  Ac- 
count of  the  New  Haven  Company. 

Profit  and  Loss. — The  Profit  and  Loss  surplus  of  $7,916,557.24  as 
of  June  30th,  1913,  has  been  reduced  by  transactions  shown  on  page 
712,  to  $1,822,246.14  as  of  June  30th,  1914. 

Equipment  Trust. — Under  date  of  April  1st,  1914,  an  arrangement 
was  made  with  the  Farmers'  Loan  &  Trust  Company  for  an  Equip- 
ment Trust,  under  which  the  Company  is  to  make  semi-annual  pay- 
ments for  fifteen  years,  when  the  title  to  the  equipment  will  Be  vested 
in  the  Company. 

NEGOTIATIONS   WITH  THE  DEPARTMENT   OF  JUSTICE  OP  THE 
UNITED  STATES 

On  April  llth,  1914,  a  pamphlet  was  mailed  to  each  stockholder 
giving  some  account  of  the  negotiations  with  the  Department  of  Jus- 
tice for  a  peaceful  solution  of  the  so-called  "New  England  Railoard 
Situation." 

At  a  meeting  of  the  stockholders  on  April  21st,  1914,  the  Directors 
were  authorized  to  complete  negotiations  and  to  arrange  for  the  segre- 
gation of  the  various  properties  that  were  under  dispute.  Since  then 
there  have  been  prolonged  conferences  with  the  Department  of  Justice. 

The  Department  filed  its  petition  in  the  District  Court  of  the  United 
States,  Southern  District  of  New  York,  on  July  23,  1914,  and  the 
Company  filed  its  answer  on  September  17,  1914. 

An  agreed  decree  is  to  be  entered  which  produces  the  following 
results : 

First.  The  New  Haven  Company  transfers  to  Frank  P.  Carpenter, 
of  Manchester,  New  Hampshire,  Henry  B.  Day,  of  Newton,  James  L. 
Doherty,  of  Springfield,  Charles  P.  Hall,  of  Newton,  and  Marcus  P. 
Knowlton,  of  Springfield,  all  in  Massachusetts,  as  trustees,  31,065 
shares  of  the  common  stock  and  244,939  shares  of  the  preferred  stock 


N.    Y.,    N.    H.    &    H.    RR.    CO.    REPORT,    1914        675 

(being  all  of  the  common  and  all  but  28,000  shares  of  the  preferred 
stock)  of  the  Boston  Railroad  Holding  Company,  the  latter  being  the 
holder  of  6,543  shares  of  the  preferred  and  219,189  shares  of  the  com- 
mon stock  (a  majority  of  all  outstanding  stock)  of  the  Boston  & 
Maine  Railroad,  in  trust  to  sell  the  Boston  and  Maine  shares  under 
the  order  of  the  Court. 

The  trustees  shall  hold  the  shares  and  exercise  all  the  powers  the 
owners  of  the  shares  of  the  Holding  Company  are  entitled  to  exercise, 
excepting  the  right  to  sell  or  dispose  of  them  until  otherwise  ordered. 

Xo  order  directing  the  sale  of  any  of  the  shares  of  the  Holding 
Company  shall  be  made  by  the  Court  until  after  July  1st,  1915,  unless 
the  New  Haven  Company  shall  in  writing  consent  thereto.  If  no  sale 
is  made  before  July  1st,  1915,  the  Court,  on  application  of  any  party, 
and  after  a  hearing  at  which  the  Commonwealth  of  Massachusetts 
shall  be  invited  to  appear,  shall  determine  when  a  sale  shall  be  made 
and  fix  the  terms  and  conditions  thereof. 

The  trustees  shall  also  use  their  best  efforts  to  complete  the  sale  of 
the  shares  of  the  Boston  &  Maine  Railroad  before  January  1st,  1917. 

Second.  The  New  Haven  Company  transfers  to  the  same  trustees, 
the  following  shares  of  corporations,  the  railroad  lines  of  which  are 
leased  to  the  Boston  &  Maine  Central  Railroad  Company : 

922  shares  of  capital  stock  of  the  Northern  Railroad   (of  New  Hampshire). 
1,015  shares  of  capital  stock  of  the  Connecticut  River  Railroad  Company. 

63  shares  of  capital  stock  of  the  Manchester  &  Lawrence  Railroad. 
246  shares  of  capital  stock  of  the  Hereford  Railway  Company. 
2,469  shares  of  capital  stock  of  the  Concord  &  Montreal  Railroad. 
184  shares  of  capital  stock  of  the  Vermont  &  Massachusetts  Railroad  Com- 
pany. 

193  shares  of  capital  stock  of  the  Lowell  &  Andover  Railroad  Company. 
412  shares  of  capital  stock  of  the  Boston  &  Lowell  Railroad  Corporation. 
710  shares  of  capital  stock  of  the  Pemigewasset  Valley  Railroad. 
1,464  shares  of  capital  stock  of  the  Connecticut  &  Passumpsic  Rivers  Railroad 

Company. 

73  shares  of  capital  stock  of  the  Upper  Coos  Railroad. 
18  shares  of  capital  stock  of  the  Concord  &  Portsmouth  Railroad. 
98  shares  of  capital  stock  of  the  Wilton  Railroad  Company. 
86  shares  of  capital  stock  of  the  Peterborough  Railroad. 
84  shares  of  capital  stock  of  the  Nashua  &  Lowell  Railroad  Corporation. 
354  shares  of  capital  stock  of  the  Massawippi  Valley  Railway  Company. 

The  trustees  shall  hold  these  shares  and  exercise  all  the  powers  in 
the  management  of  the  corporations  which  the  owners  of  the  shares 
are  entitled  to  exercise.  They  shall  sell  the  shares,  whenever  in  their 
judgment  such  sale  or  sales  can  be  made  to  the  best  advantage,  so  long 
as  they  remain  subject  to  sale  and  upon  such  terms  as  the  New  TTaven 
Company  shall  request  in  a  writing  signed  by  its  President  or  Chair- 


676         MATEEIALS    OF   CORPORATION    FINANCE 

man  of  the  Board  of  Directors  and  approved  at  a  meeting  by  said 
Board. 

The  trustees  shall  exercise  their  best  efforts  to  complete  the  sale  of 
said  shares  before  January  1st,  1917. 

Third.  The  New  England  Navigation  Company  transfers  to  Ly- 
man  B.  Brainerd,  of  Hartford,  Charles  Cheney,  of  South  Manchester, 
George  E.  Hill  of  Bridgeport,  William  W.  Hyde,  of  Hartford,  and 
Walter  C.  Noyes,  of  New  London,  all  in  Connecticut,  as  trustees,  400,- 
000  shares  being  all  of  the  capital  stock  of  The  Connecticut  Company. 

The  trustees  shall  hold  these  shares  and  exercise  all  the  powers  in 
the  management  of  The  Connecticut  Company  which  the  owners  of 
the  shares  therein  are  entitled  to  exercise. 

The  trustees  shall  sell  said  shares  for  such  prices  and  upon  such 
terms  as  shall  be  named  by  the  New  Haven  Company  and  the  Navi- 
gation Company  in  a  writing  signed  by  their  respective  President  or 
Chairman  of  their  Boards  of  Directors  and  approved  at  a  meeting 
by  their  Boards. 

The  trustees  shall  exercise  their  best  efforts  to  complete  the  sale  of 
said  shares  before  July  1st,  1919. 

Fourth.  The  New  Haven  Company  transfers  to  John  0  Ames, 
John  P.  Farnsworth,  Rathbone  Gardner,  Theodore  Francis  Green  and 
Charles-  C.  Mumford,  all  of  Providence,  Rhode  Island,  as  trustees, 
96,855  shares,  being  all  of  the  capital  stock  of  The  Rhode  Island  Com- 
pany, and  The  New  England  Navigation  Company  transfers  to  the 
same  trustees  9,132  shares  in  the  capital  stock  of  the  Providence  & 
Danielson  Railway  Company,  bonds  of  said  company  to  the  par  value 
of  $600,000,  7,000  shares  in  the  capital  stock  of  the  Sea  View  Railroad 
Company,  and  bonds  of  said  company  to  the  par  value  of  $600,000. 

The  trustees  shall  hold  said  shares  and  bonds  and  exercise  all  the 
powers  in  the  management  of  these  trolley  companies  which  the  own- 
ers of  shares  therein  are  entitled  to  exercise. 

The  trustees  shall  sell  said  shares  and  bonds  at  such  time  or  times 
as  shall  be  named  by  the  New  Haven  Company  in  a  writing  signed  by 
its  President  or  the  Chairman  of  its  Board  of  Directors  and  approved 
at  a  meeting  by  said  Board. 

The  trustees  shall  exercise  their  best  efforts  to  complete  the  sale  of 
the  said  shares  and  bonds  before  July  1st,  19JL9. 

Fifth.  The  53,981  shares  of  the  capital  stock  of  the  Berkshire 
Street  Railway  Company  and  the  6,500  shares  of  capital  stock  of  The 
Vermont  Company  owned  by  the  New  Haven  Company,  shall  be  sold 
before  July  1st,  1919 ;  provided,  however,  such  sale  shall  not  be  pro- 
ceeded with  until  action  shall  have  been  taken  by  the  Commonwealth 
of  Massachusetts  authorizing  a  sale  of  the  shares  of  the  Berkshire 


N.   Y.,   N.   H.   &   H.   RR.   CO.   REPORT,   1914        677 

Street  Railway  Company  or  until  the  Court,  on  the  application  of  any 
party,  and  after  a  hearing  at  which  the  Commonwealth  of  Massachu- 
setts shall  be  invited  to  appear,  shall  by  further  order  so  direct. 

Sixth.  The  New  England  Navigation  Company  shall  sell  on  or 
before  July  1st,  1917,  the  15,000  shares  of  preferred  and  20,000  shares 
of  common  stock  in  the  Eastern  Steamship  Corporation  and  bonds  of 
said  corporation  to  the  par  value  of  $2,500,000.,  held  by  it,  and  pend- 
ing such  sale  the  New  Haven  Company  and  the  Navigation  Company 
are  enjoined  from  voting  upon  the  capital  stock  of  said  Eastern  Steam- 
ship Corporation. 

Seventh.  The  New  Haven  Company  shall  sell  on  or  before  July 
1st,  1919,  5,000  shares  of  the  capital  stock  of  the  New  York  &  Stam- 
ford Railway  Company  and  bonds  of  the  said  company  to  the  par 
value  of  $678,000.,  also  the  rights  to  the  capital  stock  and  other  securi- 
ties of  the  Westchester  Street  Railroad  Company  now  owned  by  it,  and 
the  Navigation  Company  shall  sell  on  or  before  July  1, 1919,  the  rights 
to  the  capital  stock  and  other  securities  of  the  Shore  Line  Electric 
Railroad,  a  corporation  of  New  York,  when  the  same  may  be  issued, 
and  the  gold  notes  of  the  New  England  Investment  &  Security  Com- 
pany, a  voluntary  association,  to  the  par  value  of  $13,709,000,  now 
owned  by  it. 

Eighth.  The  times  within  which  the  sales  heretofore  ordered  shall 
be  made  may  be  extended  in  each  case  by  the  Court  for  good  cause 
shown  upon  the  application  of  any  party  or  any  laody  of  liquidators  or 
trustees,  and  if  they  are  not  sold  by  the  Trustees  60  days  before  the 
last  date  fixed  for  the  sale  they  shall  be  sold  at  public  auction. 

Ninth.  None  of  the  shares  or  other  securities  hereinbefore  ordered 
sold  shall  be  offered  to  the  stockholders  of  the  New  Haven  Company 
as  a  class  either  in  proportion  to  their  stockholdings  or  otherwise,  or 
be  sold  to  the  New  Haven  Company  or  to  any  person  or  persons,  cor- 
poration or  corporations,  to  be  held  in  its  interests,  directly  or  indi- 
rectly, or  so  as  to  re-establish  in  any  manner  the  combination  and  con- 
trol which  it  is  the  purpose  of  the  decree  to  terminate. 

There  is  now  pending  before  the  Interstate  Commerce  Commission 
an  application  of  the  New  Haven  Company,  under  Act  of  Congress 
approved  March  24th,  1912,  known  as  the  Panama  Canal  Act,  for 
authority  to  retain  stocks  and  other  securities  and  continue  control  of 
its  steamship  lines  including  The  New  England  Steamship  Company 
and  The  Hartford  &  New  York  Transportation  Company.  Similar 
applications  are  required  by  law  from  all  railroad  companies  having 
an  ownership  in  steamship  lines. 

The  contract  between  the  New  York  Central  &  Hudson  River  Rail- 
road Company  and  the  New  Haven  Company  for  sharing  in  the  finan- 


678         MATERIALS    OF    CORPORATION    FINANCE 

cial  results  of  the  operation  of  the  Boston  &  Albany  Railroad,,  has 
already  been  cancelled,  and  the  Company  has  also  disposed  of  its  inter- 
est in  the  Merchants  &  Miners  Transportation  Company. 

The  final  papers  giving  effect  to  the  agreement  with  the  United 
States  Government  are  now  being  drawn  up  by  the  Counsel  of  the 
Company  and  the  Attorney  General  of  the  United  States,  and  it  is  ex- 
pected that  the  agreed  decree  will  become  effective  in  the  near  future. 

In  view  of  the  present  conditions  and  the  policy  of  the  Federal 
Government  and  its  various  departments,  the  Directors  have  felt  that 
it  was  wise  to  agree  with  the  Department  of  Justice  and  to  divest  itself 
of  ownership  in  these  various  properties,  and  therefore,  with  the  au- 
thority of  the  stockholders  it  made  every  reasonable  concession  toward 
a  peaceful  adjustment,  but  with  the  hope  that  the  arrangement  will  not 
ruthlessly  and  unnecessarily  sacrifice  values  and  impair  the  service 
that  the  various  properties  can  give  to  the  public. 

It  is  believed  that  in  the  time  allowed  the  Company,  if  there  is  a 
return  to  prosperity  to  the  country  with  a  more  reasonable  attitude  on 
the  part  of  the  public  toward  railroad  corporations,  many  of  these 
properties  will  show  a  value  much  in  excess  of  the  estimates  to-day, 
and  that  losses  in  carrying  these  properties  will  be  reduced  if  patience 
is  exercised  and  fair  treatment  accorded. 

The  report  of  the  Interstate  Commerce  Commission  of  June  20th, 
1913,  said  about  these  properties : 

"They  are  for  the  most  part  of  substantial  value  and  in  many  in- 
stances are  a  kind  of  property  the  value  of  which  should  improve." 

That  is  true,  and  within  the  past  year  each  of  the  properties  within 
the  control  of  the  New  Haven  Company  has  been  improved  physically, 
and  in  its  organization  and  ability  to  serve  the  public. 

A  summary  of  the  properties  covered  by  the  decree,  and  the  book 
value  thereof,  including  stock,  bonds,  notes  and  advances,  as  shown  on 
the  b'ooks  of  the  New  Haven  Company  and  the  Navigation  Company 
is  as  follows : 

As  carried  on  books  of 

•  New  England 

New  Haven      Navigation 
Company.         Company. 

Boston  Railroad  Holding  Co $29,371,165 .97 

Boston  &  Maine  R.  R.  subsidiary  lines 1,417,216.95 

The  Connecticut  Company " 2,125,000.00  $40,000,000.00 

The  Rhode  Island  Company 27,852,336.41       1,266,379.37 

Berkshire  Street  Rilway  Company 9,809,395 . 58 

The  Vermont  Company 1,477,164.31 

Eastern  Steamship  Co 4,200,000.00 

New  York  &  Stamford  Railway 1,395.523 . 40 

The  Westchester  Street  Railroad 1,152,150 . 84 

Shore  Line  Electric  Railroad 117,000  00 

New  Engjand  Investment  and  Security  Company . .  13,631 ,750 . 00 

$74,599,953.46  $59,215,129.37 


N.   Y.,   N.   H.    &   H.    RR.    CO.    REPORT,    1914        679 

From  time  to  time  it  has  been  intimated  that  the  present  financial 
condition  of  the  New  Haven  Company  is  due  to  these  and  similar  in- 
vestments. It  is  fair,  however,  to  point  out  certain  conditions  which 
are  national  in  their  effect  on  railroad  net  income,  conditions  over 
which  neither  the  New  Haven  Company,  nor  any  other  company,  has 
any  effective  control. 

Some  of  these  conditions  are : 

1.  Increase  in  rates  of  interest. 

2.  Increases  in  rates  of  pay. 

3.  Increase  cost  due  to  changes  of  working  hours  and  working 
conditions. 

4.  The  so-called  Full  Crew  Law,  which  makes  necessary  the  em- 
ployment of  extra  and  unnecessary  men. 

5.  The  federal  valuation  of  railroads. 

6.  The  great  increase  in  accounting  and  special  reports  to  numer- 
ous public  authorities. 

7.  The  increase  in  taxes. 

8.  The  increased  demands  for  luxurious  passenger  facilities,  both 
train  and  station. 

9.  Stationary  or  falling  rates. 

10.  Inadequate  pay  for  mail  and  parcels  post. 

Increase  in  rates  of  pay  and  rates  of  interest  as  compared  with 
1 903  shows  an  increased  annual  charge  of  more  than  $8,000,000.  The 
various  governmental  requirements  mean  a  charge  of  at  least  $300,000 
a  year.  The  taxes  in  1914  were  $1,182,829.52  more  than  in  1903. 
The  underpay  for  carriage  of  mail  matter  represents  more  than 
$700,000  a  year  in  gross  earnings.  Much  passenger  train  service 
is  furnished  far  below  any  fair  estimate  of  the  cost  for  the  particular 
service  rendered.  Without  allowing  for  this  loss  on  non-remunerative 
passenger  trains,  the  foregoing  additional  burdens  compared  with 
1903,  represent  a  net  loss  of  at  least  $10,000,000  a  year;  a  loss  greater 
than  the  annual  interest  on  the  cost  of  all  outside  properties  acquired. 

The  same  general  causes  reduce  the  income  received  by  your  Com- 
pany from  the  transportation  companies  in  which  it  is  interested. 

The  attention  of  stockholders  is  called  to  what  Mr.  Commissioner 
Daniels,  of  the  Interstate  Commerce  Commission,  said  in  his  dis- 
senting opinion  of  July  29,  1914,  in  the  "Eastern  Railroads  Advance 
Rate  Case,"  as  follows: 

'"The  world-wide  phenomenon  of  rising  prices  is  by  this  time  no 
novelty.  Since  1906  the  average  rise  in  the  world's  price  level  is 
estimated  by  competent  statisticians  at  from  30  to  50  per  cent.  It 
has  mirrored  itself  in  the  rising  cost  of  living;  it  has  evoked,  and 
most  properly,  advances  in  wages  and  salaries;  it  has  coincided  with 


680         MATERIALS    OF   CORPORATION    FINANCE 

an  increase  in  the  nominal  rate  of  interest  where  part  of  the  in- 
terest so-called  is  but  compensation  for  the  anticipated  depreciation 
of  the  capital  sum  later  to  be  repaid.  This  rise  in  the  price  level 
must  eventually  be  reckoned  with  in  railroading.  For  a  time  its 
effects  may  be  masked  by  adventitious  increases  in  the  volume  of 
traffic,  but  this  temporary  relief  in  its  very  nature  is  uncertain, 
and  sooner  or  later  the  difficulty  is  sure  to  reappear.  For  a  time 
it  may  be  circumvented  by  extraordinary  economies,  but  in  its  nature 
it  is  inexorable.  It  must  be  faced,  not  trifled  with.  It  is  hardly 
an  adequate  remedy  to  accord  to  carriers  relief  only  when  their  re- 
turns have  reached  the  well-nigh  desperate  level  now  shown  in  Cen- 
tral Freight  Association  territory.  Even  before  this  inadequate 
return  is  evidenced,  higher  rates  are  warranted.  Such  a  solution 
of  the  present  case  would  have  done  no  less  than  justice  to  the  car- 
riers and  would  have  promoted  the  welfare  of  the  community  they 
serve. 

"A  living  wage  is  as  necessary  for  a  railroad  as  for  an  individual. 
A  carrier  without  a  sufficient  return  to  cover  costs  and  obtain  in 
addition  a  margin  of  profit  large  enough  to  attract  new  capital  for 
extensions  and  improvements  cannot  permanently  render  service 
commensurate  with  the  needs  of  the  public." 

SPECIAL   INVESTIGATIONS 

By  the  Company. — During  the  year,  for  the  purpose  of  checking 
the  methods  and  operations  of  the  Company,  special  investigations 
of  some  of  its  affairs  were  made  by  order  of  the  Chairman  of  the 
Board  as  follows: 

(1)  An  expert  in  the  purchase  and  handling  of  supplies  made  a 
critical  examination  of  the  methods  of  the  Company  in  purchasing, 
storing  and  issuing  of  material.     His  report  is  being  used  by  the 
officers  of  the  Company  as  a  basis  for  introducing  such  improve- 
ments and  economies  as  are  reasonable  and  practicable  in  this  part  of 
the  Company's  affairs. 

(2)  A  committee  of  signal  experts,  one  from  the  Pennsylvania  Rail- 
road, two  from  the  New  York  Central  and  one  from  the  Delaware, 
Lackawanna  &  Western  Railroad,  made  a  critical  examination  and 
report  on  the  signals  and  signal  practice  of  the  Company.     Their 
investigations,  report  and  suggestions  are  being  used  as  a  basis  for 
improving  the  New  Haven's  signal  system  and  practice  as  rapidly  as 
the  financial  conditions  permit. 

(3)  The  Stone  &  Webster  Corporation,  of  Boston,  made  a  critical 
examination  of  the  financial  condition,  organization  and  methods  of 
management  of  the  various  trolley  properties,  and  an  elaborate  report 


N.   Y.,   N.    H.    &   H.    RR.    CO.   REPORT,    1914        681 

which  has  been  of  considerable  use  to  the  Company  in  perfecting  the 
details  of  its  organization  and  in  adopting  the  most  advanced  methods 
of  trolley  management 

(4)  The   firm   of   Price,  Waterhouse   &   Company,   Accountants, 
assigned  one  of  its  principals  who  has  been  engaged  since  January  1, 
in  a  critical  examination  of  the  past  history  of  the  financial  trans- 
actions of  the  Company.     His  work  is  not  completed,  but  soon  will 
be  and  his  reports  will  be  used  during  the  current  fiscal  years  as  a 
basis  for  further  simplification  and  improvement  of  the  Company's 
corporate  organization.     All  his  reports  were  transmitted  promptly 
to  the  Interstate  Commerce  Commission. 

(5)  In  order  to  obtain  a  complete  and  thorough  history  of  the 
charters,  mortgages,  leases  and  the  character  of  each  security,  of  the 
Company,  a  thorough  investigation  was  made  of  all  these  papers  by  a 
competent  lawyer  detailed  from  the  Company's  law  department  for 
that  purpose.    He  has  made  the  most  complete  history  of  this  part  of 
the  New  Haven  system  that  has  ever  been  prepared,  which  will  be 
used  during  the  coming  year  as  a  basis  for  drawing  up  a  financial 
plan  that  will  permit  the  refunding  of  the  Company's  floating  debt  if 
the  necessary  legislation  can  be  obtained. 

By  the  Public  Service  Commission  of  Massachusetts. — On  December 
17,  1913,  the  Public  Service  Commission  of  Massachusetts  began  an 
investigation  of  the  expenditures  of  the  New  Haven  Company  classi- 
fied under  the  head  of  "Other  Expenses."  Certain  sums  of  money 
have  been  spent  in  former  years  for  advertising,  legislative  and  mis- 
cellaneous expenses  which  it  was  thought  should  not  have  been  spent. 
Prior  to  this  investigation  all  expenditures  of  the  character  com- 
plained of  had  been  stopped. 

By  the  Interstate  Commerce  Commission. — In  response  to  a  reso- 
lution of  the  United  States  of  February  3,  1914,  a  prolonged  inves- 
tigation was  made  by  the  Interstate  Commerce  Commission  of  the 
financial  transactions  of  the  New  Haven  Company  since  1903.  Their 
report  was  published  on  July  11,  1914.  While  statements  to  the  con- 
trary have  been  circulated,  it  is  proper  to  point  out  that  the  Com- 
pany co-operated  to  the  fullest  extent  in  furnishing  information  to 
the  Commission,  and  no  books,  papers  or  documents  in  the  pos- 
session of  or  within  the  control  or  jurisdiction  of  the  Company  were 
burned  or  destroyed,  either  before,  during  or  since  the  investigation, 
The  records  of  the  Company  have  been  preserved  carefully  and  the 
general  orders  of  the  Commission  applicable  to  the  preservation  of 
all  records  have  been  complied  with.  Explicit  instructions  were 
given  and  obeyed  that  the  files  of  the  Company  should  remain  open 
at  all  times  to  the  most  complete  investigation  and  inspection  by  the 


682         MATERIALS    OF    CORPORATION    FINANCE 

representatives  of  the  Commission.  The  custodians  of  the  records 
of  the  Company  assisted  the  Commission's  examiners,  and  the  latter 
were  granted  every  facility  within  the  power  and  control  of  the  Com- 
pany to  aid  them  in  their  investigations. 

For  nearly  two  years  prior  to  this  investigation  in  Washington, 
examiners  and  representatives  of  the  Commission  have  been  almost 
continuously  at  the  offices  of  the  Company, — at  one  time  as  many 
as  sixteen.  They  have  examined  the  books,  documents  and  files  of 
the  Company,  and  no  information  has  been  kept  from  them  and  all 
information  obtainable  having  a  bearing  on  the  subjects  under  inves- 
tigation was  furnished  promptly  and  fully  by  the  officers  and  employees 
of  the  Company. 

The  following  is  an  illustration  of  the  action  taken  to  respond 
to  requests  for  information: 

Within  a  period  of  forty-eight  hours,  from  Friday  afternoon  until 
Sunday  afternoon,  504  clerks  were  taken  from  their  regular  duties 
and  worked  6,220  hours,  equivalent  to  777  clerks  for  one  day,  at 
a  cost  of  $1,400,  in  order  to  segregate  certain  records,  which  were 
then  sent  in  a  special  car  to  Washington  so  as  to  be  there  Monday 
morning. 

All  of  the  suggestions  made  in  the  report  of  the  Commission  which 
are  of  a  helpful  nature  and  which  will  in  any  way  aid  the  Company 
in  sustaining  itself  under  the  present  condtions,  which  are  so  adverse 
to  all  railroads,  and  particularly  to  those  in  New  England,  are  now 
being  made  use  of  and  steps  are  being  taken  to  give  effect  to  the 
various  suggestions  and  recommendations. 

Special  counsel  were  assigned  last  Spring  to  an  investigation  of 
the  affairs  of  the  Billard  Company  as  far  as  they  affect  the  New 
Haven  Company.  Requests  for  information  having  proved  ineffectual, 
orders  have  been  given  to  institute  judicial  proceedings  to  compel  an 
accounting. 

Counsel  are  also  carefully  considering  whether,  in  the  testimony 
obtained  by  the  Commission  or  elsewhere,  evidence  can  be  found  that 
will  enable  the  Company  to  bring  an  effective  suit  against  any  other 
parties  to  recover  funds  alleged  to  have  been  improperly  diverted  from 
the  Company's  treasury. 

ADDITIONS  AND  BETTERMENTS 

As  shown  in  table  on  page  726,  $3,290,549.97  was  spent  for  addi- 
tions and  betterments  and  charged  to  Capital  Account. 

Harlem  River  Branch. — Re-arrangement  of  the  New  Haven  Com- 
pany's tracks  between  Casanova  and  132nd  street  to  permit  construc- 
tion of  the  New  York  Connecting  Railroad.  This  work  will  probably 


N.    Y.,   N.    H.   &   H.   RR.   CO.    REPORT,   1914        683 

be  completed  during  the  year  1914,  and  will  provide  track  connections 
between  the  two  railroads  . 

Pelham  Bay  Trestle  is  being  filled  to  the  bulkhead  line  estab- 
lished by  the  City  of  New  York  and  United  States  Government. 
A  portion  of  the  trestle  is  now  filled,  affording  a  permanent  road- 
bed. The  work  will  be  finished  in  1914. 

City  of  New  York,  East  River  Piers  Nos.  37,  42  and  43. — A  much 
needed  improvement  providing  additional  facilities  for  handling 
package  freight  for  New  York  City,  resulting  in  the  increase  and 
improvement  of  pier  properties  now  held  by  the  railroad  company 
under  leases  extending  over  a  period  of  thirty  years.  The  work  con- 
sists of  the  removal  of  a  city  dumping  platform  on  Pier  No.  37, 
remodelling,  widening  and  construction  of  pier  and  bulkhead  sheds 
at  Pier  No.  37;  the  removal  of  old  Pier  No.  49  to  increase  the 
facilities  for  handling  car  floats,  and  to  permit  the  full  utilization 
of  the  bulkhead  shed  being  constructed  between  Piers  No.  37  and  No. 
38.  The  city's  dumping  platform  was  removed  from  Pier  No.  37 
to  Pier  No.  43,  and  construction  of  new  pier  and  bulkhead  sheds 
at  Pier  No.  42  has  been  completed.  Every  effort  is  being  made  to 
complete  the  work  before  the  end  of  the  calendar  year. 

Woodlawn,  N.  T. — The  renewal  of  the  steel  bridge  carrying  the 
New  Haven  westbound  track  over  the  tracks  of  the  New  York  Cen- 
tral at  Woodlawn  Junction,  which  bridge  was  designed  and  con- 
structed twenty  years  ago,  has  become  necessary,  as  the  bridge  is 
insufficient  for  the  present  heavy  trains.  A  new  investigation  of  the 
entire  matter  was  made  and  a  plan  adopted  which  will  permit  of 
operation  of  the  heavier  power,  and  so  arranged  as  to  become  a  part 
of  the  entire  scheme  when  it  becomes  necessary  to  complete  the  four- 
track  connection  in  future,  but  postponing  for  the  present  the  large 
expense  of  the  four-track  bridge. 

Mount  Vernon,  N.  Y.— By  order  of  the  Public  Service  Commission, 
a  new  steel  bridge  to  carry  the  extension  of  North  Fifth  avenue  over 
the  railroad  company's  main  line  tracks  has  been  completed  and 
placed  in  service. 

Berkshire  Junction  to  New  Milford  Double-Tracking  and  Elimina- 
tion  of  Grade  Crossings.— The  elimination  of  seven  grade  crossings, 
improvement  of  alignment  and  grades,  new  railroad  bridge  at  Still 
River,  new  station  at  Brookfield  and  remodelling  and  relocation 
of  present  Still  River  station.  Double  tracks  are  in  service  and 
highway  traffic  at  the  location  of  the  grade  crossings  has  been  diverted 
over  the  new  bridges.  Still  River  station  changes  are  completed  and 
new  station  at  Brookfield  will  be  completed  this  Fall. 
23 


684         MATERIALS    OP   CORPORATION   FINANCE 

New  Haven. — The  work  of  lowering  tracks  in  the  west  cut  ap- 
proaching New  Haven  to  provide  sufficient  overhead  clearance  for 
electrification,  including  the  underpinning  of  retaining  wall  founda- 
tions and  bridge  piers,  as  well  as  construction  of  new  steel  highway 
bridges  at  Cedar,  Lamberton,  DeWitt  streets  and  Howard  avenue,  has 
been  completed. 

Burning  of  Hartford  Station. — On  February  21,  1914,  the  passen- 
ger station  at  Hartford,  Conn,  was  damaged  by  fire,  causing  a  serious 
loss,  a  part  of  which  loss  was  recovered  from  the  insurance  companies. 
Temporary  arrangements  were  made  promptly  to  provide  accommo- 
dations so  that  business  could  be  transacted,  although  with  some  in- 
convenience to  the  public  and  the  Company.  Contract  has  been  let 
for  the  rebuilding  and  improvement  of  the  station  at  an  estimated 
cost  of  about  $261,500  and  the  work  is  being  pushed. 

Air  Line  Improvement. — The  filling  of  the  viaducts  on  the  Air 
Line,  known  as  Lyman  and  Rapallo  viaducts,  has  been  completed,  as 
well  as  the  strengthening  of  several  small  bridges.  The  viaducts  were 
of  iron,  constructed  in  1870. 

The  greatest  depth  of  the  Lyman  viaduct  was  128  feet;  the  greatest 
depth  at  Rapallo  viaduct  was  60  feet,  requiring  at  Lyman  viaduct 
710,000  cubic  yards  of  filling,  and  339,000  cubic  yards  at  Rapallo 
viaduct.  The  work  was  carried  out  in  a  very  satisfactory  manner  by 
the  Company's  construction  forces,  which  resulted  in  a  large  saving 
over  what  it  would  have  cost  if  done  under  contract. 

New  London,  Conn. — Surveys  and  soundings  to  determine  the  most 
desirable  and  economical  location  for  the  proposed  new  bridge  over 
the  Thames  River,  as  well  as  surveys  for  improving  the  alignment 
over  Winthrop  Cove,  have  been  completed.  Detailed  plans  for  the 
work  are  now  in  course  of  preparation.  The  improvement  across 
Winthrop  Cove  will  consist  of  a  solid  embankment,  eliminating  the 
present  timber  trestle,  as  well  as  such  grade  crossings  as  will  be  per- 
mitted by  the  Public  Utilities  Commission.  Hearings  on  the  entire 
matter  of  elimination  of  grade  crossings  and  approval  of  the  reloca- 
tion of  the  line  are  now  under  way. 

Olneyville,  E.  I. — Elimination  of  Hartford  Avenue  and  Plainfield 
Street  Grade  Crossing. — This  work  is  being  done  under  an  agree- 
ment with  the  City  of  Providence,  and  will  eliminate  two  very  actively 
used  grade  crossings  by  carrying  the  tracks  over  the  streets,  includ- 
ing the  construction  of  an  additional  crossing  under  the  railroad 
tracks  to  meet  the  requirments  of  the  city.  The  work  is  progressing 
and  will  be  completed  in  1914. 

In  connection  with  the  raising  of  the  tracks  it  becomes  necessary 
to  abandon  the  bulk  delivery  facilities  at  Olneyville,  as  well  as  the 


N.    Y.,    N.    H.   &   H.    RR.    CO.    REPORT,   1914        685 

freight  house,  and  modern  and  larger  facilities  are  being  provided 
to  replace  the  facilities  abandoned.  This  portion  of  the  work  is 
under  way,  and  should  be  completed  during  the  fiscal  year. 

Providence,  R.  I. — Filling  of  the  approach  timber  trestles  to  the 
Seekonk  River  bridge  has  been  completed,  utilizing  for  this  purpose 
material  excavated  in  connection  with  other  construction  work.  This 
will  permit  a  reduction  of  maintenance  charges. 

Pawtucket — Central  Falls,  R.  I. — This  work  consists  of  the  elimi- 
nation of  five  grade  crossings,  improving  alignment  and  grades,  con- 
struction of  two  additional  tracks,  joint  passenger  station,  reconstruc- 
tion of  freight  yards,  eight  overhead  highway  bridges  and  one  foot 
bridge,  etc.  Contract  for  the  steel  work  for  the  passenger  station  has 
been  awarded,  and  the  entire  work  should  be  completed  during  1915. 
Satisfactory  progress  on  the  grading  has  been  made,  and  the  tracks 
can  probably  be  used  prior  to  completion  of  the  passenger  station, 
eliminating  the  very  busy  grade  crossings  now  existing. 

Readville,  Mass. — Extension  of  locomotive  shop  has  been  completed 
and  put  in  service  during  the  year. 

Clvnton,  Mass. — Under  decree  of  the  Court  four  highway  cross- 
ings and  one  railroad  crossing  are  being  eliminated.  Owing  to  cer- 
tain delays,  due  to  the  very  severe  winter  and  other  causes,  the  work 
has  not  yet  been  completed  as  hoped,  but  will  probably  be  completed 
during  the  coming  autumn. 

The  number  of  grade  crossings  eliminated  during  the  year  for  the 
greater  safety  of  the  public  was: 

State  of  Connecticut,  Highway 12 

State  of  Rhode  Island,  Highway 2 

State  of  Massachusetts,  Highway 4 

Total,  Highway    18 

State  of  Massachusetts  (Clinton,  B.  &  M.  R.  R.)  Railroad 1 

Passenger  Stations. — Five  new  passenger  stations  have  been  con- 
structed, and  improved  passenger  station  facilities  have  been  provided 
at  fifty-five  other  points.  Work  on  five  more  new  passenger  stations 
and  improved  facilities  at  three  other  points  is  under  way  and  will 
be  completed  during  the  ensuing  year. 

Freight  Stations. — Seven  new  freight  stations  have  been  constructed 
during  the  year,  and  improved  freight  house  facilities  at  thirty-seven 
other  points.  One  more  new  freight  house  is  under  way,  and  im- 
proved freight  facilities  are  being  provided  at  five  other  points,  which 
work  will  be  completed  during  the  ensuing  year. 

Signals  and  Interlocking. — Automatic  signals  between  Cedar  Hill 
and  Springfield  have  been  completed.  Improved  and  additional  sig- 
nalling or  interlocking  has  been  provided  at  thirteen  other  points. 


686         MATERIALS    OF   CORPORATION   FINANCE 

One  hundred  and  fourteen  derails  connected  to  main  line  switches 
have  been  installed  on  sidetracks.  Four-track  automatic  signal  sys- 
tem between  Stamford  and  New  Haven  has  been  authorized,  also 
new  interlocking  plants  or  signal  towers  at  seven  other  points. 

The  rules  for  the  proper  spacing  and  blocking  of  trains  were  revised 
during  the  year.  Under  the  new  rules  and  with  the  automatic  signals 
now  on  the  road  there  are  1744.1  miles  of  road  protected  by  block 
signals  as  against  803.1  on  January  1,  1914. 

Bridges. — Important  bridge  work  has  been  done  during  the  year 
at  forty-four  various  points.  The  capacity  of  the  following  lines  has 
been  increased  on  account  of  strengthening  or  rebuilding  bridges  dur- 
ing the  year,  permitting  the  operation  of  increased  rolling  loads  to 
the  extent  mentioned: 

From  To 

East  Hartford  to  East  Longmeadow 100,000  Ibs.      156,000  Ibs. 

East  Meriden  to  Meriden 95,000  145,000 

Hamlet   Branch    130,000  156,000 

Judd's  Bridge  to  Litchfield 90,000  95,000 

Plainfield  to  Worcester    156,000  200,000 

Portland  to  Willimantic    120,000  200,000 

Saybrook  Junction  to  Fenwick 130,000  156,000 

Valley  Falls  to  Worcester 130,000  156,000 

Vernon-Rockville-Melrose    100,000  156,000 

Webster  to  Southbridge 115,000  156,000 

Passing  Sidings  and  Commercial  Sidetracks. — Five  passing  sidings 
have  been  installed  or  extended  to  accommodate  longer  trains. 

Ninety-one  sidetracks  to  serve  industries  along  the  Company's  lines 
have  been  installed  during  the  year. 

New  Equipment.  —  Under  the  new  Equipment  Trust   (Farmers' 
Loan  &  Trust  Co.,  Trustee)  there  have  been  added  during  the  year: 
72  Steel  Coaches. 
28       "     Smokers. 
15       "     Postal  Cars. 
12       "     Multiple  Unit  Motors. 
24      "  "          "    Trailers. 

and  in  addition: 

New  Equipment. — (Not  under  the  Equipment  Trust.) 

3  Electric  locomotives,  1  Steam  crane, 

34  Steel  coaches,  1  Rail  unloader, 

1  Steel  smoker,  1  Transformer, 

20  Milk  cars,  3  Steel  car  floats. 

6  Steel  postal  cars, 


N.    Y.,    N.    H.    &   H.    RR.    CO.    REPORT,    1914        687 

For  this  equipment,  the  conversion  of  certain  cars  from  one  class 
to  another,  providing  safety  appliances,  also  superheaters,  pumps, 
flash  boilers,  etc.,  on  locomotives,  the  Company  paid  $1,054,659.07, 
the  entire  amount  of  which  was  charged  to  the  equipment  ac- 
count. There  are  also  due  on  1913  orders,  ten  steel  smoking  cars 
and  four  multiple  unit  cars  and  on  1914  orders  fifty  steel  baggage 
cars,  thirty  steel  passenger  coaches  and  twenty  steel  combination 
cars. 

At  the  present  time,  with  the  exception  of  baggage  cars  and  four 
dining  cars,  all  of  the  regular  express  passenger  train  service  is 
handled  with  all-steel  or  steel  underframe  cars  between  New  York 
and  Boston  via  the  three  routes,  Shore  Line,  Springfield  and  Hart- 
ford-Willimantic.  The  same  is  also  true  of  the  New  York-Springfield, 
New  York-Winsted,  New  York-Pittsfield,  New  York-New  Haven 
and,  with  the  exception  of  two  trains,  New  Haven-Boston  &  Maine 
service. 

As  stated  above,  equipment  is  under  order,  the  early  receipt  of 
which  is  expected;  these  cars  and  reinforcement  of  four  dining  cars 
now  under  way  will  complete  the  above  trains  with  all-steel  or  steel 
underframe  equipment. 

Abandonment  of  New  Work. — All  construction  and  betterment 
work  has  been  stopped  except  that  which  is  so  far  advanced  that  its 
completion  is  required  and  that  which  the  Company  is  compelled 
under  legal  orders  to  complete.  This  policy  must  of  necessity  continue 
until  the  Company  can  obtain  money  from  increased  earnings  and 
through  some  plan  that  will  permit  financing  its  floating  debt  at  lower 
rates  of  interst  than  are  now  current. 

Therefore,  many  .improvements  cannot  now  be  undertaken  that 
would  add  to  the  comfort  and  convenience  of  the  public  and  eventu- 
ally produce  economies  in  the  operation  of  the  railroad. 

ELECTRICAL   DEPARTMENT 

Between  New  York  and  New  Haven,  including  all  yards  and  sid- 
ings, and  the  Cedar  Hill  yard  at  the  latter  point,  your  Company  has 
518  miles  of  track  equipped  for  electrical  operation,  excluding  that 
part  of  the  New  York  Central  Company  between  Woodlawn  and  Grand 
Central  Terminal  used  under  lease  but  maintained  by  that  Com- 
pany. The  volume  of  passenger  and  freight  business  moving  between 
New  Haven  and  New  York  is  very  heavy  and  the  necessity  for  the 
most  effective  organization  is  very  essential. 

The  investment  in  the  electrification  between  New  York  and  Cedar 
Hill  in  power,  locomotive,  transmission  lines,  distributing  system, 


688         MATERIALS    OF   CORPORATION    FINANCE 

electrical  shops,  when  all  the  business  is  handled  electrically,  will 
be  about  $20,000,000. 

For  the  purpose  of  supervising  closely  and  making  the  most  effec- 
tive use'  of  these  large  investments  and  because  the  operation  and 
maintenance  of  this  extensive  electrical  installation  is  very  technical, 
an  Electrical  Department  was  organized  on  March  18th,  1914,  con- 
sisting of  a  Consulting  Electrical  Engineer,  with  necessary  assistants, 
having  advisory  jurisdiction  over  matter  pertaining  to  the  engineer- 
ing, construction  and  operation  of  the  electrical  system  and  equipment. 
Better  results  are  being  gradually  obtained  by  having  this  new  depart- 
ment acting  in  co-operation  with  the  divisional  operating  officers. 

Electrification  of  Freight  Yards  and  Sidings  Between  Stamford  and 
New  York. — The  electrification  of  Harlem  River  and  Van  Nest  yards, 
including  all  freight  sidings  west  of  Stamford,  has  been  completed 
and  electric  switching,  including  freight  service,  inaugurated  in  these 
yards. 

Building  of  Electrical  Shops  at  Van  Nest. — The  installation  of 
machinery  in  these  shops  was  completed  and  the  transfer  of  the  heavy 
repair  work  on  electrical  equipment  from  Stamford  to  Van  Nest  was 
made  in  September,  1913.  The  increased  facilities  offered  by  these 
shops  has  resulted  in  a  marked  improvement  in  the  maintenance  of 
electric  equipment,  and  should  effect  a  decrease  in  costs. 

Extension  of  Electrification  from  Stamford  to  New  Haven. — The 
electrification  of  main  line  tracks,  the  freight  yards  at  South  Norwalk 
and  Bridgeport,  and  the  sidings  at  intermediate  points,  has  been 
completed  and  placed  in  operation,  commercial  passenger  service 
having  been  inaugurated  on  June  22nd,  1914.  At  present  forty 
passenger  trains  are  being  operated  electrically  between  New  Haven 
and  New  York  and  approximately  sixteen  freight  trains  are  being 
hauled  daily  by  electric  locomotives  between  Harlem  River,  Bridge- 
port and  New  Haven.  This  includes  approximately  50%  of  the  pas- 
senger train  service  between  Stamford  and  New  Haven  on  week  days 
and  on  Sundays  the  entire  passenger  train  service. 

The  present  eastern  terminus  of  the  Electric  Zone  is  at  New  Haven. 
The  extension  to  Cedar  Hill  will  be  completed  and  put  into  service 
some  time  in  October  when  the  transfer  from  steam  to  electric  motive 
power  will  be  made  at  Cedar  Hill. 

The  electric  haulage  of  freight  trains  should  result  in  increasing 
the  capacity  of  this  part  of  the  road,  and  giving  better  service  to  the 
public. 

Elimination  of  Electro-Magnetic  Induction  on  Foreign  Wires  in 
the  Electric  Zone. — The  new  system  of  electric  power  distribution  was 


N.    Y.,   N.    H.   &   H.    RR.   CO.    REPORT,   1914        689 

inaugurated  in  January,  1914,  resulting  in  the  practical  elimination 
of  disturbances  in  the  circuits  of  the  Telephone  and  Telegraph  Com- 
panies paralleling  the  electric  zone  and  in  improved  conditions  of 
operation  in  the  railway  circuits. 

Power  and  Equipment. — That  part  of  the  electric  zone  east  of 
Woodlawn  and  including  the  Harlem  River  Branch,  in  other  words 
the  New  Haven  Road's  electrification,  is  operated  by  alternating  cur- 
rent. The  New  York  Central  line  between  Woodlawn  and  Grand 
Central  Terminal,  over  which  our  passenger  trains  are  run,  is  operated 
by  direct  current,  the  New  Haven  engines  and  cars  being  equipped 
both  for  alternating  and  direct  current.  For  the  operation  of  the 
zone  between  Woodlawn  and  Grand  Central  Terminal,  at  present,  all 
power  is  provided  by  the  New  York  Central. 

Power  for  operation  in  the  New  Haven's  electrification  zone  is 
provided  from  the  Company's  Cos  Cob  power  station.  The  capacity 
of  the  Cos  Cob  power  station  has  been  increased  from  15,000  kilowatts 
to  35,000  kilowatts,  this  work  having  been  completed  during  the  year. 
Steps  are  now  being  taken  to  increase  the  output  at  Cos  Cob,  and  to 
purchase  power  from  the  New  York  Edison  Company  on  such  terms 
as  will  justify  your  Company  in  deferring  the  outlay  of  capital  for 
that  purpose.  With  this  additional  power  the  maximum  use  of  the 
electrical  installation  can  be  made  with  the  electric  locomotives  now 
owned  by  the  Company. 

AFFILIATED   COMPANIES 

Boston  &  Maine  Railroad. — By  reason  of  the  continued  unfavor- 
able business  conditions,  and  the  increased  cost  of  operation,  no  divi- 
dends were  paid  on  the  stock  of  the  Boston  and  Maine  Railroad  held 
by  the  Boston  Railroad  Holding  Company,  consequently  your  com- 
pany received  no  dividends  on  its  holdings  of  the  Boston  Railroad 
Holding  Company  preferred  or  common  stock,  but  was  obliged  under 
the  guaranty  to  charge  its  Income  with  $112,000.00,  representing  the 
dividend  on  the  preferred  stock  in  the  hands  of  the  public,  and 
$27.000.00  covering  taxes,  organization  expenses,  etc.,  of  the  Boston 
Railroad  Holding  Company. 

A  condensed  statement  of  Income  of  the  Boston  and  Maine  Rail- 
road for  the  year  ending  June  30th,  1914,  IB  given  hereunder,  in 
comparison  with  the  year  1913: 


690 


MATERIALS    OP   CORPORATION   FINANCE 


Total  Revenue  from  Transportation 

Total  Operations  other  than  Trans- 
portation, including  Outside 
Operations 

Total  Operating  Revenue 

Total  Operating  Expenses 

Total  Net  Revenue 

Railway  Tax  Accruals 

Total  Operating  Income 

Other  Income 

Gross  Corporate  Income 

Deductions  from  Income: 
Rentals  of  Leased  Lines,  Hire  of 
Equipment,  Interest,  etc 

Deficit. . . 


1914 
$46,615,094.58 


Compared  with  1913 
Increase        Decrease 

$1,086,276.12 


985,050.79 

195,254.11 

14,999.27 

47,600,145.37 
38,296,678.73  8 

1,101,275.39 

9,303,466.64 
2,059,016.83 

33,388.05 

1,296,529.50 

7,244,449.81 
1,516,009.82 

159,781.33 

1,329,917.55 

8,760,459.63 

1,170,136.22 

10,805,201.64        924,302.61 
$  2,044,742.01  $2,094,438.83 


Boston  &  Albany  Railroad. — Because  of  the  demands  of  the  De- 
partment of  Justice  the  agreement  with  the  New  York  Central  and 
Hudson  River  Railroad  Company  to  share  equally  in  the  net  results 
of  the  operation  of  the  Boston  and  Albany  Railroad  was  terminated 
as  of  January  31st,  1914.  In  the  final  settlement  there  will  be  cer- 
tain increased  charges  on  account  of  depreciation  adjustment  on 
equipment. 

Your  Company  has  also  withdrawn  so  far  as  it  legally  may  from 
the  agreement  made  with  the  New  York  Central  and  Hudson  River 
Railroad  Company  for  the  acquisition  of  a  one-half  interest  in  certain 
equipment  provided  by  the  Central  Company  for  use  on  the  Boston 
and  Albany  Railroad  under  "Boston  and  Albany  Equipment  Trust 
of  1912." 

Central  New  England  Railway  Company. — The  results  on  the  Cen- 
tral New  England  Railway  Company  during  the  past  year 
justified  the  declaration  by  that  Company  of  a  dividend  of  $4.00  per 
share  upon  the  preferred  stock;  the  amount  paid  to  the  New  York, 
New  Haven  and  Hartford  Railroad  Company,  $149,480.00,  has  beer! 
credited  to  the  Income  of  the  year. 

The  funded  debt  of  the  Central  New  England  Railway  Company 
has  been  increased  by  the  issue  of  $2,632,000.00  additional  First 
Mortgage  4%  Gold  bonds  due  January  1st,  1961,  which  are  held  in 
the  treasury  of  the  Central  New  England  Railway  Company. 

The  operating  expenses  of  the  Central  New  England  Railway  Com- 
pany increased  $550,160.35,  or  28%,  principally  due  to  taking  over 
the  operation  of  the  line  between  Danbury,  Connecticut,  and  Hope- 
well  Junction,  New  York,  33.56  miles  of  double  track,  effective  Sep- 
tember 1st,  1913.  There  was  also  some  increase  in  transportation 
expenses  on  account  of  increased  wages  and  New  York  State  FulJ 


N.   Y.,   N.    H.    &   H.    RR.  'CO.    REPORT,    1914        691 

Crew  Bill.  The  total  revenue  train  mileage  increased  372,159, 
or  31%. 

New  York  Connecting  Railroad. — Construction  work  on  the  New 
York  Connecting  Railroad,  owned  jointly  by  your  Company  and  the 
Pennsylvania  Railroad  Company,  which  has  been  fully  described  in 
previous  annual  reports,  is  progressing  between  the  tracks  of  the 
New  Haven,  in  the  Borough  of  the  Bronx  to  the  tracks  of  the  Penn- 
sylvania in  the  Borough  of  Queens,  New  York  City.  This  section 
constitutes  the  most  difficult  and  expensive  portion  of  the  railroad, 
as  it  includes  the  large  bridges  over  the  East  River,  Little  Hell  Gate, 
and  the  Bronx  Kills,  with  the  long  viaduct  approaches. 

During  the  past  year  the  Public  Service  Commission  of  New  York 
for  the  First  District,  approved  of  the  First  Mortgage  of  the  New 
York  Connecting  Railroad  Company  and  the  issue  and  sale  there- 
under of  $16,000,000.00  of  bonds  dated  August  1st,  1913,  and  matur- 
ing August  1st,  1953,  bearing  interest  at  the  rate  of  four  and  one- 
half  per  cent,  per  annum,  and  guaranteed  as  to  principal  and  interest 
by  your  Company  and  the  Pennsylvania  Railroad  Company.  The 
proceeds  from  the  sale  of  these  bonds  were  used  to  retire  its  $7,000,- 
000.00  of  Three  Months'  Five  per  cent.  Notes  maturing  November 
21st,  1913,  issued  to  pay  for  real  estate  and  construction,  and  the 
balance  is  being  used  for  construction  purposes. 

New  York,  Ontario  and  Western  Railway  Company. — The  results 
on  the  New  York,  Ontario  and  Western  Railway  during  the  past 
fiscal  year  did  not  justify  the  declaration  by  that  Company  of  a  divi- 
dend, consequently  your  Company  received  no  income  on  its  291,600 
shares  of  common  stock  of  this  Company  for  the  past  year. 

A  condensed  statement  of  income  of  the  New  York,  Ontario  and 
Western  Railway  for  the  year  ending  June  30th,  1914,  is  given  here- 
under : 

Comparison  with  1913 
1914  Increase       Decrease 

Total  Revenue  from  Transportation. . . .  $8,915,691 . 24                         $409,786 . 66 
Total  Operations  other  than  Transpor- 
tation, including  Outside  Operations. .          97,653.72  $     1,101.41    

Total  Operating  Revenue 9,013,344.96    "  408,685.25 

Total  Operating  Expenses 6.692,923 . 58     193,883.11       

Total  Net  Revenue 2,320,421.38   "  ~  602,568.36 

Railway  Tax  Accruals 238,561.69        7,469.56  

Total  Operating  Income. .,  2,081,859.69    "  610,037.92 

Other  Income 208.357.13  4,428.20 

Gross  Corporate  Income 2,290,216 . 82  614,466 . 12 

Deductions  from  Income: 
Rentals   of    Leased    Lines,    Hire   of 

Equipment,  Interest,  etc 1,626,524.76  fir>,.r>2">  17 

Net  Corporate  Income $   663,692.06  $547,940.95 


692         MATERIALS    OF    CORPORATION    FINANCE 

New  York,  Westchester  and  Boston  Railway  Company. — The 
gross  operating  revenue  of  the  New  York,  Westchester  and  Boston 
Railway  Company  during  the  past  fiscal  year  increased  39%;  operat- 
ing expenses  decreased  8%.  3,062,985  passengers  were  handled  dur- 
ing the  fiscal  year,  an  increase  of  31%. 

The  deficit  from  operation  for  the  fiscal  year  was  $30,154.34,  a 
reduction,  and  consequently  a  gain  of  $149,759.99  over  the  previous 
year,  or  83%.  Since  the  beginning  of  April,  1914,  the  revenues  of 
the  Company  have  been  sufficient  to  pay  the  operating  expenses  and 
leave  a  surplus  applicable  to  taxes.  It  is  estimated  that  the  earnings 
for  the  present  fiscal  year  will  be  sufficient  to  pay  the  operating 
expenses  and  the  taxes  of  the  Company. 

The  construction  of  the  extension  of  the  Lenox  Avenue  Branch  of 
the  New  York  City  Subway  to  the  Westchester  Station  at  180th 
Street,  New  York,  has  been  commenced  and  the  work  should  be  com- 
pleted within  a  year,  also  the  work  of  third  tracking  the  Third  Ave- 
nue Elevated  Railroad  is  under  way,  as  well  as  on  the  Lexington 
Avenue  Subway  and  its  extension  through  the  eastern  section  of  the 
Bronx,  from  all  of  which  the  Westchester  Company  should  derive 
increased  business. 

The  charge  to  the  income  account  of  the  New  York,  New  Haven 
and  Hartford  Railroad  Company  for  the  fiscal  year  by  reason  of  its 
guaranty  of  the  interest  on  the  bonds  of  the  Westchester  Company 
was  $864,000.00;  there  was  also  a  further  sum  of  $434,396.50  repre- 
senting interest  on  bonds  and  notes  held  by  the  New  Haven  Com- 
pany and  on  advances  made  by  it,  which  on  account  of  the  inability 
of  the  Westchester  Company  to  pay  has  not  been  credited  to  the  in- 
come account  of  the  New  Haven  Company;  nor  has  any  credit  been 
taken  therein  for  accrued  interest  amounting  to  $176,803.13  on  notes 
of  the  Millbrook  Company  held  by  the  New  Haven  Company.  The 
Millbrook  Company  is  the  owner  of  a  large  amount  of  real  estate 
purchased  originally  for  proposed  locations  of  the  route  of  the  West- 
Chester  line;  such  of  this  real  estate  as  was  not  required  for  actual 
right  of  way  is  in  the  market  for  sale  and  as  fast  as  sold  the  proceeds 
will  be  available  for  application  to  payment  of  note  for  $3,536,062.56 
held  by  the  New  Haven  Company  and  to  interest  thereon  which  to 
June  30,  1914,  amounted  to  $500,942.20.  The  results  of  the  opera- 
tions of  the  Westchester  and  Millbrook  Companies  will  be  found  in 
the  income  accounts  of  subsidiary  companies  appended  hereto. 

THE    TROLLEY    COMPANIES 

During  the  past  year  a  change  has  been  made  in  the  method  by 
which  the  electric  traction  properties  are  operated.  Heretofore  the 


N<   Y.,   N.    H.   &   H.   RR.   CO.   REPORT,   1914        693 

details  of  management  have  been  largely  centralized  in  the  general 
offices  of  the  New  York,  New  Haven  &  Hartford  Railroad  Company  in 
New  Haven ;  but  now  the  principal  units  have  been  given  independent 
organizations  separated  from  the  New  Haven,  thus  giving  to  the 
electric  properties  a  complete  staff  of  officials,  all  of  whom  give  their 
entire  time  and  attention  thereto.  It  is  expected  that  greater  efficiency 
will  be  obtained  by  this  change. 

During  the  year  the  same  high  standard  of  maintenance  of  these 
properties  has  been  continued  and  they  are  in  better  physical  condi- 
tion now  than  at  any  time  since  their  purchase.  In  common  with 
all  transportation  companies  throughout  the  eastern  part  of  the  United 
States,  the  electric  properties  have  not  maintained  the  customary 
growth  in  gross  revenue,  and,  coupled  with  very  extensive  require- 
ments by  the  municipalities  served  by  the  various  lines  for  improved 
street  conditions  and  new  pavement,  the  expense  for  operation  has 
increased  in  much  greater  ratio  than  the  gross  revenue. 

Large  undertakings  for  improvements  and  betterments  of  the 
properties  which  were  well  under  way  at  Ahe  beginning  of  the  year 
have  been  carried  to  completion,  so  that  these  lines  are  now  in  very 
much  better  position  to  take  care  of  any  increase  in  business  which 
may  come  to  the  transportation  companies  with  a  revival  in  general 
business  and  industrial  conditions  in  the  territory  served. 

Berkshire  Street  Railway  Company. — This  Company  operates 
through  ownership  or  lease  144.86  miles  of  track  in  western  Massa- 
chusetts and  Southwestern  Vermont. 

The  New  York,  New  Haven  &  Hartford  Railroad  Company  holds 
all  the  capital  stock  of  the  Company  at  a  cost  of  $6,371,395.58,  and 
all  the  stock  of  The  Vermont  Company  at  a  cost  of  $571,164.31,  a 
total  of  $6,942,559.89.  It  also  holds  bonds  of  the  Berkshire  and 
Vermont  Companies  and  notes  of  the  Berkshire  Company  amounting 
to  $4,344,000.00. 

During  the  year  there  was  spent  $681,823.89  for  additions  to  the 
property,  the  principal  item  being  for  completion  of  an  extension 
from  Lee  through  East  Lee  to  Huntington  to  a  connection  with  the 
street  railroad  lines  running  westward  from  the  city  of  Springfield, 
this  line  not  as  yet  being  in  operation.  In  addition  to  this  there  were 
expenditures  for  track  improvements  necessitated  by  state  highway 
construction  and  city  road  betterments. 

During  the  year  the  net  revenue  of  the  Company  was  sufficient  to 
provide  interest  on  all  underlying  bonds  and  rentals  of  leased  lines; 
but  not  sufficient  to  pay  the  total  amount  of  interest  due  the  New 
Haven  Road,  the  deficit  being  $72,507.17. 


694         MATERIALS    OF   CORPORATION   FINANCE 

The  Connecticut  Company. — This  Company  operates  through  owner- 
ship, lease  and  trackage  agreement  705  miles  of  track,  all  in  the 
western  half  of  Connecticut;  in  addition  to  which  it  owns  88.1  miles 
of  track  under  lease  to  The  Shore  Line  Electric  Railway  Company 
in  New  London,  Norwich,  Willimantic,  Danielson  and  Putnam. 

The  New  England  Navigation  Company  owns  all  of  the  capital 
stock  of  the  Company,  at  a  cost  of  $40,000,000.00.  The  New  Haven 
Company  also  holds  the  6%  demand  notes  of  this  company  amount- 
ing to  $2,125,000.00  all  of  which  have  been  issued  to  provide  funds 
for  additions  and  betterments. 

During  the  past  year  there  was  spent  for  additions  to  the  property 
the  sum  of  $1,214,535.70,  by  far  the  greater  part  of  which  was  for 
track  betterment  and  paving  to  meet  the  requirements  of  the  various 
municipalities  served  by  the  company,  other  large  expenditures  having 
been  made  to  improve  power  conditions  at  a  number  of  points. 

During  the  past  year  the  Company  earned  sufficient  to  pay  all 
operating  expenses,  taxes  and  interest  and  returned  to  the  Navigation 
Company  $1,500,000.00  as  dividend  and  showed  a  surplus  of  $1,072.42. 
The  following  table  shows  the  results  of  the  operations  of  the  com- 
pany for  the  past  four  years : 


N.   Y.,   N.   H.   &   H.   RR.   CO.   REPORT,   1914 


695 


2    3 


696         MATERIALS    OF   CORPORATION   FINANCE 

New  York  &  Stamford  Railway  Company. — This  Company  operates 
through  ownership  or  lease  37.51  miles  of  track  in  Westchester. 

The  New  York,  New  Haven  &  Hartford  Railroad  Company  owns 
all  the  capital  stock  of  the  Company  at  a  cost  of  $610,643.40.  It 
also  owns  property  between  the  Mianus  River  and  the  State  line 
between  New  York  and  Connecticut,  which  is  leased  to  the  New 
York  &  Stamford  Railway  Company  at  an  annual  rental  of  $20,000.00. 
The  New  Haven  Company  also  owns  first  mortgage  bonds  of  the  New 
York  &  Stamford  Railway  Company  carried  at  a  cost  of  $599,880.00, 
and  also  holds  6%  demand  notes  of  the  New  York  &  Stamford  Rail- 
way Company  in  the  amount  of  $185,000.00,  the  notes  all  having  been 
issued  for  additions  and  betterments,  chiefly  for  double  tracking  a 
large  portion  of  this  line  to  care  for  the  large  distribution  of  com- 
muting travel  between  New  York  and  the  various  suburban  points. 

The  amount  spent  for  additions  and  betterments  during  the  current 
year  was  $58,184.89,  for  new  double  tracking. 

During  the  year  the  Company  did  not  earn  an  amount  sufficient 
to  pay  operating  expenses,  taxes  and  interest  on  the  outstanding 
bonds,  the  deficit  being  $5,824.17. 

The  Rhode  Island  Company. — This  Company  operates  through 
ownership  or  lease  345.3  miles  of  electric  railroad  track,  and  8.43  miles 
of  steam  operated  trackage  of  the  Narragansett  Pier  Railroad  Com- 
pany, all  in  the  State  of  Rhode  Island.  This  includes  all  of  the 
electric  railroad  in  the  cities  of  Providence,  Pawtucket  and  Woon- 
socket  and  the  large  industrial  communities  adjacent. 

The  New  York,  New  Haven  &  Hartford  Railroad  Company  owns 
the  entire  capital  stock  of  the  Company  at  a  cost  of  $24,352,336.41, 
in  addition  to  which  it  now  holds  6%  demand  notes  of  the  Company 
in  the  sum  of  $3,500,000.00,  all  issued  to  provide  funds  for  ex- 
penditures for  betterments  and  improvements  of  the  property.  The 
Rhode  Island  Company  has  also  outstanding  $1,000,000.00  in  notes 
for  moneys  borrowed  from  outside  sources. 

During  the  current  year  the  Company  has  spent  $1,568,914.21.  for 
betterments  and  improvements,  consisting  of  the  following: 

A  tunnel  under  the  hill  to  connect  the  business  and  residential 
portions  of  the  city  of  Providence  has  been  completed  and  put  in 
operation,  eliminating  an  expensive  and  cumbersome  operation  by 
gravity  plane.  A  very  large  amount  has  also  been  spent  for  additions 
to  the  power  house  to  meet  the  requirements  of  the  Company  for  a 
number  of  years.  An  extension  of  10  miles  from  Centerdale  to  Che- 
pachet  was  built  to  provide  transportation  facilities  for  territory  here- 
tofore without  direct  connection  with  the  city  of  Providence. 


N.   Y.,    N.    H.    &   H.    RR.   CO.    REPORT,    1914        697 

The  earnings  of  the  Company  were  sufficient  to  take  care  of  the 
operations  and  pay  all  interest,  rentals  and  taxes,  and  leave  a  sur- 
•plus  of  $347,642.94. 

The  Company  leases  the  property  of  the  Sea  View  Railroad  Com- 
pany and  the  Providence  &  Danielson  Railway  Company,  owned  by 
The  New  England  Navigation  Company  and  representing  a  total 
investment  for  stock  and  bonds  of  $1,266,379.37,  on  which  The 
Rhode  Island  Company  pays  rental  of  $83,132.00  annually. 

The  following  table  shows  the  operating  results  for  the  past  four 
years : 


698 


MATERIALS    OF    CORPORATION    FINANCE 


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N.   Y.,   N.    H.   &  H.    RR.    CO.    REPORT,    1914        699 

The  Westchester  Street  Railroad  Company. — This  Company  op- 
erates through  ownership  or  lease  30.67  miles  of  track  in  Westchester 
County,  New  York. 

During  this  year  the  Public  Service  Commission  for  the  2d  District 
of  New  York  authorized  the  Company  to  issue  7,000  shares  of  stock 
to  represent  the  cost  of  the  property  to  the  New  Haven  Road.  This 
is  carried  at  a  cost  of  $896,379.63,  in  addition  to  which  the  New 
Haven  holds  notes  of  the  Westchester  Company  to  the  amount  of 
$255,771.21  issued  for  capital  improvements  of  the  Company's  prop- 
erty since  acquisition. 

The  amount  spent  for  additions  and  betterments  during  the  cur- 
rent year  was  $56,625.54,  for  improvements  of  and  additions  to  the 
track  and  line  construction. 

During  the  year  the  Company  earned  an  amount  sufficient  to  pay 
the  interest  on  outstanding  notes ;  but  paid  no  dividends,  the  surplus 
from  operations  amounting  to  $4,883.99. 

WATER  LINES 

The  causes  that  adversely  affected  the  results  on  the  steam  and 
trolley  lines  had  a  somewhat  similar  effect  on  the  various  water  lines 
owned  and  controlled  by  your  Company. 

The  Hartford  and  New  York  Transportation  Company. — The  gross 
earnings  of  The  Hartford  &  New  York  Transportation  Company  were 
$1,096,499.16  as  compared  with  $1,157,337.82  for  the  previous  year; 
but  by  careful  operation  the  expenses  were  reduced  so  that  the  net 
income  of  this  Company  for  the  fiscal  year  just  passed  was  $85,965.42 
as  compared  with  $64,285.70  for  the  previous  year. 

This  Company  reduced  its  equipment  by  one  barge  which  had  be- 
come obsolete,  but  on  account  of  the  depression  in  business  did  not 
replace  it. 

The  property  of  this  Company  is  in  good  condition. 

New  Bedford,  Martha's  Vineyard  &  Nantucket  Steamship  Company. 
— On  account  of  considerable  activity  in  Martha's  Vineyard  and  Nan- 
tucket  the  earnings  of  the  New  Bedford,  Martha's  Vineyard  and 
Nantucket  Steamboat  Company  increased  from  $209,469.82  to  $232,- 
704.45 ;  by  careful  operation  the  expenses  were  reduced  somewhat,  so 
that  the  net  income  of  this  Company  for  the  year  just  past  was 
$62,708.25  as  compared  with  $25,630.17  for  the  previous  year. 

Just  as  soon  as  financial  conditions  permit  this  Company  should 
add  to  its  equipment  a  modern  steamer  to  care  for  the  growing  busi- 
ness between  the  mainland  and  the  two  islands. 

The  New  England  Steamship  Company. — The  gross  earnings  of 
The  New  England  Steamship  Company  were  $4,697,211.94,  a  de- 


700         MATERIALS    OF    CORPORATION    FINANCE 

crease  of  $219,512.25.  In  spite  of  this  decrease  in  gross  earnings, 
by  careful  operation  and  rearrangement  of  work  on  some  of  the  piers 
in  New  York,  the  deficit  in  meeting  the  fixed  charges  of  this  Com- 
pany of  $355,070.50  for  the  year  ending  June  30th,  1913,  was  re- 
duced to  a  deficit  for  this  year  of  $77,802.62. 

One  steamer,  the  "City  of  Bridgeport/'  which  was  not  needed,  was 
sold  for  $100,000.  in  cash,  and  one  transfer  tug  was  dismantled  and 
put  out  of  service. 

During  the  investigation  of  the  Company's  affairs  by  the  Inter- 
state Commerce  Commission,  some  criticism  was  made  upon  the 
character  of  the  steamships  and  the  operation  thereof.  As  a  result, 
the  Secretary  of  Commerce  caused  a  very  thorough  investigation  to 
be  made  by  the  Supervising  Inspectors  of  New  York  and  Boston.  The 
United  States  Steamboat  Inspection  Service  has  prepared  a  very  com- 
plete report  on  this  steamship  property  and  it  is  now  a  matter  of 
record  with  the  United  States  Government,  open  to  the  inspection 
of  all  interested  parties.  Space  does  not  permit  the  publishing  of 
this  report  but  the  following  extract  summing  up  the  Government's 
report  will  be  of  interest : 

"This  office  is  therefore  of  the  opinion  in  view  of  the  nature 
of  the  safeguards  placed  upon  these  vessels  and  the  excellent 
discipline  that  prevails,  that  danger  from  fire  is  a  minimum, 
and  that  a  menace  to  the  lives  of  the  patrons  of  this  line 
does  not  exist." 

REAL  ESTATE 

Grand  Central  Terminal. — To  utilize  the  real  estate  and  "aerial 
rights"  adjacent  to  the  Grand  Central  Terminal  in  New  York,  the 
following  buildings  have  been  constructed:  Biltmore  Hotel,  Mer- 
chants and  Manufacturers  Exchange,  Adams  Express  Company  and 
United  Cigar  Stores.  The  New  Haven  Company  being  a  joint  user 
of  the  Terminal  and  its  approaching  tracks  joined  with  the  New 
York  Central  in  advancing  money  for  the  development  of  the  property 
not  required  for  railroad  use. 

The  total  amount  advanced  by  your  Company  during  the  past 
fiscal  year  was  $1,628,190.35,  and  its  aggregate  advances  to  June 
30th,  1914,  for  these  purposes,  $4,153,161.75. 

All  of  the  advances  made  yield  a  satisfactory  interest  rate  and  the 
lessees  of  the  buildings  pay  ground  rents  and  taxes,  which  reduce  the 
expenses  of  the  Grand  Central  Terminal,  and  in  addition  the  lessees 
pay  annual  sinking  fund  payments,  which,  together  with  accretions 
to  the  fund,  will  in  about  twenty-seven  years  return  to  the  owning 
Companies  the  sums  advanced. 


N.   Y.,   N.    H.   &  H.    RE.    CO.    KEPORT,    1914        701 

The  following  buildings  are  now  under  construction : 
Todd  Building,  for  which  the  Company  must  advance.  .$325,000.00* 

Yale  Club,  for  which  the  Company  must  advance 250,000.00 

*$40,000.  of  this  amount  has  been  paid  since  June  30,  1914. 

Other  buildings  are  projected,  work  upon  which  will  begin  in  the 
near  future,  as  follows : 

Postoffice  Building,  between  East  45th  and  East  46th  Streets 
Apartment  House,  50th  Street  and  Park  Avenue. 
Apartment  House,  51st  Street  and  Park  Avenue. 

As  to  these  the  Company  is  under  no  present  obligation  to  advance 
money  but  retains  an  option  to  participate  at  any  time  within  two 
years. 

The  New  Haven  Company  has  also  advanced  $1,310,000.00,  one- 
half  of  the  cost  of  the  office  building  located  at  the  Grand  Central 
Terminal,  which  amount  is  to  be  repaid  with  interest  in  annual 
installments  extending  over  a  period  of  twenty-five  years  and  of 
which  amount  $104,800.00  has  been  repaid,  leaving  $1,205,200.00 
to  be  repaid. 

Increased  Efficiency  and  Safety. — Last  year's  report  referred  to 
the  effort  of  officers  and  employees  to  raise  the  railroad  and  service 
to  a  higher  standard  jof  efficiency,  safety,  discipline  and  economy. 
The  North  Haven  accident  of  September  2d,  1913,  following  as  it 
did  other  serious  accidents,  made  it  imperative  that  the  rules  and 
regulations  of  the  Company  be  of  such  a  character  as  to  safeguard 
to  the  greatest  extent  possible  the  lives  of  the  public  and  the  em- 
ployees. 

For  some  time  previous  to  this  accident  negotiations  had  been  con- 
ducted with  committees  representing  the  engineers  and  firemen  to 
revise  rules  which  were  not  in  accordance  with  modern  railroad 
practice.  The  new  management  felt  that  it  owed  a  duty  to  the 
public  as  well  as  to  the  employees  to  put  the  new  rules  into  effect  at 
once.  The  engineers  and  firemen  felt  aggrieved  at  this  position  of 
the  Company  and  voted  to  strike.  On  October  18th,  1913,  however, 
the  matter  was  adjusted  amicably  with  the  employees,  and  rules 
containing  the  principles  for  the  management  contended  remained  in 
effect. 

These  negotiations,  in  the  judgment  of  your  officers,  tended  to  estab- 
lish a  better  understanding  and  improved  relations  between  the  em- 
ployees and  the  management,  and  have  assisted  materially  in  restoring 
confidence  throughout  the  service.  Every  effort  is  being  made  by 
officers  and  men  to  promote  a  spirit  of  helpful  co-operation,  so 
necessary  to  maintain  and  operate  the  properties  efficiently,  safely  and 
economically,  and  to  give  good  service  to  the  public. 


SANTA  B/JUiARA  STATE  COLLEGE  LIBRAE  \ 

**~  si  «— — •  ^  •** 


702         MATERIALS    OF    CORPORATION    FINANCE 

Safety  and  Efficiency  Bureau. — At  the  present  time  the  Company 
has  fully  organized  safety  and  efficiency  bureaus  as  follows : 
1     Central  Committee, 
7     Divisional  Committees, 

13     Shop,  Engine  House  and  Terminal  Committees, 
1     Telegraph  Department  Committee, 
1     Electrical  Department  Committee. 

Eegular  meetings  are  held  and  considerable  has  been  accomplished 
in  the  way  of  removing  obstructions,  securing  better  clearances,  elimi- 
nating unsafe  practices,  improving  view  at  grade  crossings,  etc. 

New  Haven  Railroad  Club. — The  New  Haven  Railroad  Club  was 
organized  on  February  26th,  1914,  and  is  composed  of  officers,  assist- 
ants, chief  clerks,  bureau  foremen,  or  other  employees  of  The  New 
York,  New  Haven  &  Hartford  Railroad  Company,  or  affiliated  com- 
panies, holding  co-ordinate  positions. 

The  object  of  the  Club  is  to  promote  knowledge  on  all  matters 
relative  to  the  maintenance,  operation  and  general  administration  of 
railroads,  and  to  encourage  social  relations  and  a  common  under- 
standing between  departments. 

Monthly  meetings  are  held  (except  in  June,  July  and  August) 
in  the  Railroad  Y.  M.  C.  A.  building  at  New  Haven,  preceded  by 
a  dinner  at  a  nominal  cost. 

The  average  attendance  at  these  meetings  has  been  about  one  hun- 
dred and  sixteen.  There  is  much  interest  taken  in  the  Club  and  its 
object,  and  good  results  are  already  being  accomplished. 

Rates. — During  the  year  the  passenger  rate  between  Boston  and 
New  York,  229.15  miles,  was  increased  from  $4.75  to  $5.00  with 
corresponding  increases  at  intermediate  points. 

Tariffs  have  been  filed  increasing  the  rates  for  mileage  books  from 

2c.  to  2^c.  a  mile.     Tariffs  are  now  being  prepared  adjusting  local 

passenger  rates,  outside  of  the  commutation  zones,  to  2^c.  a  mile. 

*£  A  new  tariff  adjusting  the  merchandise  and  class  rates  is  being  pre- 

,  pared,  and  one  adjusting  the  commodity  rates.     These  tariffs  are 

1  very  complicated  and  in  preparing  the  new  schedules  every  effort  has 

'  been  made  to  eliminate  discrimination  and  remove  inequalities.    Some 

rates  in  the -new  tariffs  will  be  reduced  and  some  will  be  advanced. 

The  result  as  a  whole  will  be  a  much  more  scientific  and  logical  set 

of  rates  and  a  slightly  higher  basis.    The  freight  tariffs  will  be  filed 

with  the  proper  Commissions  between  now  and  January  1st,  and  it 

is  hoped  that  they  will  be  approved. 

Service. — Every  effort  has  been  made  to  give  regular  and  safe 
service,  both  freight  and  passenger,  and  to  economize,  some  of  the 
non-remunerative  passenger  trains  have  been  discontinued  with  the 


N.   Y.,   N.    H.   &  H.    RR,    CO.    REPORT,    1914 


703 


result  that  284,897  miles  less  were  run  by  passenger  trains  this  fiscal 
year  than  last 

Approximately  32%  of  all  passenger  trains  operated  by  the  Com- 
pany earn  less  than  50c.  and  approximately  30%  earn  50c.  and  less 
than  $1.00  a  mile,  or  62%  earn  less  than  $1.00  per  mile.  The 
average  cost  of  running  all  trains  (passenger  and  freight)  on  the 
New  Haven  road  for  the  last  fiscal  year  for  transportation  expenses, 
maintenance  of  equipment  and  taxes,  and  not  including  anything  for 
maintenance  of  way  or  administration  expenses,  or  interest  on  the 
investment,  was  $1.69  per  mile. 

These  figures  emphasize  the  fact  that  the  road  is  performing  a 
large  amount  of  service  for  the  public  at  a  loss  and  justify  some 
increases  in  the  passenger  rates  and  some  decreases  in  service. 

STOCKHOLDERS 

The  following  statement  of  stockholders  of  the  New  Haven  Com- 
pany, and  their  location  and  holdings  is  of  interest : 

CLASSIFICATION  OF  CAPITAL  STOCK 
JUNE  30 


1914 
SHARES  HELD  IN: 

Massachusetts 570,166 —  36  % 

Connecticut 264,491—  17  % 

New  York 529,167—  33^% 

Rhode  Island 40,463—    2H% 

Miscellaneous : 166,892—  11  % 


1913        1912 

35% 
19% 
33% 
3% 
10% 


Treasury. 


NUMBER  OF  STOCKHOLDERS  IN: 

Massachusetts 

Connecticut 

New  York 

Rhode  Island 

Miscellaneous.. 


1,571,179     100  % 
228,991 

1,800,170 

12,215—  46^% 

5,728—  21%% 

4,257—  16^% 

803—    3  % 

3,383—  12K% 


100%       100% 


48% 
23% 
15% 
3% 
11% 


48% 
23% 
15% 


DISTRIBUTION  OF  HOLDINGS: 

1  to       10  shares  inc 

11  "       50      " 

51  "      100      "        "   . . . . 

101  "      600      "        "  . . . . 

501  "  1,000      "        "  . . . . 

1,001  and  over 


26,386     100  %      100%       100% 


INDIVIDUAL  AND  CORPORATE  STOCKHOLDERS: 

Males 

Females 

Trustees  and  Guardianships 

Insurance  Co's  and  other  Corporations. . 


AVERAGE  SHARES  PER  STOCKHOLDER. 


12,127 

9,651 

2,363 

1,891 

207 

147 

26,386 

11,113 

10,920 

3.551 

802 

26,386 
59.5 


9,314  8,698 

8,685  8,626 

2,348  2,295 

1,995  2,101 

228  216 

146  170 


22,716  22,106 

8,185  8,079 

10,102  9,710 

3,666  3,584 

763  733 


22,716     22,106 
69.06         71.06 


704         MATERIALS    OF    CORPORATION    FINANCE 

The  Company  is  pre-eminently  one  that  is  owned  and  controlled  by 
stockholders  living  along  the  line  of  the  road.  There  are  only  77 
stockholders  living  in  Europe.  There  are  147  stockholders  owning 
more  than  1,000  shares  with  total  holdings  of  507,916  shares,  and 
there  are  26,239  stockholders  owning  1,063,263  shares. 

Stockholders  are  urged  most  earnestly  to  inform  themselves  about 
the  situation  of  the  Company,  to  explain  the  difficulties  in  their  re- 
spective communities  and  to  use  their  active  influence  to  help  the 
management  in  its  efforts  to  reduce  expenses  and  to  increase  rates 
slightly,  and  to  obtain  favorable  consideration  for  the  Company  at 
this  time,  when  the  help  of  everyone  interested  in  the  welfare  of 
New  England  is  needed  in  order  to  maintain  efficiently  the  transpor- 
tation system  that  is  so  closely  interwoven  with  the  industrial,  finan- 
cial and  social  life  of  this  part  of  the  country. 

ORGANIZATION 

The  following  changes  in  the  Board  of  Directors  occurred  from 
July  25th,  1913,  to  September  29th,  1914: 

Mr.  Howard  Elliott,  of  Boston,  Mass.,  elected  J.uly  25,  1913.  Mr. 
De  Ver  H.  Warner,  of  Bridgeport,  Conn.,  resigned  August  22,  1913. 
Mr.  W.  Murray  Crane,  of  Dalton,  Mass.,  elected  August  22nd,  1913. 
Mr.  Arthur  T.  Hadley,  of  New  Haven,  Conn.,  elected  September  18th$ 

1913.  Mr.  Sidney  W.  Winslow,  of  Boston,  Mass.,  resigned  September 
18th,  1913.     Mr.  James  H.  Hustis,  of  New  Haven,  Conn.,  elected 
September  18th,  1913,  resigned  August  15th,  1914.     Mr.  Theodore 
N".  Vail,  of  Boston,  Mass.,  resigned  October  16th,  1913.     Mr.  Alex- 
ander Cochrane,  of  Boston,  Mass.,  resigned  October  16th,  1913.    Mr. 
James  L.  Richards,  of  Boston,  Mass.,  elected  October  22d,  1913.    Mr. 
Galen  L.  Stone,  of  Boston,  Mass.,  elected  October  22d,  1913,  resigned 
January  15th,  1914.    Mr.  Edwin  Milner,  of  Moosup,  Conn.,  resigned 
January  15th,  1914.     Mr.  J.  P.  Morgan,  of  New  York,  N".  Y.,  re- 
signed January  15th,  1914.    Mr.  Lawrence  Minot,  of  Boston,  Mass., 
resigned  February  19th,  1914.     Mr.  John  L.  Billard,  of  Meriden, 
Conn.,  resigned  August  llth,  1914.    Mr.  A.  S.  May,  of  Bridgeport, 
Conn.,  elected  August  llth,  1914.    Mr.  A.  E.  Clark,  of  Wallingford, 
Conn.,  elected  September  1st,  1914.     Mr.  William  Rockefeller,  of 
New  York,  N".  Y.,  resigned  September  29th,  1914.     Mr.  Charles  F. 
Brooker,  of  Ansonia,  Conn.,  resigned  September  29th,  1914.     Mr. 
James  S.  Elton,  of  Waterbury,  Conn.,  resigned  September  29th,  1914. 
Mr.  George  F.  Baker,  of  N"ew  York,  N".  Y.,  resigned  September  29th, 

1914.  Mr.  J.  Horace  Harding,  of  New  York,  N.  Y.,  elected  Septem- 
ber 29th,  1914, 


N.    Y.,    N.    H.    &  H.    RR.    CO.    REPORT,    1914        705 

On  September  1st,  1913,  Mr.  Charles  S.  Mellen  retired  as  President 
of  the  Company  and  Mr.  Howard  Elliott  was  elected  President  and 
Mr.  James  II.  Hustis,  Vice-President.  On  October  22d,  1913, 
Mr  Elliott  became  Chairman  of  the  Board  and  Mr.  Hustis,  Presi- 
dent. 

On  April  2d,  1914,  Mr.  H.  M.  Kochersperger  resigned  as  Vice- 
President  in  charge  of  the  Accounting  and  Treasury  Departments.  It 
was  deemed  better  practice  to  have  these  two  departments  entirely  in- 
dependent of  each  other,  and  Mr.  J.  M.  Tomlinson,  General  Auditor, 
in  charge  of  the  Accounting  Department,  continued  in  that  position, 
and  Mr.  A.  S.  May  continued  as  Treasurer,  both  reporting  to  the 
President. 

Because  of  the  various  questions  regarding  the  ownership  and 
management  of  the  Boston  &  Maine  Railroad,  it  was  deemed  best  for 
the  New  Haven  Company  to  withdraw  from  any  direction  of  the  af- 
fairs of  that  property. 

On  January  24th  Mr.  Elliott  resigned  as  a  Director  and  Chairman 
of  that  Company.  Later  in  the  calendar  year  1914,  the  question  of  a 
President  for  the  Boston  &  Maine  was  taken  up  by  the  Directors  of 
that  Company,  because  of  the  wish  of  Mr.  McDonald  to  resign  from 
the  Boston  &  Maine  and  devote  his  whole  attention  to  the  Maine  Cen- 
tral, the  Boston  &  Maine  having  sold  its  Maine  Central  Stock  on 
April  1,  1914.  The  Directors  of  the  Boston  &  Maine  felt  that  Mr. 
Hustis  could  help  the  situation  and  asked  him  to  accept  the  presi- 
dency. Finally  it  was  agreed  that  he  should  do  so,  and  he  was  elected 
a  Director  and  President  of  the  Boston  &  Maine  Railroad  on  August 
15th,  1914,  being  succeeded  as  President  of  the  New  Haven 
by  Mr  Elliott,  who  also  fills  the  position  of  Chairman  of  the 
Board. 

On  October  22nd,  1913,  Mr.  Timothy  E.  Byrnes'  term  of  office  as 
Vice-President  of  the  Company,  expired,  and  this  position  was  not 
filled. 

On  September  17th,  1914,  Mr.  E.  D.  Robbins,  General  Counsel  of 
the  Board  of  Directors,  tendered  his  resignation  to  take  effect  October 
1st,  and  this  position  will  not  be  filled  at  present. 

On  September  18,  1913,  Mr.  Elliott  was  elected  Chairman  of  the 
Board  and  Mr.  John  B.  Kerr,  President  of  the  New  York,  Ontario 
and  Western  Railway  Company. 

For  the  purpose  of  closer  and  more  independent  managements  of 
the  various  trolley  properties,  Mr.  L.  S.  Storrs,  a  Vice-President  of 
the  New  Haven  Company,  gave  up  that  position  on  October  22,  1913, 
and  was  elected  President  of  The  Connecticut  Company  on  December 


706          MATERIALS    OF    CORPORATION    FINANCE 

24,  1913,  President  of  the  Housatonic  Power  Company  on  January 
15th,  1914,  and  continued  to  act  as  Vice-President  of  the  Berk- 
shire, New  York  &  Stamford  and  Westchester  Street  Railway  Com- 
panies. 

Mr.  A.  E.  Potter,  on  December  27th,  1913,  was  elected  President 
of  The  Rhode  Island  Company,  Mr.  Elliott  serving  as  Chairman  of 
the  Board  of  The  Connecticut  Company  and  The  Rhode  Island  Com- 
pany and  President  of  the  Berkshire,  Stamford  and  Westchester  Com- 
panies. 

Mr.  Elliott  was  also  elected  President  of  The  New  England  Steam- 
ship Company  and  of  The  Hartford  &  New  York  Transportation 
Company,  Mr.  J.  Howland  Gardner  continuing  as  Vice-President  of 
the  Steamship  Company  and  Mr.  C.  C.  Goodrich  as  Vice-President  of 
the  Transportation  Company. 

Under  this  plan  there  has  been  created  during  the  calendar  year 
managements  for  the  various  affiliated  companies  practically  inde- 
pendent of  the  New  Haven  Company. 

In  order  to  obtain  closer  supervision  of  operation  the  New  Haven 
was  sub-divided  on  October  15th,  1913,  into  two  Operating  Divisions, 
one  is  in  charge  of  General  Superintendent  C.  N.  Woodward,  with 
headquarters  at  Boston,  who  has  1,091.44  miles  of  railroad  in  charge, 
the  other  in  charge  of  General  Superintendent  J.  A.  Droege,  with 
headquarters  at  New  Haven,  with  860.58  miles  of  railroad. 

The  past  year  has  been  a  most  trying  one  for  the  Company,  the 
owners  of  its  securities,  employees,  officers  and  directors.  That  the 
Company  has  been  able  to  sustain  itself  under  the  very  disturbed  con- 
ditions is  evidence  of  its  inherent  strength.  It  has  had  to  meet  great 
loss  in  revenues,  large  increases  in  expenses;  it  has  been  the  subject 
of  exhaustive  investigations  and  of  much  hostile  criticism,  of  which  no 
complaint  is  now  made,  but  instead  an  appeal  for  fair  treatment  and 
constructive  aid. 

Among  the  conditions  necessary  for  the  success  of  the  Company 
are: 

First. — Freedom  from  disturbance  and  the  opportunity  for  con- 
structive work. 

"There  is  much  truth,"  said  the  Interstate  Commerce  Commission 
in  its  report  of  June  20,  1913,  on  the  New  England  situation,  "in 
the  claim  of  the  carriers  that  they  have  been  so  occupied  with  investi- 
gations and  so  criticized  by  the  public  that  no  fair  opportunity  has 
been  given  for  the  operation  of  their  railroad  properties." 

Second. — The  removal  of  restrictions  and  conflicts  in  the  laws  and 
policies  of  the  various  New  England  States  which  prevent  the  Com- 


N.   Y.,   N.   H.   &  H.    RR.    CO.    REPORT,    1914         707 

pany  from  adopting  a  comprehensive  financial  plan  enabling  it  to  meet 
its  obligations  by  mortgage  bonds. 

Third. — A  readiness  on  the  part  of  Commissions,  both  State  and 
National,  to  permit  a  readjustment  and  increase  in  freight  and  pas- 
senger rates;  and  an  increase  in  the  pay  received  for  the  carriage  of 
mail  and  parcels  post. 

Fourth. — Adequate  time  for  the  Company  to  dispose  of  its  invest- 
ments in  other  companies.  The  Directors,  as  trustees  for  the  stock- 
holders, as  well  as  in  a  large  measure  for  the  community  served  by 
the  lines,  should,  for  the  protection  of  the  property,  its  owners  and 
the  business  of  the  New  England  States,  not  be  forced  to  sacrifice 
these  investments  and  at  a  time  when  values  have  been  depressed  by 
adverse  criticism,  controversy  and  generally  poor  business  conditions. 

The  Directors  and  Officers  are  endeavoring  most  earnestly  to  con- 
duct the  affairs  of  the  Company  in  a  lawful,  prudent  and  efficient  man- 
ner, and  are  continuing  to  compact,  improve,  maintain  and  preserve 
the  property  in  order  to  meet  adequately  the  public  demands  and  to 
benefit  the  stockholders.  They  will  continue  to  strengthen  its  work- 
ing organization,  fully  realizing  that  only  with  public  confidence  and 
support,  and  especially  the  co-operation  of  the  various  Commissions 
and  governmental  authorities,  can  the  success  of  the  Company  be 
assured. 

Your  attention  is  directed  to  the  tables  hereto  attached  giving  addi- 
tional information  about  each  of  the  properties  in  which  your  Com- 
pany is  interested. 

The  year  opened  with  the  staff  of  officers  and  the  employees  seri- 
ously disturbed  and  somewhat  demoralized  and  discouraged  because 
of  the  conditions  and  obstacles  to  be  met  and  overcome.  The  efforts 
of  the  officers  and  employees  have  been  directed  to  bringing  about  a 
better  feeling  towards  the  Company  from  the  communities  served,  as 
well  as  to  improving  the  operation  of  the  various  properties.  The 
thanks  of  the  owners  of  the  property  are  due  to  the  many  loyal  officers 
and  employees  who  have  rendered  faithful  service  during  the  year 
under  the  most  serious  and  most  unusual  conditions  and  obstacles. 

Respectfully  submitted  by  order  of  the  Board  of  Directors. 

HOWARD  ELLIOTT, 
Chairman  of  the  Board  and 

President  of  the  Company. 


708 


MATERIALS    OF    CORPORATION    FINANCE 


THE  NEW  YORK,  NEW  HAVEN  AND  HARTFORD  RAILROAD  COMPANY. 
GENERAL  BALANCE  SHEET,  JUNE  30,  1914. 

ASSETS  1914  Comparison  with  June  20,  1913 
Increase  Decrease 

83 
57 
—  $113,505,067.40 

23  $3,025,057.88 
13  .  261,539.47 
93  3,952.62 
—  82.398.458.29 

195,903,525.69  3,290,549.97 
2,145,733.97  1,761,948.21 

$193,757,791.72  $1,528,601.76 

595,340.92  18,595,340.92 
88,502.50  88,502.50 
169,781.71  4,169,781.71 

430,000.00  2,430,003.00 
084>064-42  46,367.689  55  $18,594,536.92 

625,991.83  521,261.16 

331,679.34  12,000.42 
954,797.45  33,954,797.45 
736,311.66  27,966,131.38 
139.648.780.28 

•  $379,774,261.55  $14,715.616.78 

5,358,361.75  1,575,790.35 

00       •«*       O»       —  i 

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ted  and  Controlled  C 

Dledged: 
ted  and  Controlled  Cc 

Other  Investments: 
Advances  to  Proprietary,  Affiliated  and  Controlled  C( 
tion,  Equipment  and  Betterments  
Miscellaneous  Investments: 
Physical  Property  
Securities—  Pledged  (Exhibit  V)  
Securities-  Unpledged  (Exhibit  VI)  

Total  Property  Investment  

Investment  in  Buildings,  Grand  Central  Terminal,  New  Yoi 

:  :   £  :  :  : 

«>'         2 

O                 •"• 

Securities: 
Securities  of  Proprietary,  Affilia 
Stock  (Exhibit  I)  
Funded  Debt  (Exhibit  II)  .  . 
Notes  (Exhibit  III)  
Securities  Issued  or  Assumed  —  '. 
Funded  Debt  (Exhibit  VII). 
Securities  of  Proprietary,  Affilia 
Stock  (Exhibit  IV)  

Property  Investment: 

Road  and  Equipment: 
Investment  to  June  30th, 
Road  
Equipment  

Investment  since  June  30 
Road  
Equipment  
General  Expenditures 

N.   Y.,   N.    H.   &  H.    RR.    CO.    REPORT,    1914 


709 


o  SS  §  t:S 


710 


MATEEIALS    OF    CORPORATION    FINANCE 


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Total  Stock  and  Prem: 
rtgage,  Bonded  and  Secun 

Mortgage  Bonds,  includin 
Collateral  Gold  Notes  (Ej 
Plain  Bonds,  Debentures 
assumed  (Exhibit  XI 

Obligations  for  Advances  i 
Total  Mortgage,  Bond 

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N.    Y.,   N.    H.    &  H.    RR.    CO.    REPORT,    1914        711 


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712         MATEEIALS    OF    CORPOBATION    FINANCE 

PROFIT  AND  LOSS  ACCOUNT 
CREDIT 

Balance  brought  forward  from  June  30th,  1913. . .  $7,916,557.24 

Credit  balance  of  net  income  for  the  year 268,662 .87 

Balance  in  Insurance  Funds  transferred  to  this  1,983,354.67 

Account 

Adjustment  of  securities  to  par  value. , 123,720 .53 

Miscellaneous  Items 25,863 . 55 

$10,318,158.86 
DEBIT 

Dividend  paid  September  30th,  1913 $2,356,768.50 

Loss  resulting  from  the  sale  of  securities  of  the  Mer- 
chants &  Miners  Transportation  Co 3,594,500.00 

Unamortized  loss  on  the  New  York,  Westchester  & 
Boston  Ry.  Co.  bonds,  which  bonds  were  re- 
ceived in  payment  for  advances  to  the  New 
York,  Westchester  &  Boston  Ry.  Co.  and  the 
bonds  sold  to  the  public  by  the  New  Haven 
Company  prior  to  the  past  fical  year 1,265,295 .62 

Loss  on  Treasury  securities  sold  or  reduced  to  par .         426,361 . 37 

Depreciation  on  equipment  assigned  to  the  Boston 
&  Albany  R.  R.  prior  to  July  1st,  1913,  under 
" Boston  &  Albany  Equipment  Trust  of  1912"  237,108.36 

Depreciation  prior  to  July  1st,  1913  on  equipment 

put  out  of  service 130,070.61 

Franchise  and  other  taxes  at  Grand  Central  Term- 
inal proir  to  July  1st,  1913 111,592.57 

Rental,  Grand  Central  Palace,  N.  Y.,  for  station 
facilities  during  construction  of  permanent 
station  buildings,  charges  accruing  prior  to 
July  1st,  1913,  the  amount  not  determined 
until  recently 83,686.43 

50%  of  net  charges  to  Profit  and  Loss  made  by  the 

Boston  &  Albany  R.  R.,  assumed  by  the  New 

Haven  Company  under  agreement  to  share 

equally  in  the  net  results  of  the  operation  of 

the  Boston  &  Albany,  which  agreement  was 

cancelled  as  of  January  31st,  1914 71,749 . 81 

Miscellaneous  charges 218,779 . 45 

8,495,912.72 

Balance  June  30th,  1914,  as  per  balance  sheet. ...  $  1,822,246 . 14 


STATEMENT    OF    CONTINGENT    LIABILITIES 

June  30th,  1914. 

Under  the  provisions  of  Section  4,  Chapter  519,  of  the  Acts  of  the 
General  Court  of  the  Commonwealth  of  Massachusetts,  passed  at  its 
1909  session,  The  New  York,  New  Haven  and  Hartford  Eailroad 
Company  promises  when  they  shall  be  sold,  to  guarantee  the  principal 


N.   Y.,   N.    H.    &  H.    RR.    CO.    REPORT,    1914        713 

of,  and  the  dividends  and  interest  upon  the  capital  stock,  bonds,  notes 
and  other  evidences  of  indebtedness  of  Boston  Railroad  Holding  Com- 
pany acquired  by  it.  On  June  15th,  1910,  the  General  Court  of  the 
Commonwealth  of  Massachusetts  passed  an  act  authorizing  the  issue 
of  preferred  stock  (without  voting  power)  of  Boston  Railroad  Hold- 
ing Company,  in  exchange  for  its  four  per  cent,  fifty-year  Debentures 
dated  November  1st,  1909;  and  on  January  10th,  1911,  the  $20,- 
012,000  Debentures  owned  by  The  New  York,  New  Haven  and  Hart- 
ford Railroad  Company  were  exchanged  for  preferred  stock.  On 
June  30th,  1914,  there  were  held  by  the  public  28,000  shares  of  pre- 
ferred stock  of  Boston  Railroad  Holding  Company,  on  which  the 
guaranty  had  been  executed;  and  on  the  same  date  The  New  York, 
New  Haven  and  Hartford  Railroad  Company  held  the  following 
stock: 

31,065  shares  of  Common  Stock  of  Par  Value.  .$  3,106,500.00 
244,939  shares  of  Preferred  Stock  of  Par  value. .   24,493,900.00 

THE  NEW  YORK,  NEW  HAVEN  AND  HARTFORD  RAILROAD  COMPANY 

Is  liable  jointly  with  other  roads  for  any  deficiency  on  foreclosure 
of  bonds  of  the  Boston  Terminal  Company. 

Is  liable  by  endorsement  on  $200,000  six  per  cent,  demand  notes 
dated  May  1st,  1914,  of  the  Central  New  England  Railway  Company 
deposited  as  Collateral  under  Indenture  dated  May  1st,  1914,  secur- 
ing $20,000,000  one  year  5%  Collateral  Gold  Notes  of  The  New  York, 
New  Haven  and  Hartford  Railroad  Company. 

Guarantees  the  payment  of  principal  and  interest  of  the  four  per 
cent.  First  Mortgage  Gold  Bonds  of  the  Central  New  England  Rail- 
way Company  of  the  issue  of  January  1st,  1911,  to  the  amount  of 
$12,012,000. 

Is  liable  by  endorsement  on  $1,325,000  six  per  cent,  demand  notes 
dated  May  1st,  1914,  of  The  Connecticut  Company  deposited  as  Col- 
lateral under  Indenture  dated  May  1st,  1914,  securing  $20,000,000 
one  year  5%  Collateral  Gold  Notes  of  The  New  York,  New  Haven 
and  Hartford  Railroad  Company. 

Is  liable  by  endorsement  on  $3,000,000  six  per  cent,  demand  notes, 
Series  "E,"  dated  May  1,  1914,  of  The  Harlem  River  and  Port  Ches- 
ter Railroad  Company  deposited  as  Collateral  under  Indenture  dated 
May  1st,  1914,  securing  $20,000,000  one  year  5%  Collateral  Gold 
Notes  of  The  New  York,  New  Haven  and  Hartford  Railroad  Com- 
pany. 

Guarantees  the  payment  of  principal  and  interest  of  The  Harlem 
River  and  Port  Chester  Railroad  Company  one  year  5%  Gold  Notes, 
Series  "A,"  dated  May  1st,  1914,  to  the  amount  of  $10,000,000. 


714         MATERIALS    OF    CORPORATION    FINANCE 

Is  liable  by  endorsement  on  $819,781.71  five  per  cent,  demand  note 
dated  September  -22nd,  1911,  of  the  Hartford  and  Connecticut  West- 
ern Railroad  Company  (previously  endorsed  by  the  Central  New 
England  Railway  Co.)  deposited  as  Collateral  under  Indenture  dated 
May  1st,  1914,  securing  $20,000,000  one  year  5%  Collateral  Gold 
Notes  of  The  New  York,  New  Haven  and  Hartford  Railroad  Com- 
pany. 

Is  liable  by  endorsement  on  $1,150,000  six  per  cent,  demand  notes 
dated  May  1st,  1914,  of  Housatonic  Power  Company  deposited  as 
Collateral  under  Indenture  dated  May  1st,  1914,  securing  $20,000,000 
one  year  5%  Collateral  Gold  Notes  of  The  New  York,  New  Haven  and 
Hartford  Railroad  Company. 

Guarantees  the  payment  of  principal  of  $300,000  and  interest  on 
the  6%  one  year  Notes  of  the  Housatonic  Power  Company  dated 
March  31st,  1914. 

Guarantees  four  per  cent,  dividends  on  preferred  stock  of  the  New 
England  Investment  and  Security  Company,  $4,000,000,  and  payment 
of  principal  at  one  hundred  five  per  cent,  on  liquidation;  also  guar- 
antees the  payment  of  principal,  $5,000,000  and  interest  of  the  New 
England  Investment  and  Security  Company  fifteen-year  Funding 
Gold  Notes  dated  April  1st,  1909. 

Guarantees  the  payment  of  principal  and  interest  of  the  Gold  De- 
benture of  The  New  England  Navigation  Company  in  case  of  ter- 
mination of  lease  of  the  Old  Colony  Railroad  Company,  $3,600,000. 

The  New  York,  New  Haven  and  Hartford  Railroad  Company  and 
the  Pennsylvania  Railroad  Company,  jointly  and  severally,  guarantee 
the  payment  of  the  principal  and  interest  of  the  outstanding  $16,- 
000,000.00  First  Mortgage  four  and  one-half  per  cent.  Gold  Bonds 
dated  August  1st,  1913,  due  August  1st,  1953,  of  the  New  York  Con- 
necting Railroad  Company. 

Guarantees  the  payment  of  principal  and  interest  of  the  four  per 
cent,  fifty-year  First  and  Refunding  Mortgage  Gold  Bonds  of  the  New 
York  and  Stamford  Railway  Company,  of  the  issue  of  November  1st, 
1908,  to  the  amount  of  $925,000. 

Is  liable  by  endorsement  on  $185,000  six  per  cent,  demand  notes 
dated  May  1st,  1914,  of  New  York  and  Stamford  Railway  Company 
deposited  as  Collateral  under  Indenture  dated  May  1st,  1914,  securing 
$20,000,000  one  year  5%  Collateral  Gold  Notes  of  The  New  York, 
New  Haven  and  Hartford  Railroad  Company. 

Guarantees  the  payment  of  principal  and  interest  of  the  four  and 
one-half  per  cent.  First  Mortgage  Gold  Bonds  of  The  New  York, 
Westchester  and  Boston  Railway  Company  of  the  issue  of  July  1st, 
1911,  to  the  amount  of  $21,200,000. 


N.   Y.,    N.    H.   &  H.    RR.    CO.    REPORT,    1914        715 

Is  liable  by  endorsement  on  $1,725,000  six  per  cent,  demand  notes 
dated  May  1st,  1914,  of  The  Rhode  Island  Company  deposited  as  Col- 
lateral under  Indenture  dated  May  1st,  1914,  securing  $20,000,000 
one  year  5%  Collateral  Gold  Notes  of  The  New  York,  New  Haven 
and  Hartford  Railroad  Company. 

Is  liable  by  endorsement  on  $150,000  five  per  cent,  demand  note 
dated  May  1st,  1914,  of  Rutland  Railroad  Company  deposited  as  Col- 
lateral under  Indenture  dated  May  1st,  1914,  securing  $20,000,000 
one  year  5%  Collateral  Gold  Notes  of  The  New  York,  New  Haven 
and  Hartford  Railroad  Company. 

Guarantees  four  per  cent,  dividends  on  preferred  stock  of  the 
Springfield  Railway  Companies,  $3,387,900,  and  payment  of  principal 
at  one  hundred  five  per  cent,  on  liquidation. 


24 


716 


MATERIALS    OF    CORPORATION   FINANCE 


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N.   Y.,   N.    H.    &  H.    RR.    CO.    REPORT,    1914         717 

PLEDGED 

SECURITIES  OF  PROPRIETARY,  AFFILIATED  AND  CONTROLLED 

COMPANIES 

EXHIBIT  I 


Number 
of 

Shares 


Book  Value 


STOCKS. 

Central  New  England  Railway  Co. 

Common  Stock 47,920    $     868,566 .55 

Central  New  England  Railway  Co. 

Preferred  Stock 37,360        1,052,335 .91 

Hartford  &  Conn.  Western  R.R.  Co.      17,482        1,201,063.69 
New  York,  Ontario  &  Western  Ry. 

Co.  Common 291,600      13,105,185.62 

New  York,  Ontario  &  Western  Ry. 

Co.  Preferred 22  3,212.00 

Rutland  Railroad  Co 23,520 J      2,364,977 . 15 


TOTAL. 


$18,595,340.92 


EXHIBIT  II 


Par  Value         Book  Value 


FUNDED  DEBT: 

Central  New  England  Railway  Co. 
4%  First  Mortgage  Gold  Bonds. . 


$85,000.00         $88,502.50 


EXHIBIT  III 


Rate  of  Interest    Book  Value 


NOTBS: 

Central  New  England  Railway  Co 6%  $200,000  (X) 

The  Harlem  River  &  Port  Chester  R.  R.  Co. . .              6  3,000,000 . 00 

Hartford  &  Conn.  Western  R.  R.  Co 5  819,781 .71 

Rutland  Railroad  Co 5  150,000.00 

TOTAL $4,169,781 .71 

These  securities  comprise  part  of  the  Collateral  Pledged  under  the  Indenture 
dated  May  1st,  1914,  securing  5%  Collateral  Gold  Notes. 


718 


MATERIALS    OF   CORPORATION   FINANCE 


EXHIBIT  IV 

SECURITIES  OF  PROPRIETARY,  AFFILIATED  AND  CONTROLLED 
COMPANIES— UNPLEDGED 


Number 
of  Shares 


Book  Value 


STOCKS: 

Boston  &  Providence  R.  R.  Corpora- 
tion  

The  Boston  Terminal  Co 

Central  New  England  Ry.  Co. 
Common  Stock  and  Scrip 

Central  New  England  Ry.  Co. 
Preferred  Stock  and  Scrip 

The  Harlem  River  &  Port  Chester 
R.  R.  Co 

Holyoke  &  Westneld  R.  R.  Co 

The  New  York  Connecting  R.  R.  Co. 

Norwich  &  Worcester  R.  R.  Co 

Old  Colony  R.  R.  Co 

Providence,  Warren  &  Bristol  R.  R. 
Co.  Common 

Providence,  Warren  &  Bristol  R.  R. 
Co.  Preferred 

Providence  &  Worcester  R.  R.  Co. . . 

Roxbury  Central  Wharf  Co 

South  Bay  Wharf  &  Terminal  Co. . . 

TOTAL.  . 


5,246    $1,582,443.18 
2,000         200,000.00 


30 

10 

10,000 
200 

15,000 
971 


1 

9,551 
7 
9 


543.90 
281.60 

1,000.000.00 
20,000.00 
1,527,204.33 
219,038.19 


98,132    13,065,341.80 
4,867         730,212.67 


220.00 

2,738,762.75 

7.00 

9.00 


$21,084,064.42 


EXHIBIT  V 
MISCELLANEOUS  INVESTMENTS— PLEDGED 


Number  of 
Shares 


Book 
Value 


STOCKS: 

American  Telephone  &  Telegraph  Co 

Concord  &  Montreal  R.  R 

Connecticut  &  Passumpsic  Rivers  R.  R.  Co. . . 

Northern  R.  R.  (of  New  Hampshire) 

Pennsylvania  Railroad  Co 

The  Rhode  Island  Co 

Waterbury  Gas  Light  Co 


314 
2,469 
1,464 

922 

1,168 

96,855 

8,374 


BONDS: 
American  Telephone  &  Telegraph  Co. 

4J%  Gold  Bonds  due  1933 

Chicago,  Burlington  &  Quincy  R.  R.  Co.  (111.  Div.) 

3£%  Bonds  due  1949 

Chicago  &  Eastern  Illinois  R.  R.  Co. 

5%  Bonds  due  1937 

Chicago,  Rock  Island  &  Pacific  R.  R.  Co. 

4%  General  Mortgage  Bonds  due  1988 

New  York,  Westchester  &  Boston  Ry.  Co. 

4i%  First  Mortgage  Gold  Bonds  due  1946.. 
New  York  and  Stamford  Railway  Co. 

4%   First  and   Refunding  Mortgage   Gold 

Bonds  due  1958 

The  Vermont  Companv. 

5%  First  Mortgage  Gold  Bonds  due  1931.. . 


Par  Value 


$6,300.00 
10,000.00 
22,000.00 
38,000.00 
2,000,000.00 

678,000.00 
846,000.00 


$37,782.56 

395,765.70 

208,162.44 

130,750.27 

71,907.64 

24,352,336.41 

847,971.88 


$6,290.55 

9,150.00 

25,300.00 

38,000.00 

2,000,000.00 

599,880  00 
846,500.00 


N.    Y.,   N.    H.    &  H.   RR.    CO.    REPORT,    1914 


719 


NOTES: 

Housatonic  Power  Co 

New  York  and  Stamford  Railway  Co. 

The  Connecticut  Co 

The  Rhode  Island  Co.. 


Rate  of  Interest 
6% 
6 
6 
6 


Par  Value 
1,150,000.00 

185,000.00 
1,325,000.00 
1,725,000.00 

$33,954,797.45 

These  securities  comprise  part  of  the  Collateral  Pledged  under  the  Indenture 
dated  May  1st,  1914,  securing  5%  Collateral  Gold  Notes. 

EXHIBIT  VI 
MISCELLANEOUS  INVESTMENTS— UNPLEDGED 


TOTAL. 


Number 
of 

Shares 


Book  Value 


STOCKS: 

Berkshire  Street  Railway  Co 

Boston  Railroad  Holding  Co. 

Preferred 

Boston  Railroad  Holding  Co. 

Common 

MillbrookCo 

The  New  England  Navigation  Co  — 
New  York  &  Stamford  Railway  Co . . 
New  York,  Westchester&  Boston  Ry. 

Co.  Stock  and  Scrip 

The  Vermont  Co 

Wood  River  Branch  R.  R.  Co 

The  Westchester  Street  R.  R.  Co. . . . 

TOTAL... 


53,981  $6,371,395.58 

244,939  24,493,900.00 

31,065  3,106,500.00 

1,000  100,000.00 

494,055  53,322,899.48 

5,000  610,643.40 

49.249  6,241,951.76 

6,500  571,164.31 

336  21,477.50 

7,000  896,379.63 


$95,736,311.66 


EXHIBIT  VII 
SECURITIES  ISSUED  OR  ASSUMED— PLEDGED 


Par  Value     Book  Value 


FUNDED  DEBT: 

New  York,  Providence  &  Boston 
R.  R.  Co.  4%  General  Mortgage 

Bonds,  due  April  1,  1942 

The  New  York,  New  Haven  &  Hart- 
ford R.  R.  Co.  6%  Convertible 
Debenture  Certificates,  due  Janu- 
ary 15,  1948 

3H%  Non-Convertible  Debenture 
Certificates,  due  April  1,  1954. . 
3>i%  Convertible  Debenture  Cer- 
tificates due,  January  1,  1956. . 
3M%  Non-Convertible  Debenture 
Certificates,  due  March  1, 1947. 
Providence  Securities  Co.  4%  Fifty 
Year  Gold  Debentures,  due  May 
1,  1957 


$247,000.00   $247,000.00 


600,800.00 
2,100.00 

852,100.00 
9,000.00 


600,800.00 
2,100.00 

852,100.00 
9,000.00 


719,000.00     719,000.00 


Total. . . 


$2,430,000.00 

These  securities  comprise  part  of  the  Collateral  Pledged  under  the  Indenture 
dated  May  1,  1914,  securing  5%  Collateral  Gold  Notes. 


720         MATERIALS    OF   CORPORATION    FINANCE 


EXHIBIT  VIII 

SECURITIES  ISSUED  OR  ASSUMED,  HELD  IN  TREASURY- 
UNPLEDGED 

Number  of    Book  Value 
Shares 

STOCKS: 

The  New  York,  New  Haven  &  Hart- 
ford R.  R.  Co 228,991  $22,899,100.00  $22,899,100.00 

FUNDED  DEBT: 

Par  Value    Book  Value 
The  Consolidated  Ry.  Co.  3,  3H  and 

4%  Debentures  and  Scrip $2,350 . 00  $2,350 . 00  2,350 . 00 


Total. 


$22,901,450.00 


EXHIBIT  IX 
MARKETABLE  SECURITIES 


Number  of 
Shares 


Book 
Value 


STOCKS: 

Boston  &  Lowell  R.  R.  Corporation.  412  $88,775.13 

City  National  Bank,  Holyoke 100  11,500. 00 

Connecticut  River  R.  R.  Co 1,015  276,220 .04 

Concord  &  Portsmouth  R.  R.  Co....  18  3,285.00 

Hereford  Railway  Co 246  21,928 . 77 

Iron  Works  Aqueduct  &  Water  Co. . .  A  Interest       100 . 00 

Lowell  &  Andover  R.  R.  Co 193  41,919 . 26 

Manchester  &  Lawrence  R.  R.  Co. . .  63  14,081 . 66 

Massawippi  Valley  Railway  Co 354  46,020 . 00 

Nashua  &  Lowell  R.  R.  Co 84  20,170. 51 

Pemigewasset  Valley  R.  R.  Co 710  99,676 . 51 

Peterborough  R.  R.  Co 86  8,390 . 00 

Pittsfield  &  North  Adams  R.  R.  Corp.  50  6,965 . 26 

Quincy  Quarries  Co 38  2,110.00 

Upper  Coos  R.  R.  Co 73  10,242.75 

Vermont  &  Massachusetts  R.  R.  Co . .  184  30,439 . 77 

Village  Water  Co.,  New  Hartford 2  24 . 00 

Westinghouse  Air  Brake  Co 9  967 . 00 

Wilton  R.  R.  Co 98  21,389.14 

Miscellaneous 2,500.00 

$706,704.80 

FUNDED  DEBT:  Par  Value 

Berkshire  Street  Ry.  Co.  5%  20  year 

Gold  Debentures $200,000.00  $200,000.00 

Central  New  England  Ry.  Co.  5% 

Income  Bond  Scrip 608.50  608.50 

Central  New  England  Ry.  Co.  (D.  C. 

R.  R.)  41A%  First  Mortgage  Gold 

Bonds 5,000.00  5,230.00 

Park  Square  Theatre  Co.,  Inc.,  5% 

Second  Mortgage  Notes 320,000 . 00  320,000 . 00 

Wood  River  Branch  R.  R.  Co.  5J^% 

First  Mortgage  Bonds 56,500 . 00  28,250 . 00 

Pawtuxet  Valley  Electric  Street  Ry. 

Co.  5%  Bonds 38,000.00  39,900.00 

$593,988.50 


N.   Y.,   N.    H.    &  H.    RR.  CO.  REPORT,    1914        721 

NOTES:  Rate  of  Interest    Par  Value 

City  Lumber  and  Coal  Co 5%  $  15,000.00 

P.  C.  Larkin 5  63,894.05 

Providence,  Warren  &  Bristol  R.  R. 

Co 6  38,617.77 

Salts  Textile  Manufacturing  Co 5  75,000 . 00 

Shearer  Realty  Trust  Co 5  200,000.00 

Rutland  Railroad  Co 5  50,000.00 

Trustees  of  the  Massachusetts  Auto- 
mobile Club  Trust 5  90,000.00 

Waterbury  Lumber  &  Coal  Co 5  5,000 .00 

Ida  V.Whitney 4H  25,000.00 

$   562,511.82 

TOTAL $1,863,205. 12 


722 


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N.    Y.,    N.    H.    &  H.    RR.    CO.    REPORT,    1914         723 
EXHIBIT  XI 

THE  NEW  YORK,  NEW  HAVEN  AND  HARTFORD  RAILROAD  COMPANY 
COLLATERAL  GOLD  NOTES 


5%  Collateral  Gold  Notes  dated  May  1st,  1914,  due  May  1st,  1915.    Total 

Outstanding,  $19,927,000 . 00. 

Interest  payable  May  1st  and  November  1st.     For  list  of  collateral  pledged  as 
security  see  pages  717-719       Exhibits  1,  2,  3,  5,  7. 


EXHIBIT  XII 

NEW  YORK,   NEW  HAVEN   &  HARTFORD  RAILROAD   COMPANY  DEBENTURES 
INCLUDING  DEBENTURES  OF  MERGED  ROADS  ASSUMED 


Total 
Outstanding 

Date  of 
Maturity 

Interest  Payable 

Convertible  6%  Debenture 
Certificates  

839,029,000.  Op 
9,765,450.00 
5,000,000.00 
5,000,000.00 
10,000,000.00 
15,000,000.00 

15,000,000.00 
27,985,000.00 

234,000.00 
165,000.00 

972,000.00 
4,255,000.00 
2,309,000.00 
1,340,000.00 
2,011,000.00 

19,899,000.00 

Jan.   15,  1948 
Jan.     1,  1956 
Mch.   1,  1947 
Mch.   1,  1947 
April   1,  1954 
July     1,  1955 

May    1,  1956 
April   1,  1922 

Oct.     1,  1930 
Jan.     1,  1930 

Feb.    1,  1930 
July     1,  1954 
Jan.     1,  1955 
April    1,  1955 
Jan.     1,  1956 

May    1,  1957 

Jan.   15. 
Jan.     1. 
Mch.   1. 
Mch.   1. 
April   1. 
Jan.     1. 

May    1. 
April    1. 

April   1. 
Jan.   15. 

Feb.     1. 
Jan.     1. 
Jan.     1. 
April    1. 
Jan.     1. 

May    1. 

July  15 
July    1 
Sept.   1 
Sept.   1 
Oct      1 
July    1 

Nov.    1 
Oct.     1 

Oct.     1 
July  15 

Aug.    1 
July     1 
July     1 
Oct.     1 
July     1 

Nov.    1 

Convertible  3}%  Debenture 
Certificates  

Non-Convertible  4%  Deben- 
tures    ... 

Non-Convertible  3i%  Deben- 
tures   

Non-Convertible  3|%  Deben- 
tures   

Non-Convertible  4%  Deben- 
tures   

Non-Convertible  4%  Deben- 
tures   

European  Loan  of  1907  

Naugatuck  R.  R.  Co.  3}%  De- 
bentures   

Hartford  Street  Railway  Co. 
4%  Debentures,  Series  M..  . 
The  Consolidated  Railway  Co. 
3%,  3J%  and  4%  Debentures 
4%  Debentures  

4%  Debentures  

4%  Debentures  

4%  Debentures  

Providence  Securities  Co. 
4%  Gold  Debentures  

$157,964,450.00 

MATEEIALS    OF   COKPORATION    FINANCE 


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N.   Y.,   N.    H.   &  H.   RB.    CO.   REPORT,    1914 


725 


RENTALS  or  LEASED  LINES 
For  the  Year  Ending  June  30,  1914,  in  Comparison  with  Year  1913 


1914 


Comparison  with  1913 


Increase 


Decrease 


*Old  Colony  Railroad $2,107,393 .48 

Boston  &  Providence  Railroad 494,807 . 50 

Providence  &  Worcester  Railroad.  416,000.00 

Norwich  &  Worcester  Railroad. . .  290,537.00 
The  Harlem  River  &  Port  Chester 

Railroad 1,197,100 .96 

Holypke  &  Westfield  Railroad 46,000.00 

Providence.  Warren  &  Bristol  Rail- 
road   55,158.89 

Chatham  Railroad 3,610 .00 

Betterments  to  Leased  Lines  irre- 
coverable, distributed  as  rental 

over  term  of  leases 47,934 . 44 


$  21,769.23 


86,778.38 


1,098.18 


6,970.65 
Total $4,658,542.27       $112,748.69 


$3,856.05 
11.70 


*  There  has  been  no  increase  in  the  Capital  Stock  of  the  Old  Colony  Railroad 
Company  during  the  past  fiscal  year. 


ADDITIONS  AND  BETTERMENTS 
YEAB  ENDING  JUNE  30,  1914 


Real  Estate. 


New  or  Improved  Bridges: 

New  London,  Conn $68,114.97 

New  Haven,  Conn 24,173. 12 

Midland  Division  (Various) 24,548.52 

Providence,  R.  1 16,136.95 

Mt.  Vernon,  N.  Y 13,452.91 

Hazardville,  Conn 8,348.48 

South  Boston,  Mass 6,257.76 

Whately,  Mass 5,490. .50 

Natick,  R.  1 5,000 . 03 

Sundry  Places 15,157 . 97 


$274,186.35 


$186,681.21 


726 


MATERIALS    OF    CORPORATION    FINANCE 


Brought  forward 

Glenbrook,  Conn.  —  New  Haven,  Conn.,  Electrifica- 
tion  

New  Haven,  Conn. — Springfield,  Mass.,  Signals 

Stamford,  Conn. — New  Haven,  Conn.,  Signals 

Berkshire  Jet.,  Conn. — New  Milford,  Conn.,  Double 
Tracking 

Woodlawn,  N.  Y. — New  Haven,  Conn.,  Re-distribu- 
tion System 

Woonsocket,  R.  I.,  Improved  Freight  Facilities 

Cos  Cob,  Conn.,  Power  Plant 

Hartford,  Conn.,  Additional  Tracks 

Middletown,  Conn. — Willimantic,  Conn.,  Improve- 
ments  

Bradford,  R.  I.,  Improved  Freight  Facilities 

Stonington,  Conn.,  Track  Improvements 

Torrington,  Conn.  Freight  House  Improvements 

New  Rochelle  Jet.,  N.  Y.,  Revision  Track  Layout. . . 

Stamford,  Conn. — Woodlawn,  N.  Y.,  Circuit  Breakers 

New  Haven,  Conn.,  Re-arrangement  Telephone  Facil- 
ities  

South  Bay  Jet.,  Mass.,  Paving  and  Drains 

South  Boston,  Mass.,  Pier  No.  1,  Improvements.. .  ' 

Olneyville,  R.  I.,  Temporary  Freight  Facilities 

Elimination  of  Grade  Crossings 

New  or  Improved  Stations 

New  or  Improved  Yards  and  Sidings 

New  or  Improved  Cross-overs 

Sundry  Other  Additions  and  Betterments 


New  Equipment,  consisting  of  3  electric  locomotives, 
34  steel  coaches,  6  steel  postal  cars,  1  steel  smoker, 
20  milk  cars,  3  steel  floats,  1  steam  locomotive  crane, 
1  transformer,  1  rail  unloader,  20  passenger  and 
freight  cars  converted  to  freight  train  cars  and 
262  passenger  and  freight  train  cars  converted 
into  work  cars  and  tool  cars . . 


Less: 

Equipment  put  out  of  Service  and  Equipment  trans- 
ferred to  Equipment  Trust 

Total 

These  expenditures  were  disposed  of  as  under: 

Charged  to  Cost  of  Road 

Charged  to  Equipment 

Charged  to  General  Expenditures 


$186,681.21 

955,610.47 
216,660.36 
192,369.61 

153,094.76 

124,251.06 
67,839.99 
51,910.10 
31,061.79 

24,902.19 
22,878.05 
22,603.71 
19,954.78 
19,759.02 
18,946.15 

16,977.78 
14,718.34 
13,984.35 
12,534.68 

233,913.84 
16,571 . 17 
64,831.51 
24,105.58 

248,663.65 

$3,029,010.50 


1,054,659.07 
$4,083,669.57 

793,119.60 
$3,290,549.97 


$3,025,057.88 

261,539.47 

3,952.62 

$3,290,549.97 


N.  Y.,  N.  H.  &   H.  RR.   CO.  REPORT,   1914         727 


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NEW  YORK  & 
.  .  .Grand  Central  De 

BOSTON  TERM 
.  .  .  Station,  Boston.  M 

BOSTON  &  A 
.  .  Newton  Highlands 
.  .  .  Boston,  Mass  
.  .Springfield,  Mass. 
.  .  Springfield,  Mass  . 

BOSTON  &  1 
.  .Lowell,  Mass  
.  .Worcester,  Mass.. 
.  .  Shelburne  Falls,  M 

UNDER  TRACKAGE  Ri 

[•ED  JUNE  30,  1914... 
IB  30,  1913  

FROM 
Woodlawn  Junction,  N.  Y.  . 
Fort  Point  Channel... 

Cook  St.,  Mass  
South  Framingham,  Mass.  .  . 
Junction  to  Station  

Junction  to  Station  
Sterling  Junction,  Mass  
Shelburne  Junction,  Mass.  .  . 

TOTAL  ROAD  OPERATED 

TOTAL  MILEAGE  OPERAH 
MILEAGE  OPERATED  Jtri 
DECREASE  .  .  . 

^^S"1^^' 

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§§ 


N.    Y.,    N.    H.    &  II.    RR.    CO.    REPORT,    1914         731 


I 


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o.  A 
Pittsfield  to 
Junction  to 
Ashland  to 
Newton  Hig 
Ox>k  St.  to  N 


732 


MATERIALS    OF    CORPORATION    FINANCE 


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N.   Y.,    N.    H.   &  H.   KB.   CO.   REPORT,   1914        733 


<  .-H  f^  00  Ci  10  Ci        *H        fH 


734         MATERIALS   OF   CORPORATION    FINANCE 

EQUIPMENT  IN  SERVICE 

(CONTINUED) 

FLOATING  STOCK 
STEAMER: 

Ferryboat  Fairhaven,  length  over  all,  94  feet;  breadth  over  guards,  26  feet,  2 
inches;  depth  10  feet;  vertical  beam  engine,  cylinder  30  inches  diameter,  stroke 
6  feet. 

TUGS: 
Transfer  No.  2,  simple  engine,  cylinder  26"  x  30". 

"     5,  compound  engine,  cylinders  22"-40"  x  26". 

6,  compound  engine,  cylinders  22"-40"  x  26". 

7,  compound  engine,  cylinders  20"-40"  x  28". 

8,  compound  engine,  cylinders  20"-40"  x  28". 

9,  (Steam  Lighter),  compound  engine,  cylinders  20"-40"  x  28". 
'    10,  compound  engine,  cylinders  22"-40"  x  26". 

'  11,  compound  engine,  cylinders  20"-40"  x  28". 

1  12,  compound  engine,  cylinders  20"^0"  x  28". 

'  14,  compound  engine,  cylinders  22"-48"  x  36". 

'  15,  compound  engine,  cylinders  22"-48"  x  36". 

'  16,  compound  engine,  cylinders  20"-44"  x  30". 

1  17,  compound  engine,  cylinders  20"-44"  x  30". 

1  18,  compound  engine,  cylinders  20"-44"  x  30". 

'  19,  compound  engine,  cylinders  20' '-44"  x  30". 

'  20,  compound  engine,  cylinders  20"-44"  x  30". 

'  21,  compound  engine,  cylinders  20"-44"  x  30". 

'  22,  compound  engine,  cylinders  20"-44"  x  30". 

CAR  FLOATS: 
8-car,  9;  10-car,  8;  12-car,  8;  14-car,  2;  20-car,  10;  22-car,  17;  Total,  54. 

DERRICK: 

"Americus,"  hoisting  capacity  20  tons. 


STATEMENT  OF  EARNINGS  AND  OPERATING  EXPENSES  OF  THE  STEAM 
RAILROAD  IN  DETAIL 

FOR  THE  YEAR  ENDING  JUNE  30,  1914,  IN  COMPARISON  WITH  THE  YEAR  1913 

REVENUE  1914  Comparison  with  1913 

Inc  ease          Decrease 
2,046 . 29  miles  operated  46 . 20  miles 


FREIGHT  REVENUE $32,476,373.26  $1,595,601.49 

PASSENGER  SERVICE  TRAIN  REVENUE: 

Passenger  Revenue $27,400,672 . 89  495,627 . 40 

Excess  Baggage  Revenue 142,685 . 17  1,233 . 36 

Mail  Revenue 724,309.91  $80,455.68 

Express  Revenue 2,849,652 . 42  307,378 . 75 

Milk  Revenue 103,997.74  436. 13 

Other  Passenger  Train  Revenue . . .          586,899 . 66  198,177 . 34 

31,808,217.79 

ALL,  OTHER  REVENUE  FROM  TRANS- 
PORTATION   364,663.95        24,887.20 

REVENUE  FROM  OPERATIONS  OTHER 

THAN  TRANSPORTATION 1 ,968,437 .82     1 00,074 . 39 


TOTAL $66,617,692.82  $1,995,810. 2f 


N.   Y.,   N.   H.   &  H.   BB.   CO.   REPORT,   1914         735 


OPERATING  EXPENSES 

MAINTENANCE  or  WAT  AND  STBUC- 

TUBES: 

Superintendence $     809,252 . 08 

Ballast 16.177.03 

Tie* 1.460.049.94 

Rails 501.273.96 

Other  Track  Material 383.099.51 

Roadway  and  Track 2.406,202.63 

Removal  of  Snow,  Sand  and  Ice. . .  164,580.45 

Tunnels 1.168.00 

Bridges,  Trestles  and  Culverts 382,579 . 82 

Over  and  Under  Grade  Crossings. .  144,317.88 
Grade    Crossings,    Fences,    Cattle 

Guards  and  Signs 131,071 . 63 

Snow,  Sand  Fences  and  Snow  Sbeda  26 . 45 

Signal  and  Interlocking  Plants 679.249.40 

Telegraph  and  Telephone  Lines. . . .  53,007 . 51 

Electric  Power  Transmission 307,123.73 

Buildings,  Fixtures  and  Grounds.. .  879,681.01 

Docks  and  Wharves 110.502.97 

Roadway  Tools  and  Supplies 71,052 . 51 

Injuries  to  Persons 73,836 . 71 

Stationery  and  Printing 8,260 . 94 

Other  Expense* 6,774.70 

Maintaining  Join:  Tracks,  Yards, 

etc Dr.  696.721 .85 

Maintaining  Joint  Tracks,  Yards, 

etc Cr.  14,946 . 53 


TOTAL      MAINTENANCB 
AND  STRUCTURES  . . . 


or     WAY 


I  64,209.93 

233.937.83 

1.1H.JM  '.'7 
6.103.23 
4.000.52 

1U.S.37*   V.O 


57.699.53 


57.368.85 
16.595.65 
154.969.00 
56.901.45 
28,352.27 


<H1!    17 


33.942.94 


Amount  carried  forward . . 


C.831.064.18     937.974.14 
$  8,831,064.18  (937,974.14 


$29.194  U 


34.80 
24,006.80 


:>,:.:.>•.?  r,-, 
271.15 


13,086.72 
5.748.55 


7.144.46 


STATEMENT  OF  EARNINGS  AND  OPERATING  EXPENSES  OF  THE  STEAM 
RAILROAD   IN   DETAIL-Continued 


1914 


Comparison  with  1913 
Decrease 


Amount  brought  forward. 


$  8,831,064.18  $937,974.14 


MAINTENANCE  or  EQUIPMENT: 

Superintendence $  277,433.59                                   55,170.40 

Steam  Locomotives — Repairs 2,998,378 . 75                                 123,268 . 72 

Steam  Locomotives— Renewals 25,582.61                                    19,018.31 

Steam  Locomotives — Depreciation.  298.633.94                                 242.903.99 

Electric  Locomotives— Repairs 532,442.07                                 207,992.94 

Electric  Locomotive*.  —  Deprecia- 
tion   76.923.03  76.923.03 

Passenger  Train  Cars— Repairs 1,316,722.35 

Passenger  Train  Cars— Renewals. .  4,517.99 

PassengerTrain  Cars—  Depreciation  302,927.62                                   57.687.73 

Freight  Train  Cars— Repairs 2,549.357.37                                 351.985.82 

Freight  Train  Cars — Renewals 47.576. 12 

Freight  Train  Cars— Depreciation .  985.777 . 8 1                                  103,407 . 75 

Electric  Equipment  of  Cars — Re- 
pairs   95,750.58  9.222.95 

Electric  Equipment  of  Cars — Re- 
newals   484.32 

Floating  Equipment — Repairs . . .  295,853 . 56 

Floating  Equipment — Renewals. 

Floating  Equipment — Depreciation  88,526.11 

Work  Equipment— Repairs 61.978.23                                   16.233.67 

Work  Equipment— Renewals 10,010.80 

Work  Equipment — Depreciation.  20.577.28                                   15356.58 

Shop  Machinery  and  Tools 259,371.74 

Power  Plant  Equipment 84,776.31 

Injuries  to  Persons :t'.i.-«i  v_>                                     5,555.80 

Stationery  and  Printing 6,160 . 60 

Other  Expenses Cr.  6.32 

Maintaining  Joint  Equipment  at 

Terminals 7VV.7 Dr.  11,754.98 

Maintaining  Joint  Equipment  at 
Terminals Cr. 858.91 

TOTAL  MAINTENANCE  or  EQUIP- 
MENT...                               110,389.458.10    $788,289.54 


$17.000.59 
16,015.55 


276,511.63 


I-.I..T.H  !»:> 
-.;.'.» 1 1  •„•:, 

•.MI.O-10   41 


5.720.06 
6.537. 32 

2.127.04 
104,164.58 

4.015. OC 


736 


MATERIALS    OF   CORPORATION    FINANCE 


TRAFFIC  EXPENSES: 

Superintendence 

Outside  Agencies 

Advertising 

Traffic  Associations 

Industrial  and   Immigration   Bur- 
eaus   

Stationery  and  Printing 

Other  Expenses 

TOTAL  TRAFFIC  EXPENSES 

Amount  carried  forward . . . 


208,204.54 

72,650.87 

167,229.07 

3,057.33 

5,692.93 
45,185.13 


$  36,573.34 
2,442.68 


12,356.34 


$    130,361.47 
236.77 

958.77 
105.70 


502,019.87 


80,290.35 


$19,722,542.15  $1,646,473.33 


STATEMENT  OF  EARNINGS  AND  OPERATING  EXPENSES  OF  THE  STEAM 
RAILROAD   IN  DETAIL— Continued 


Comparison  with  1913 
1914  Increase        Decrease 


Amount  brought  forward . . . 


$19,722,542. 15  $1,646,473.33 


TRANSPORTATION  EXPENSES: 

Superintendence $  480,340.44 

Dispatching  Trains 182,721 . 56 

Station  Employes 4,857,766.24 

Weighing  and  Car  Service  Associa- 
tions   2,987.95 

Station  Supplies  and  Expenses 411,692 . 33 

Yard  Masters  and  their  Clerks 433,571 .96 

Yard  Conductors  and  Brakemen. . .  1,033,842 . 87 

Yard  Switch  and  Signal  Tenders. .  270,129.70 

Yard  Supplies  and  Expenses 34,588 . 44 

Yard  Enginemen 579,912.98 

Enginehouse  Expenses — Yard 157,390 . 58 

Fuel  for  Yard  Locomotives 705,600 . 15 

Water  for  Yard  Locomotives 46,296 . 02 

Lubricants  for  Yard  Locomotives...  10,658.55 
Other    Supplies    for    Yard    Loco- 
motives   16,970.00 

Operating  Joint  Yards  and  Termi- 
nals  Dr.  1,108,842.91 

Operating  Joint  Yards  and  Termi- 
nals  Cr.  64,270.18 

Motormen 220,184.47 

Road  Enginemen 2,290,808.74 

Enginehouse  Expenses — Road 781,541 . 35 

Fuel  for  Road  Locomotives 4,541,441.70 

Water  for  Road  Locomotives 256,258 . 70 

Lubricants  for  Road  Locomotives.  72,344.80 
Other    Supplies    for    Road    Loco- 
motives   113,251.82 

Operating  Power  Plants 225,669 . 75 

Purchased  Power 168,915.83 

Road  Trainmen 3,094,478. 12 

Train  Supplies  and  Expenses 778,617 . 68 

Interlockers,  Block  and  Other  Sig- 
nals— Operation 700,598.45 

Crossing  Flagmen  and  Gatemen . . .  398,650 . 03 

Drawbridge  Operation 73,924 . 46 

Clearing  Wrecks 57,975.24 

Telegraph  and  Telephone— Opera- 
tion   142,706.09 

Operating  Floating  Equipment 622,564 . 92 

Stationery  and  Printing 3 1 1 ,638 . 62 

Other  Expenses 28,118.29 

Loss  and  Damage — Freight 557,977.71 

Loss  and  Damage — Baggage 6,098 . 54 

Damage  to  Property 161,123. 10 

Damage  to  Stock  on  Right  of  Way .  1 ,582 . 46 

Injuries  to  Persons 750,283 . 13 

Operating  Joint  Tracks Dr.  250,256 . 06 

Operating  Joint  Tracks Cr.  7,365 . 06 

TOTAL     TRANSPORTATION     EX- 
PENSES   26,868,687.50 


18,102.74 
15,097.87 


2,754.46 
11,265.61 


1,257.65 

25,392.45 

4,710.28 

2,283.17 
63,081.70 

24,541.92 
11,329.02 

68,267.00 


55,526.19 
7,591.87 

70,399.30 
10,906.94 

9,594.40 
16,886.93 


495.81 
64,917.12 


2,513.32 


2,094.09 

6,187.20 

22,214.52 

7,228.15 

27,219.42 
17,944.00 
2,404.46 


169,708.16 

338,101.96 

40,483.95 

6,018.32 

398.92 


23,256.71 


2,438.83 

707.17 
22,694.06 


63,466.34 

26,121.03 

31,618.01 

10.89 

8,356.84 


2,826.17 


334,583.45 


Amount  carried  forward 


$46,591,229 . 65  $1,311,889.88 


N.   Y.,   N.    H.   &  H.   RR.    CO.   REPORT,    1914         737 

STATEMENT  OF  EARNINGS  AND  OPERATING  EXPENSES  OF  THE  STEAM 
RAILROAD  IN   DETAIL— Concluded 


1914 


Comparison  with  1913 
Increase         Decrease 


Amount  brought  forward . . . 


$46.591,229. 65S1.311.889.88 


GENERAL  EXPENSES: 

Salaries  and  Expenses  of  General 

Officers $      196.665.55  27.370.62 

Salaries  and  Expense*  of  Clerks  and 

Attendants 731,794.08  70.712.17 

General   Office   Supplies  and   Ex- 

,  Pen** 83.084.61  $23.272.12 

Law  Expenses 426.820.53  8.792.70 

Insurance 99.049.74  6,25623 

Pensions 152.807.94  5,366.19 

Stationery  and  Printing 81,673.22  46669 

Valuation  Expenses 24.176.77  24,176.77 

Other  Expenses 53,074.71  110,820.02 

General  Adm.  Joint  Tracks,  Yards 

and  Terminals Dr.  74,700.27  *19,154.37 

General  Adm.  Joint  Tracks,  Yards 

and  Terminals Cr.  327.16  327.16 

TOTAL  GENERAL  EXPENSES 1,924,120.16  23.879.04 

TOTAL  OPERATING  EXPENSES...  $48,515.349.81  $1,288,010.84 

NET  OPERATING  REVENUE $18,102,343.01  $3,283321. 10 

RATIOS 
YEAR  ENDING  JUNE  30,  1914,  COMPARED  WITH  PREVIOUS  YEAR 

1914          Increase  Decrease 
RATIO  OP  EACH  CLASS  OF  REVENUE  TO  TOTAL 
OPERATING  REVENUE: 

Freight 48.75%  .91% 

Passenger 41.13  .47% 

Mail 1.09  .15 

Express 4.28  .32 

Miscellaneous 1 .80  .38 

Operations  other  than  Transportation 2 . 95  .23 

Total 100% 

RATIO  OF  EACH  CLASS  OF  EXPENSES  TO  TOTAL 
OPERATING  EXPENSES: 

Maintenance  of  Way  and  Structures 18 . 20%        1 . 49% 

Maintenance  of  Equipment 21 .42  1 .09 

Traffic  Expenses 1.03  .20% 

Transportation  Expenses 65 . 38 

.  General  Expenses 3 . 97  .16 

Total 100% 

RATIO  OF  EACH  CLASS  OF  EXPENSES  TO  TOTAL 
OPERATING  REVENUE: 

Maintenance  of  Way  and  Structures 13.26%        1 .76% 

Maintenance  of  Equipment 15.60  1 .61 

Traffic  Expenses .  10% 

Transportation  Expenses 40 . 

General  Expenses 2 . 89  .05 


Total..  72.83% 


4% 


738 


MATERIALS    OF   CORPORATION   FINANCE 


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•age  amount  received  for  each  ton  of  frt 
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N.   Y.,   N.    H.   &  H.    RR.    CO.    REPORT,    1914 


739 


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740         MATERIALS    OF   COKPOKATION   FINANCE 
MILEAGE  STATISTICS 
LOCOMOTIVE  MILEAGE 

1914        Increase     Decrease 


REVENUE  SERVICE: 

Freight  locomotive-miles — steam 7,944,956                     1,254,044 

Freight  locomotive-miles — electric 47,184      25,013 

Passenger  locomotive-miles — steam 14,045,794                        334,936 

Passenger  locomotive-miles — electric 2,350,367    177,516 

Mixed  locomotive-miles — steam 149,833        3,666 

Special  locomotive-miles — steam 44,117                           8,243 

Special  locomotive-miles — electric 2,178                              313 

Switching  locomotive-miles — steam 4,684,910                        467,522 

Switching  locomotive-miles — electric 513,231    276,585 

Total  revenue  locomotive-miles— steam..  26,869,610                     2,061,079 

Total  revenue  locomotive-miles—electric.  2,912,960    478,801 

Non-revenue  locomotive-miles — steam 1,113,217                        197,962 

Non-revenue  locomotive-miles — electric....  41,403      31,707 

Total  locomotive-miles— steam 27,982,827                     2,259,041 

Total  locomotive-miles—electric 2,954,363    510,508 

Total  locomotive-miles 30,937,190                     1,748,533 

TRAIN  MILEAGE 

REVENUE  SERVICE: 

Freight  train-miles 7,378,019                     1,137,790 

Passenger  train-miles 16,468,726                        284,897 

Mixed  train-miles 171,557                           17,725 

Special  train-miles 48,354                          15,996 

Total  revenue  train-miles 24,066,656                     1,456,408 

Non-revenue  train-miles 1,188,062                        102,758 

Total  train-miles 25,254,718                     1,559,166 

CAR  MILEAGE 

REVENUE  SERVICE: 
Freight  car-miles: 

Loaded 147,591,291                   11,922,731 

Empty 59,056,063                      3,628,241 

Caboose 7,373,175                     1,142,634 

Total  freight  car-miles 214,020,529                   16,693,606 

Passenger  car-miles: 

*Passenger 50,249,383                        263,424 

*Sleeping,  parlor  and  observation 13,791,315      80,590 

Other  passenger-train  cars 17,061,716                         464,373 


Total  passenger  car-miles 81,102,414 


647,207 


N.   Y.,   N.    H.   &  H.   RR.    CO.    REPORT,    1914        741 
MILEAGE  STATISTICS 
CAB  MILEAGE — Continued. 

1914     Increase      Decreee 


Special  car-miles: 
Freight-loaded  

112,984 

54709 

Freight-empty  

1,427 

7933 

Caboose  

10,809 

905 

Passenger  

194,415 

127  326 

*Sleeping,  parlor  and  observation  

46,376 

1,405 

Other  passenger-train  cars  

5,300        5,300 

Total  special  car-miles. 


371,311 


186,978 


Total  revenue  car-miles 295,494,254  17,527,791 

Non-revenue  car-miles 3,021,232    631,749 


Total  car-miles 298,515,486 


16,896,042 


*  1913  figures  revised  for  purposes  of  comparison. 


COMPARISON  OF  VARIOUS  AVERAGES  PER  MILE  OF  ROAD  OPERATED 
AND  OPERATING   RATIOS 


Ratios 

Net 

Year 
ending 

Average 
Mileage 

Total 
Operating 

Operating 
Expenses 

Operating  Expenses 
to  Revenue 

Operating 
Revenue 

Net 

June  30 

Operated 

Revenue 

and  Taxes 

(Taxes  not  included) 

(Less  Taxes) 

Income 

1903 

2,027.34 

$23,329 

$18,418 

73.91 

$4,911 

$2.381 

1904 

2,031.58 

23,766 

18,515 

72.82 

5.251 

3.000 

1905 

2.07C.45 

24,082 

1H.MG 

71.69 

5,588 

3,232 

1906 

2,062.06 

25,695 

18,444 

68.48 

7.251 

4.939 

1907 

2,060.17 

20,989 

19,807 

88.07 

7.182 

4,702 

1908 

2,047.16 

25,914 

20,297 

72.03 

sir,  17 

2.815 

1909 

2,042.59 

2ti,C.()7 

19,351 

(if,  :w 

r.L'.Mi 

3.638 

1910 

2,042.89 

29.71K 

20,889 

63.74 

sixiM 

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1911 

2.040.75 

:io  ,4  50 

21,794 

65.80 

8,881 

6,482 

1912 

2,091.31 

31,049 

21,946 

IM   S4 

9,103 

6,401 

1913 

2,092.49 

32,790 

24,345 

tiS   S3 

,vii:> 

4,264 

1914 

2,046.29 

32.55* 

25,452 

72.83 

7.103 

131 

742          MATERIALS    OF   CORPORATION   FINANCE 


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::::::: 


COMMODITIES 


1914  Comparison  with  Year  1913 

Tnna        Per  Cent.  Increase  Decrease 

of  Total        Tons       Per  Cent.        Tons  Per  Cent. 


PRODUCTS  OF  AGRICULTURE 
Grain  

594,518 

02  38 

24  479 

n3  on 

Flour  

251,055 

01  00 

17  092 

07  31 

Other  mill  products  

154,403 

00  62 

41  182 

21  06 

Hay  

260,022 

01  04 

2  717 

m  fw 

Tobacco  

20,714 

00  08 

3735 

22  00 

Cotton  

340,069 

01.36 

77,677 

29  60 

Fruit  and  vegetables  

489,292 

01  96 

23  085 

04  95 

Other  articles  

217,169 

00  87 

145  534 

203  16 

Total  

2,327,240 

09  31 

198,745 

09  34 

PRODUCTS  OF  ANIMALS 
Live  Stock  

54,073 

00  21 

4  465 

07  63 

Dressed  meats  

156,821 

00.63 

34,322 

28  02 

Other  packing  house  products  .  . 
Poultry,  game  and  fish  .  .  . 

23,464 
52,979 

00.09 
00.21 

2,593 
1,833 

12.42 
03  58 

Wool  

99,120 

00.40 

13  923 

12  32 

Hides  and  leather  

119,379 

00  48 

9  932 

07  68 

Other  articles  

187,539 

00.75 

71 

00  04 

Total  

693,375 

02.77 

10,357 

01  52 

PRODUCTS  or  MINES 
Anthracite  Coal     

2,422,153 

09  69 

143  928 

05  61 

Bituminous  coal  

4,135,725 

16.55 

75,773 

01  80 

Coke  

123,295 

00.49 

35,566 

40.54 

Ores  

15,280 

00.06 

39,282 

72  00 

Stone,    sand    and    other    like 
articles  

947,566 

03.79 

47,883 

04  81 

Other  articles  

163,422 

00.65 

48,869 

42.66 

Total  

7,807,441 

31.23 

222,431 

02  77 

PRODUCTS  OF  FORESTS 
Lumber  

1,038,042 

04.15 

101,834 

08  93 

Other  articles  

230,882 

00.93 

90,190 

64.10 

Total  

1,268,924 

05.08 

11,644 

00.91 

MANUFACTURERS 
Petroleum  and  other  oils  

400,857 

01.60 

5,619 

01.42 

Sugar  

64,201 

00.26 

13,947 

27.75 

Naval  stores  

4,166 

00.02 

2,785 

201  .  67 

Iron:  pig  and  bloom  

314,059 

01.26 

79,311 

20.16 

Iron  and  steel  rails  

76,774 

00.31 

117,713 

60.52 

Other  castings  and  machinery  .  . 
Bar  and  sheet  metal  

382,866 
342,815 

01.53 
01.37 

41,367 

12.11 

55,876 

14.01 

Cement,  brick  and  lime  

949,918 

03.80 

31,979 

03.48 

6,288 

00.02 

3,108 

97.74 

Wagons,  carriages,  tools,  etc  .  .  . 
Wines,  liquors  and  beers  

21,812 
146,145 

00.09 
00.58 

3,479 
20,991 

13.76 
12.56 

Household  goods  and  furniture. 
Other  articles  

46,479 
2,288,854 

00.18 
09.16 

14,411 

44.94 

101,236 

04.24 

Total  

5,045,234 

20.18 

265,390 

05.00 

MISCELLANEOUS 

Commodities     not     previously 
mentioned  

3,784,678 

15.14 

486,527 

11.39 

4,069,946 

16.29 

492,599 

10.80 

Grand  Total 24,996,838       100% 


1,269,489        04.83 


N.   Y.,   N.    H.   &  H.    RR.    CO.    REPORT,    1914 


749 


fHE  HARTFORD  AND  NEW  YORK  TRANSPORTATION  COMPANY 

OFFICERS 

HOWARD  ELIJOTT,  President 
C.  C.  GOODRICH,  Vice-President 
R.  J.  NOBLE,  General  Manager 

Owns  6  steamers,  7  tugs  and  33  barges,  operating  lines  between  New  York 
and  Bridgeport,  New  York  and  Hartford  and  intermediate  points  on  the  Con- 
necticut River;  and  New  York  and  Providence. 

INCOME  ACCOUNT  FOR  THE  YEAR  ENDING  JUNE  SOrn,  1914 

OPERATING  REVENUE: 

Freight  Revenue $   720,011 .73 

Passenger  Revenue 317,890.32 

All  Other  Revenue  from  Transportation 33,398 . 67 

Revenue  from  Operations  other  than  Trans- 
portation   25,198.44 

Total  Operating  Revenue $1,096,499 . 16 

Operating  Expenses -942,020.54 

Net  Operating  Revenue $154,478.62 

Taxes 16,206.44 

$138  272  18 
Income  from  Other  Sources 46J85o!sO 

Total  Income 185,122.98 

DEDUCTIONS  FROM  INCOME: 

Interest  on  Bonds  and  Other  Liabilities 9,000 . 00 

Miscellaneous  Rents 88,790.88 

Miscellaneous 1,366.68 

Total  Deductions  from  Income 99,157 . 56 

Net  Income 85,965.42 

Dividends 37,500.00 

Surplus $     48,465.42 


The  Operating  Expenses  and  Taxes  were  87.39  per  cent,  of  the  Total  Oper- 
ating Revenue. 


750 


MATERIALS    OF    COEPOEATION    FINANCE 


THE  HARTFORD  AND  NEW  YORK  TRANSPORTATION  COMPANY 
GENERAL  BALANCE  SHEET,  JUNE  30,  1914 

ASSETS 

PERMANENT  AND  LONG  TERM  INVESTMENTS: 
Real  Property  and  Equipment: 

Floating  Equipment  and  Terminal  Prop- 
erty        $1,469,412.99 

Leas,  Reserve  for  Accrued  Depreciation. .  117,503.77 


Other  Investments: 

Miscellaneous  Investments 

Less,  Reserve  for  Accrued  Depreciation. . . 


Intangible  Assets . 


$   835,195.81 
5,174.93 


$   830,020.88 
891,247.20 


Total  Permanent  and  Long  Term  Investments 

WORKING  ASSETS: 

Cash 

Securities  Issued  or  Assumed — Held  in  Treasury — Stock. 

Traffic  Balances  due  from  Other  Companies 

Net  Balance  due  from  Agents,  Pursers  and  Stewards 

Insurance  Claims  against  Underwriters 

Miscellaneous  Accounts  Receivable 

Materials  and  Supplies 

Total  Working  Assets 

DEFEBRED  DEBIT  ITEMS: 

Working  Funds 

Rents  Paid  in  Advance 

Other  Deferred  Debit  Items 

Insurance  Paid  in  Advance 


$1,351,909.22 


1,721,268.08 


$      90,084.24 

4,203,000.00 

357.51 

39,701.65 

21,057.70 

250,938.55 

10,285.75 


$      26,335.00 

7,323.38 

3,317.05 

18,167.62 


$3,073,177.30 


Total  Deferred  Debit  Items. 


4,615,425.40 


55,143.05 
$7,743,745.75 


LIABILITIES 

STOCK: 

Capital  Stock 

MORTGAGE,  BONDED  AND  SECURED  DEBT: 

Mortgage  Bonds 

WORKING  LIABILITIES: 

Audited  Vouchers  and  Wages  Unpaid $      81,765.02 

Traffic  Balances  Due  to  Other  Companies 2,533 . 05 

Miscellaneous  Accounts  Payable 169 .90 

Matured  Dividends  and  Interest  Unpaid 1,545 . 00 

Matured  Rents  Unpaid 173.34 

Total  Working  Liabilities 

DEFERRED  CREDIT  ITEMS: 

Other  Deferred  Credit  Items 

Profit  and  Loss  Account 


$6,703,000.00 
200,000.00 


86,186.31 

2,193.35 
752,366.09 

$7,743,745.75 


Out  of  a  total  67,030  Shares  of  Capital  Stock,  The  New  England  Navigation  Company  owns 
25,000  Shares,  the  remaining  42,030  Shares  being  held  in  the  Treasury  of  this  Company. 


N.    Y.,   N.    H.    &   H.    RR.    CO.    REPORT,    1914         751 


NEW  YORK,  WESTCHESTER  AND  BOSTON  RAILWAY  COMPANY 

OFFICERS 

L.  8.  MILLER,  President 
HOWARD  ELLIOTT,  Vice-President 

The  line  of  the  New  York,  Westchester  and  Boston  Railway  commences  at  Harlem  River 
Station  of  The  New  York,  New  Haven  and  Hartford  Railroad  Company  in  the  City  of  New  York, 
running  thence  northerly  for  1.66  miles  on  the  four-track  line  of  the  New  Haven  Railroad  to  149th 
Street  and  continuing  on  the  New  Haven  six-track  line  from  that  point  2.06  miles  to  174th  Street 
Junction  (the  Westchester  Company  having  a  trackage  contract  covering  these  tracks),  at  which 
point  the  New  York,  Westchester  and  Boston  Railway  diverges  from  the  New  Haven  and  on  its 
own  four  tracks  extends  4.9  miles  to  the  northerly  line  of  the  City  of  New  York;  all  the  foregoing 
described  lines  being  in  the  East  Bronx. 

From  the  northerly  line  of  the  City  of  New  York  the  line  continues  IB  a  four-track  road  1  .93 
miles  through  the  City  of  Mount  Vernon  to  Columbus  Avenue  Junction  Rt  which  point  the  line 
diverges  into  two  double-track  lines. 

One  line  extends  easterly  through  Mount  Vernon,  Pelham  and  New  Rpchelle  to  Larchmont 
Junction,  about  midway  between  New  Rochelle  and  Larchmont  Manor,  being  a  distance  of  2.16 
miles  from  Columbus  Avenue  Junction.  This  line  it  is  expected  will  eventually  be  extended  to 
Port  Chester,  N.  Y. 

The  other  line  extends  northerly  9.04  miles  from  Columbus  Avenue  Junction  to  White  Plains, 
passing  through  Mount  Vernon,  Eastchester,  New  Rochelle,  Scarsdale  and  White  Plains. 

The  total  mileage  operated  as  above  is  21.75  miles. 

INCOME  ACCOUNT  FOR  THE  YEAR  ENDING  JUNE  30TH,  1914 


OPERA  TINO  REVENUE: 

Freight  Revenue  ...........................................  $13,035.12 

Passenger  Rjvenue  .........................................  352,971  .  17 

All  other  Revenue  from  Transportation  .......................  15,803.60 

Revenue  from  Operations  other  than  Transportation.  ...........  18,870.02 

Total  Operating  Revenue  ..................................  $400,679.91 

OPERATING  EXPENSES: 

Maintenance  of  Way  and  Structures  ..........................  85,175.29 

Maintenance  of  Equipment  ..................................  20.282.83 

Traffic  Expenses  ............................................  9,600.93 

Transportation  Expenses  .....................................  264,844.23 

General  Expenses  ...........................................  50,930.97 

Total  Operating  Expenses  ..................................  430,834.25 

Operating  Deficit  .........  .  ...............................  30,154  .34 

Taxes  .....................................  I   ............  129.052.  13 

Deficit  ...................................................  159,206  .47 

Income  from  other  Sources  .....................................  30,156.93 

129,049.54 
DEDUCTIONS  PROM  INCOME: 

Interest  on  Bonds  and  other  Liabilities  ........................  1,297,785.33 

Miscellaneous  Rents  .........................................  65,008.62 

Amortisation  of  Discount  on  Securities  ........................  4,664  .40 

Other  Contmctural  Deductions  from  Income  ...................  1,597.43 

Total  Deductions  from  income  ..............................  1,369,055.78 

Deficit  ...................................................  $1,498,105.32 

1014                1913  Increase 

Passenger  Train  Mileage  in  Revenue  Service  ...............  1,150,277  1,127,162  23,115 

Freight  Train  Mileage  in  Revenue  Service  .................        20,406               4,420  I  .V.'Mi 

Mixed  or  other  Train  Mileage  in  Revenue  Service  ...........        38,076             17,102  20,974 

Total  Revenue  Train  Mileage  ........................  1,308,760        1,148,684  60,075 

Number  of  Passengers  carried  earning  revenue  ..............  3,062,985         2,332,933         730,052 

Number  of  Tons  of  freight  carried  earning  revenue  .........        31,882  8,776  23,106 

Number  of  Tons  of  freight  carried  one  mile  ................      472,276  121,860         360,416 


The  Operating  Expenses  and  Taxes  were  139.73  per  cent,  of  the  Total  Operating  Revenue. 


752 


MATERIALS    OF   CORPORATION   FINANCE 


NEW  YORK,  WESTCHESTER  AND  BOSTON  RAILWAY  COMPANY 
GENERAL  BALANCE  SHEET,  JUNE  30rH,  1914 

ASSETS 

FIXED  CAPITAL: 

Main  Line .  $17,062,150.27 

White  Plains  Branch 5,540,026.32 

Westchester  Northern  R.  R.  Co 15,148. 19 

Main  Line,  New  Rochelle  and  Port  Chester 84,532.55 

Columbus  Avenue  Connection 143,589 . 26 

Intangible  Capital 8,193,390.98 

$31,038,837.55 
FLOATING  CAPITAL: 

Cash $87,978.83 

Materials  and  Supplies 222,732.76 

Bills  Receivable 335,086.05 

Accounts  Receivable 102,750.75 

Interest  and  Dividends  Receivable 140 . 00 

Due  from  Stations 405.97 

Working  Funds •  2,435.00 

Accrued  Interest  Bills  Receivable 24,561 .66 

776,091.02 
INVESTMENTS: 

The  City  and  County  Contract  Co.  Stock 1 .00 

SPECIAL  DEPOSITS: 

Comptroller,  City  of  New  York $44,668.12 

Lincoln  National  Bank,  Coupon  Interest 480,667 . 50 

525,335.62 
Insurance  Paid  in  Advance 625 . 15 

SUSPENSE  ACCOUNTS: 

Unamortized  Debt  Discount  and  Expense $150,259 . 85 

Auditor's  Suspense  Account 927 . 15 

Assessments 35,661 . 69 

186,848.59 
Corporate  Deficit 2,805,664.87 

$35,333,403.80 


LIABILITIES 
STOCK: 

Capital  Stock 

FUNDED  DEBT: 

First  Mortgage  Bonds 

UNFUNDED  DEBT: 

Accrued  Taxes  and  Rentals 

Accrued  Interest  on  Bonds 

Accrued  Interest  on  Bills  Payable 

Bills  Payable 

Audited  Vouchers  and  Accounts  Payable 

Ten  per  cent.  Retained  on  Contracts 

Unclaimed  Wages 

Pay  Rolls 

The  New  York,  New  Haven  &  Hartford  R.  R.  Co.  Advances. 

RESERVES: 

Assessment  Account  180th  Street 


$4,945,250.00 


21,200,000.00 


$4,230.56 

480,667.50 

684,549.70 

5,842,423.48 

327,032.52 

6,619.50 

370.30 

98.65 

1,806,500.00 


9,152,492.21 


35,661.59 
$35,333,403.80 


Out  of  49,452}^  Shares  of  the  Capital  Stock  of  this  Company,  The  New  York,  New  Haven 
and  Hartford  Railroad  Company  owns  49,249  Shares  and  $37.50  Scrip,  the  remainder  being  held 
by  the  public. 


CHICAGO,  MILWAUKEE  &  ST.  PAUL  RY.  CO.     C  3      753 


MAIN  OFFICE — Railway  Exchange  Building,  Chicago,  111.  OTHER  OFFICE — 42  Broadway, 
New  York.  TRANSFER  OFFICE — 12  Broadway,  New  York.  REGISTRAR  OF  STOCK — Union 
Trust  Co.,  New  York.  ANNUAL  MEETING — In  September,  at  option  of  directors.  NEW  YORK 
STOCK  EXCHANGE  LISTED  SECURITY — Also  on  London  and  Amsterdam  Stock  Exchange!. 


APPROXIMATE  DIVIDEND  DATES. 

*  Dividend  Meetings  Ex-Dividend  Dividends  Payable 

Pfd.                   Com.  Pfd.                 Com.                 Pfd.  Com. 

Jan.  23               Jan.  23  Feb.     9            Feb.     9             Mar.  I  Mar.  1 

July  31              July  31  Aug.  12           Aug.  12            Sept.  1  Sept.  1 

*  This  company  has  no  set  dates  for  meetings  for  dividend  purposes,  and  the  dates  given  here  are  approxi- 
mate only,  being  based  on  the  dates  on  which  dividends  were  declared  in  the  preceding  year. 


DIVIDENDS  PAID  IN  CALENDAR  YEARS  SINCE  ORGANIZATION 


Years—             1867      1868      1869       1870      1871-5       1878        1877        1878        1879      1880-4 

Preferred  stock..     7%       ....   \  ,J3?       «£°  }      7%        17H%      3H%      1 
(    *«7o          »  10  1 

>H%       7%         7% 

Common  stock  

•14<7    \     3%i 
14/0   }»!4%f      • 

2} 

*%        7% 

Years- 

1885      1886-7      1888 

1889       1890-1 

1892 

1893-4 

1895      1896 

Preferred  stock 

•jot           jm          g     (w 

4Ji%        7% 

7% 

7% 

7%        7% 

Common  stock 

SW?'         67         2J4<5' 

2% 

4% 

2%        4% 

Years- 

1897-00 

1901 

1902-11 

1912-14 

Preferred  stock  

::    11 

7% 
8% 

7% 
7% 

7% 
5% 

Common  stock... 

•  Payable  in  stock. 
For  any  dividends  paid  during  current  calendar  year,  see  Daily  Dividend  Sheet. 

10-YEAR  ANALYSIS  OF  OPERATIONS  AND  EARNINGS. 
YEARS  ENDED  JUNE  30. 


Gross 
Op.  Rev. 

1915 $91,435,374 

1914 91,782,691 

1913 94,084,055 

1912 79,255.355 

1911 84,975,995 

1910 84.846,894 

1909 69,897.484 

1908 56.932.620 

1907 60,548,554 

1908 55,423,053 


Net 

Op.  Rev. 
$29,463,673 
30,452,630 
31.200,088 
22,000,171 
17,922,276 
20,055,896 
21.166,225 


21.148,144 
20,709,450 


%  Expenses 
to  Gross 
67.78 
66  82 
66.84 
72.28 
72.42 
69.08 
64  66 
65.28 
65.08 
62  64 


Other 
Income 

$3,649,713 
3,735,584 
4,147,287 
8,901,738 

12.075.455 
9,661,171 
2,717.051 
1,724,459 


Total 

Income 

$28.366,665 


31,523,542 
26.979,946 
27,335,031 
27,187.694 
21,454.600 
1U.1XX.749 
19,930.783 


Fixed 
Charges 
$16,398,383 
14.60.U70 
13.382,797 
17.201,037 
10,976,717 


1915 
1914. 
1913 
1912 
1911. 
1910 
1909 
1908 
1907 
1906 


Net 

Income 

$11,968.282 

15,476.287 

18,140.745 

!».77X,!HW 
16.3.58,314 
IX.6M.7K-} 
13,112,200 
12.577.2X3 
13.088.843 
13.313,230 


—Preferred  Stock— 


Div'ds 
Paid 

$8.109,206 
8.109,206 
8.115,233 
8.115,233 
8,115.233 
8.115.233 


3,490.543 


3,  40.'.  Via 


Earned 
10  29 
13  36 

15  84 
8.43 

14.11 

16  11 
26  24 
25  22 
28  14 
26.91 


A 

7 
7 
7 
7 
7 
7 
7 
7 
7 
7 


258,359 
— Common  Stock — 


8.342,400 
6,611,466 
5.942.140 
5.913.850 


Times 
Earned 

1  72 

2  06 
2  36 
1.57 
2  49 
3.18 
2  57 
2  90 
3.36 
3.25 


Div'ds 
Paid 

$5,842,504 
5.819,770 
5.797.350 
UM.7M 


8.116.220 
5,817,288 
6,817.497 
4.938.288 
4.072.873 


% 
Earned 

3  28 
6  33 
8  84 
1.19 
7.11 
9.11 
11.66 
10  93 
14  89 
16.93 


A 

6 
5 
5 
5 

7 
7 
7 
7 
7 
7 


Other 

Income 

Deductions 


Surplus 

for  Year 

•$1.983.428 

1.547.311 

4.228,162 

•:>,-".>:(. (M 


2,450.330 


'Defict. 


(2) 


(8-B) 


3,269.242 
6.571.295 
6.787.465 


Sept  22.  1916. 


1  FROM  "STANDARD-OFFICIAL"  CORPORATION  RECORDS 

COPYRIGHT.  1915.  BY  STANDARD  STATISTICS  CO..  IMC..  47-49  WBBT  ST..  NEW  YORK 
This  information,  while  not  guaranteed,  is  believed  to  be  correct. 


754 


MATERIALS  OF  CORPORATION  FINANCE 


COMPARATIVE   INCOME  ACCOUNT 
YEARS  ENDED  JUNE  30 


1915 
Average  mileage  oper 10,052.58 


1914 
9,683.95 


1913 
9,612.82 


1912 
7,511.41 


1911  1910  1909 

7,511.56       7,511.56       7,511.73 


OPERATING  REVENUES:    $$$$$$$ 
Freight  revenues...  .    63,953,799    65,266,420    67,964,161    42,815,573    44,776,454    44,909,136    42,341,651 

Passenger  revenue 17,952,428    18,961,225    18,457,136    13,936,963    14,077,757    14,786,744    12,774,852 

Other  transp.  revenue....      8,193,891      6,755,606      6,919,686     5,751,668     5,516,822      4,631,841      4,325,535 
Non-transp.  revenue 1,335,256         799,440        743,072        618,539        604,962        519,171         455,426 

Total  oper.  rev's 91,435,374    91,782,691    94,084,055    63,122,743    64,975,995    64,846,894    59,897,463 


OPERATING  EXPENSES: 


10,648,785  8,812,314  7,864,401 

13,871,985  9,681,271  8,839,384 

1,894,343  1,266,136  1,264,272 

35,065,842  26,842,051  27,965,953 

1,403,012  1,141,384  1,118,709 


Maint.  way  and  struct. . .     10,377,184  10,704.519 

Maint.  of  equipment 13,737,535  13, 1 12,978 

Traffic  expenses 1,756,800  1,799,610 

Transp.  expenses 35,697,961  33,960,581 

General  expenses 2,585,576  1,752,373 

Transp.  for  invest cr.  2,183,355          

Total  oper.  expenses...    61,971,701  61,330,061    62,883,968    47,743,156   47,053,719 

Per  cent,  of  exp.  to  gross..      (67.78%)  (66.82%)      (66.84%)      (75.63%)      (72.42%) 

Net  oper.  rev 29,463,673  30,452.630    31,200,087    15,379,587    17,922,276 

Net  from  outside  oper 260,483        174,748          21,468        195,669 


8,472,825  7,288,603 

7,724,569  7,270,774 

1,122,710  1,334,006 

26,347,283  21,764,471 

1,123,610  1,073,385 


44,790,997  38,731,239 

(69.07%)  (64.66%) 

20,055,897  21,166,225 

207,620  179,682 


Total  net  revenue 29,463,673    30,713,113    31,374,835    15,401,055    18,117,945 

Taxes  accrued 4,746,721      4,106,557      3,823,832      2,868,710      2,662,700 


20,263,517    21,345,907 
2,529,373     2,428,675 


Operating  income 24,716,952    26,606,555    27,551,003    12,532,345    15,455,245    17,734,144    18,917,232 


OTHER  INCOME: 
Div'ds  on  stocks  owned  .  . 
Interest  on  bonds  owned.  . 
Other  interest    

515,191 

342,257 
1,974,565 

51,143 
234,842 
2,065,328 

58,107 
154,814 

1,886,818 

31,825 
5,283,516 
1,575,206 

5,065,115 
4,730,978 
1,628,436 

804,880 
6,059,495 
2,589,175 

1,090245 

487,988 

402,547 

363008 

Miscellaneous  credits  .... 

329,712 

721,241 

1,509,792 

701,402 

455,257 

Total  other  income  

3,649,713 

3,475,101 

3,972,539 

7,591,948 

11,879,786 

9,453,550 

1,090,245 

Gross  income  

28,360,665 

30,081,656 

31,523,542 

20,124,293 

27,335,031 

27,187,694 

20,007,477 

FIXED  CHARGES: 
Interest  on  funded  debt.  . 
Hire  ol  equipm.,  etc  
Rents  debit            

14,636,298 
173,809 
871,503 

13,254,823 
765,363 

11,438,141 
755,304 
709,404 

8,494,529 
1,246,290 
453,028 

8,372,348 
2,604,369 

6,811,804 
1,416,489 
147,964 

5,855,717 
811,979 
227,580 

716,772 

585,185 

479,948 

129,654 

Total  fixed  charges  

16,398,383 

14,605,370 

13,382,797 

10,193,847 

10,976,717 

8.505,911 

6,895,276 

Net  income    

11,968,282 

15,476,286 

18,140,745 

9,930,446 

16,358,314 

18,681,783 

13,112,201 

Preferred  dividends  

8,109,206 

8,109,206 

8,115,232 

8,115,232 

8,115,233 

8,115,233 

3,498,348 

Balance  

3,859,076 

7,367,080 

10,025,512 

1,815,214 

8,243,081 

10,566,550 

9,613,853 

Common  dividends  

5,842,504 

5,819,770 

5,797,300 

6,956,760 

8,116,220 

8,116,220 

5,817,266 

Surplus  

tl,983,428 

1,547,310 

4,228,212 

t5,141,546 

126,861 

2,450,330 

3,796,587 

INDICATED  EARNINGS: 
On  preferred  stock  
On  common  stock  

10.29% 
3.28% 

13.36% 
633% 

15.64% 
8.64% 

8.43% 
1.19% 

14.11% 
7.11% 

16.11% 

9.11% 

26.24% 
11.56% 

•Figures  for  1915,  1914  and  1913  include  the  operations  of  the  Chicago,  Milwaukee  &  Puget  Sound  Ry.; 
for  prior  years,  the  revenue  from  that  source  is  included  in  "Other  Income." 
t  Deficit. 


CAPITALIZATION  OUTSTANDING: 

1915  1914  1913  1912  1911  1910  1909 

I  $  $  t  I  I  I 

Preferred 116,274,900  116,274,900  115,931,900  115,931,900  115,931,900  115,931,900  115,931,900 

Common 117,361,400  116,855,400  115,946,000  115,946,000115,946,000  115,946,000115,946,000 

Bonds 356,146,655  333,308,655  299,554,754  227.599,155  192,860,655  147,809,500  115,765,500 

Total. . .  . .  589,782,955  566,438,955  531,432.654  459,477,055  424,738.555  379,687.400  347,643.400 


CHICAGO,  MILWAUKEE  &  ST.  PAUL  RY.  CO.       755 

COMBINED  GENERAL  BALANCE  SHEET— WORKING  CAPITAL. 

(As  OF  JUNE  30.) 


Aaar»— 
Road  and  equip,  less  acc'd 

1915 
t 

557,143.297 
14,567.834 
34,993,759 

C,rtS.:iJ4 

1.056,176 

534.521 
2,818,100 
2,508,597 

15.426,097 
17,961 
2,264,100 
3.402,909 

S.2-.S.1H2 
160,272 
570,335 

1914 
$ 

546,844.555 
14,513,502 
31.971.333 
533.916 
857,182 

412,089 

L'.SOti.iiOO 

2,148,703 

16,745.788 
456,649 
2.tni;,iH.n> 
3,071,118 
7,723,038 
360,098 
282,329 

1913 
$ 

513,158,573 
10,120,895 
29,581,067 
375,997 
532,086 

310.144 

L'.SOli.tHIO 
2,132,058 

17,361.249 
16,704 
3,336,976 
2,922.187 
11.154.580 
563,808 
84.391 
157.040,412 

1912 
$ 

296,242.602 
131.542.654 
48,457.494 
S3&SM 

412,278 

431.565 
2.801.100 
2.046,923 

22,183,141 
319,522 
1.703,892 
L',II%.O;,O 
5,491,452 
249,833 
2,630,750 
41,513,200 
2,539,681 

1911 

289,236.420 

n.'.V  I.',?-' 
38.852.080 
383.186 
443.904 

477,215 

1,804.544 
1.008,885 

13,579,694 
257.217 
994.177 
Uis.UU 
4,981,954 
288,248 
37,455 
40.457,200 
473,217 

1910             1909 
f                  f 

278.616,376  273.345.026 
146.952,866  105.470.166 
19.404,315    20,232,355 

Secur.  of  controlled  cos.  .  . 
Adv.  to  controlled  cos  
Miscellaneous  investment. 
Taxes  paid  in  advance.  .  .  . 
Cash    and    securities    in 

557,964 
1,830,801 

430.164 
1,740,325 

Securities  in  insur.  fund.  .  . 
Other  deferred  debts  

CCRRENT  ABUTS  — 
Cash             

5,539.540 

1.277,672 
2,601,949 
1,463,472 
7,359,457 

1.889,470 
1,161.328 
1,901,997 
1.524,934 
6,127,702 

Traffic  and  ear  service  bal. 
Agents  and  conductors 
Miscel.  accounts  rec.  .  . 
Materials  and  supplies. 
Other  working  asset.  .  . 
Unmatured  interest  
Treasury  securities 

30.470,200 

28,573.200 

Loans  and  bilk  receivable. 

Total  current 


....    30,099,866    30,675,112192,480,307    78.727,527    62,754.506    48,712.290   41,158,631 


Total  assets 644,390,474  630,762,992  751,497,727  560,990,474  527,782,412  496,074,612  442,376,667 

LIABILITIES — 

Common  stock 117.361.400  116,855,400  116,348,200  116,348,200  116,348.200  116,348.200  116,348,200 

Preferred  stock 116,274,900  116,274,900  116,274,900  116,274,900  116,274,900  116,274,900  116,274,900 

Premium  realised  on  capi- 
tal stock 36,184         36.184         

Funded  debt 482.133,155  486,881,155  455,849,966  268,367,154  232,572.654  177,534,500  143,593,500 

Less  stock  and  bonds  un- 


Total  capital  liabilities.. 
Ins.  dept.  fund—  res  
Other  deferred  credits  ... 
Renewals  and  improvem't 

591.568.839  566.132.139  688,473.066  500.990,254  465,199.754 
2,721,272     2,771,116     2,763.614     2.714.687      1,807,674 
550,730        417,965        415,150        234,244        422,066 

410,157.600 

i.jvio.sm 

557,964 
4,544,681 

376,276,600 
1,740.325 
430,164 

5.807.199 

Appropriated  surplus  
Profit  and  loss  surplus  — 
CURRENT  LIABILITIES  — 
Billspayable 

543,611 
33,904,375 

30,280 
554,624 
7,393,080 
389,248 
171,110 
5,400 
266.502 

5.459,273 
832,130 

430.269 
40,860,896 

5,030,280 
516,327 
7,592,103 
340.974 
120.410 
5,000 
615,955 

5,001,099 
928,459 

319,234 
43,417,093 

1.221,688 
42,937,525 

1,102,214 

49,278,508 

50,546,541 

4,090,000 
1.201.542 
4,945.276 
393.268 
47,470 

47,960,896 

574.938 
5,488423 

l,4o(l.'.rJ7 
58,786 

Traffic  and  car  service  bal. 
Pay  rolls  and  vouchers.  .  . 
Miscel.  accounts  payable. 
Matured  interest      

149,285 
8,857,116 
457,832 
95,081 
10,000 
729,666 

4,495,241 

1,308.399 
6,950 

1,131,066 
6,534,394 
150,647 
32.055 
10.000 
455.423 

3.233.498 

1,308,399 
42,594 

853.937 
4,001.529 
98.764 
41,452 
36.000 
502,690 

3,110,290 
1,308.399 
23,135 

Matured  funded  debt  
Other  working  liabilities  .  . 
Interest  accrued  on  funded 
debt            

3.193.838 
14,655,631 

2,648,000 

French  government  Us.  .  . 

Total  current  liabilities.     15,101,647    20,150,607    16,109,570    12.898,076     9,976,196    28,437,025    10,221,483 

Total  liabilities 644.390.474  630.762,992  751.497.727  560.990.474  527,782.412  496,074.612  442.376.667 

•  Net  working  capital 14,998,219    10,524,505  176.370,737    65.829.451    62.778,310    20,275.265    30,937.148 

*  Based  upon  statement  of  current  assets  and  current  liabilities  as  above. 


DISTRIBUTION  OF  GROSS  INCOME. 

1915     1914     1913 


Per  cent,  of  gross  op.  rev.  to  gross  income. 
Per  cent,  of  other  income  to  gross  income. 


Maintenance  of  way  and  structures. 

Maintenance  of  equipment 

Transportation  expenses 

Traffic  and  general  expenses 

Transp.  for  invest,  (cr.) 

Taxes 

Fixed  charges 

Dividends 

Surplus 


96.1 
3.0 

100.0 

10.9 
14.3 
37.6 
4.6 
2.2 
6.0 
17.1 
14.7 

•M.  L>  II 

100.0 


100.0 


100.0 


1912 


89.2 
10.8 


100.0 


1911 


84.3 
15.7 


100.0 


100.0 


11.3 
13.7 
35.5 
8.7 

10.8 
14.2 
35.7 
3.3 

12.5 
13.7 
37.9 
3.4 

Hi-' 
11.5 
36.2 
3.1 

11.1 

13.5 
36.5 
3.6 
0.4 

4.4 
15.2 

li  . 
1.7 

3.8 
13.6 
14.3 

4.:i 

4.1 
14.4 

•Jl  .' 
drf.  7J 

3.4 
14.2 
21.2 

ii-' 

4J 

14.9 

17.2 
def.  0.6 

1IMI.U 


100.0 


100.0 


100.0 


IIKIO 


756 


MATERIALS  OF  CORPORATION  FINANCE 


PER  MILE  STATISTICS. 
(Average  Mileage  Operated.) 


Gross  earnings 

*1915 
1 

9,096 

•1914 
$ 

9,478 

»1913 
$ 

9,787 

1912 
1 

8,404 

1911 
$ 

8,649 

1910 
1 

8,634 

1909 
$ 

7,974 

1908 
$ 

7,592 

Maintenance  way  and  structures 
Maintenance  of  equipment  
Cond.  transp.  and  gen.  exp  
Transp.  for  invest,  (cr.)  

1,032 
1,367 
3,983 
217 

1,105 
1,354 
3,874 

1,108 
1,443 
3,990 

1,173 
1,289 
3,894 

1,047 
1,177 
4,040 

1,128 
1,029 
3,807 

970 
969 
3,218 

886 
939 
3,131 

Net  earniigs  

2,931 

3,145 

3,246 

2,048 

2,385 

2,670 

2,818 

2,636 

Taxes  

472 

424 

398 

382 

354 

336 

323 

308 

Operating  income             .   .  . 

2,459 

2,721 

2,848 

1,666 

2,031 

2,334 

2,495 

2,328 

Other  income      

363 

386 

431 

1,014 

1,607 

1,060 

199 

229 

Total  income 

2,822 

3,107 

3,279 

2,680 

3,638 

3,394 

2,694 

2,557 

Fixed  charges       

1,632 

1,508 

1,392 

1,357 

1,461 

907 

949 

882 

Net  income 1,190        1,599        1,887        1,323        2,177        2,487        1,745        1,675 

*  Figures  for  1915,  1914  and  1913  include  the  operations  of  the  Chicago,  M.  P.  Sound  Ry.;  for  prior  years, 
the  revenue  from  that  source  is  included  in  "Other  Income." 


CAPITALIZATION  PER  MILE. 


1915  1914  1913  1912  1911  1910  1909 

$$$$$$$ 

8,409          8,508          8,873        11,293        11,438        11,543        11,571 

8,488          8,550          8,874         11,294         11,439         11,544         11,572 
25,757         24,390         22,926         22,170         19,027         14,717         11,554 

42,654        41,448         40,673         44,757         41,904         37,804         34,697 

NOTE. — The  above  figures,  representing  capitalization  per  mile,  are  based  upon  total  main  tracks  and  sidings 
owned  and  operated  in  the  various  years,  as  follows: 


Preferred  stock . 
Common  stock. 
Bonded  debt... 


Total. 


Main  track,  miles  

1915 
.  .  .      9,617.22 

1914 
9,578.48 

1913 
9,321.99 

1912 
7,265.93 

1911 
7,265.93 

1910 
7,266.09 

1909 
7,266.09 

1,023.50 

924.95 

666.05 

593.44 

572.86 

485.69 

485.69 

Third  track,  miles            

21.72 

21.72 

22.27 

11.89 

11.89 

9.39 

9.39 

Fourth  track,  miles       

13.11 

13.11 

.      13.11 

2.63 

2.63 

2.63 

2.63 

46.98 

45.13 

44.42 

40.69 

40.31 

39.48 

39.13 

Yard  track,  etc.,  miles  

.  .  .      3,104.48 

3,083.07 

2,998.63 

2,351.07 

2,242.19 

2,240.06 

2,216.61 

Total  mileage 13,827.01    13,666.46    13,066.47    10,265.62    10,135.81    10,043.34    10,019.54 


Products  of — 

Agriculture 

Animals 

Mines 

Forests 

Manufactures. . . 
Miscellaneous... 


COMMODITY  STATISTICS. 

1915 


23.49 
6.08 
26.77 
16.66 
16.30 
10.70 


1914 

% 
21.70 

5.45 
25.03 
18.29 
17.50 
12.03 


1913 

% 
20.95 

5.19 
26.07 
17.77 
18.72 
11.30 


1912 

% 
19.00 

6.56 
27.43 
15.92 
18.34 
12.75 


1911 

% 
21.42 

6.45 
26.82 
13.52 
18.55 
13.24 


1910 


1909 


18.74  21.34 
5.36  6.41 

31.87  28.90 

12.55  13.50 

19.73  17.81 

11.75  12.04 


Total. 


100.00    100.00    100.00    100.00    100.00    100.00    100.00 


TRAFFIC  STATISTICS. 


1915 

FREIGHT  TRAFFIC — 

Revenue  freight  carried  (tons) 32,959,392 

*  Freight  traffic  density 

Average  distance  per  ton  carried  (miles) 

Freight  train  mileage  per  mile  of  road 

Average  revenue  train  load  (tons) 

Average  revenue  per  ton 

Average  revenue  per  ton  per  mile  (cents) 

Freight  revenue  per  train  mile 

CAR  LOADING  AND  MOVEMENT — 
Average  revenue  freight  per  loaded  car  (tons)  — 

Average  loaded  cars  per  train  (No.) 

Average  empty  cars  per  train  (No.) 

Per  cent,  of  loaded  to  total  car  mileage 


1914 


1913 


1912 


1911 


1,959,392    33,007,277    34,805,491    29,286,115    26,793,647 

814,364 

834,338 

891,507 

679,799  . 

708,671 

248.37 

244.79 

246.23 

224.55 

198.68 

2,086 

2,479 

2,213 

2,232 

2,581 

390.21 

379.78 

356.95 

307.82 

274.58 

$1.9404 

$1.9773 

$1.9527 

$1.9052 

$1.6712 

.7813 

.8078 

.7930 

.8485 

.8411 

$3.0486 

$3.0678 

$2.8308 

$2.6117 

$2.3095 

16.835 

16.498 

16.776 

15.355 

14.968 

23.179 

23.019 

21.277 

20.046 

18.345 

10.138 

9.318 

7.462 

7.136 

7.319 

69.5% 

71.2% 

74.0% 

73.7% 

71.5% 

*  Representing  the  tonnage  of  freight  and  the  number  of  passengers  carried  one  mile,  per  mile  of  road  operated. 


CHICAGO,  MILWAUKEE  &  ST.  PAUL  RY.  CO.      757 

TRAFFIC  STATISTICS  (Cent.) 


1915  1014 
PAauoran  TRAFFIC— 

Passengers  carried  (No.) 16,065,456  16.426,016 

•Passenger  traffic  density 85,401  94.215 

Average  distance  per  passenger  carried  (miles) 53.43  55.54 

Passenger  train  mileage,  per  mile  of  road 1.854  1,977 

Average  pisaungBH  per  train  mile  (No.) 46.05  47.66 

Average  revenue  per  passenger SI. 1175  (1.1543 

Avenge  revenue  per  passenger  per  mile  (cento) 2,091  -.n7s 

Passenger  revenue  per  train  mile $0.9629  $0.9905 


1913 


1912 


1011 


16.123.475  14,889,937  14.395.918 

89.694  91,055  100,917 

53.48  53.13  47.05 

1.989  1.914  1,947 

45.10  43.20  46.31 

f  1.1447  $1.1128  $0.9781 

2,141  2.094  2,079 

$0.9654  $0.9047  $0.9628 


•  Representing  the  tonnage  of  freight  and  the  number  of  passengers  carried  one  mile,  per  mile  of  road  operated. 


GROSS  EARNINGS  BY  MONTHS. 

t!914-15      N913-14  fl912-13       1911-12  1910-11  SYr.Av.  %of 

$$$$$$  Total 

July 7.824.986     7,740,518  7,393.547     5,044,537  5,341,535  6,669,024  8.22 

August 8,189.201      7,870,612  8,111,277     6,495,460  5.998,306  7.132,971  8.80 

September....                             9.240.207     8.675,621  8.604.270     5.962,267  6,504,202  7,797,313  9.61 

October 8,873,521      9.246,434  9,410,077     6,141,524  6,508,260  8.035,963  9.91 

November 7,379,909     8,161,618  8,670,292     5,402,186  5,762,846  7.075,370  8.73 

December 7,282.244     7,652,902  8,313,293     5,298,578  5,407,237  6,790,848  8.38 

January     6,696,116     6,912,067  7,283,152     4,256.348  4,736.623  5,976,862  7.37 

February 6,472.696     6,144,423  6,564,392     4,903,318  4,483,669  5.713,699  7.05 

March  "            7,544.390     7,630,103  7,596,900     5,300,658  5,238,606  6,662,131  8.22 

April 6,877,038     7,106,116  7,166,906     5.054,242  4.771,762  6,195,223  764 

May 7.244,196     6,970,871  7,338,031     4,936,862  5,040,679  6,306,127  7.78 

June 7.810.870     7,671,406  7,631,916     5,326,758  5,182,262  6,724,642  8.29 

Total...                             .    91.435,374  91,782,691  94.084,054  63,122,743  64,975,995  81,080,173  100.00 


*  OPERATING  INCOME  BY  MONTHS. 


July. 


September 

(k-tober 

November . 

DecomU-r 

January 

February 

March 

April 

May 

June 


11914-15 

f!913-14 

t!912-13 

1911-12 

1910-11 

SYr.Av. 

%of 

$ 

$ 

$ 

$ 

$ 

$ 

Total 

2.383,898 

2,230,314 

2,393,643 

1,126,827 

1.375,831 

1,902,103 

8.90 

2.157.688 

1,903,603 

2,949,242 

1,085,200 

1,545.183 

1,928,183 

9.02 

3,208,945 

2,614,282 

3,067,856 

1,274,061 

1,898,177 

2,412,664 

11.29 

2.683.710 

3,273,231 

3,665,528 

1,711,479 

1,902,095 

2,647,209 

12.39 

1,646,072 

2,434,792 

2,830,147 

1,276,886 

1,124,430 

l,Stil',4tH) 

8.71 

1.S26.4S5 

2,641,871 

2,583,809 

1,447,571 

ys:i,4oo 

1,S!)7,S27 

8.88 

1,349.513 

1,882,303 

1,734,941 

249,565 

332,821 

1,109,829 

5.19 

907,492 

974,536 

857,483 

651,265 

546,502 

787,456 

3.69 

2,479,908 

2,783,166 

2,130.510 

1,241,369 

1.550,298 

2,037,050 

9.53 

1,556,038 

1,784,275 

1.470,995 

580,358 

l,05K,ti% 

1,290,073  • 

6.04 

1,694,466 

1,830,218 

1,804,898 

618.806 

1,415.881 

1.472,854 

6.89 

2.822,737 

2,253,964 

2,061,940 

1,268,950 

1.715,924 

2,024,703 

9.47 

Total 24.716.952    26,606,555    27.551,003    12,532.344    15,455.244    21,372.417     100.00 

*  After  deduction  of  "outside  operations"  and  taxes. 

t  Figures  for  1914-15,  1913-14  and  1912-13  include  the  operations  of  the  Chicago,  Milwaukee  A  Pugct  Sound 
Railway. 

HISTORY  AND  PROPERTY 

HISTORY. — Incorporated  on  May  5,  1863,  in  Wisconsin,  as  the  Milwaukee  & 
St.  Paul  Ry.;  name  was  changed  to  present  title  on  Feb.  14,  1874.  During  the 
development  of  the  system  the  following  lines  have  been  added  either  by 
acquisition  of  control  or  by  construction : 


Western  Union  R.  R.  (in  1874). 
Milwaukee   A    Northern    R.    R. 
(Oct.  1, 1890). 

Wisconsin  \Vot.TM  K.  H.  (in  I'.Ktt). 

Duluth,    St.    Cloud,    Glenooe   A 

Mankato  Ry.  (in  April,  1906). 


Line  from  Madison  to  Sioux  Falls. 

8.  D.  (opened  Nov.  5,  1906). 
lane  from  Chamberlain  to  Itapid 

City,  8.  D.  (opened  July  29. 

1907). 


Chicago.     Milwaukee    *    i 
Sound  Ry.  (construction  com- 
pleted 1912). 

Idaho  A  Western  Ry.  (Doc.  0. 
1912). 

Idaho   4    Washington   Northern 
R.  R.  (acquired  Dec..  1913). 

Great    Falls    Terminal    Railway 
(acquired  Nov.  6.  1914). 

NOTE.— I.  A  W.  N.  R.  R.  was  acquired  by  exchange  of  that  company's  bonds  and  notes  for  C..  M.  A  8t 
P.  Ry.  4%  Debentures,  due  1934,  par  for  par.  On  June  30.  1914.  the  company  had  acquired  83%  of  the 
capital  stock  and  all  the  bonds  and  notes  except  $60,000  first  mortgage  bonds. 

PROPERTY. — Owns  lines  from  Chicago  to  Milwaukee,  Minneapolis,  Kansas 
City,  Omaha,  St.  Paul,  Duluth,  Des  Moinea,  Sioux  Falls,  Butte,  Spokane, 
Seattle,  Tacoma,  and  a  large  number  of  other  important  cities  and  towns  in 


758          MATERIALS  OF  CORPORATION  FINANCE 

Illinois,  Wisconsin,  Michigan,  Missouri,  Iowa,  Minnesota,  North  and  South 
Dakota,  Montana,  Idaho  and  Washington.  Total  main  line  mileage  directly 
owned,  9,617.22  miles;  owned  jointly  with  other  companies,  103.45  miles;  used 
under  contracts,  354.94  miles;  total  mileage  operated,  including  second  track, 
sidings,  etc.,  14,554.28  miles. 

MILEAGE  SUMMARY. 

June  30,  1915. 

Owned  solely  Owned  jointly  Used  under 

by  this  with  other  contracts  Total 

company  companies 

Main  track,  miles 9,617.22  103.45  354.94  10,075.61 

Second  track,  miles 1,023.50  6.14  76.47  1,106.11 

Third  track,  miles 21.72  1.94  1.14  24.80 

Fourth  track,  miles 13.11  1.93  15.04 

Connection  track,  miles 46.98  5.92  52.90 

Yard  track,  etc.,  miles 3,104.48  175.34  3,279.82 


Total  miles 13,827.01  294.72  432.55  14.554.28 

MILEAGE  BY  STATES. 

(Main  track  owned  solely  and  jointly.) 

Miles  Miles 

Wisconsin 1,823.59       Michigan 179.98 

Illinois 415.04       Montana 1,056.11 

Iowa 1,868.61        Idaho 197.37 

Minnesota 1,244.90        Washington 619.98 

North  Dakota 379.93                                                                            

South  Dakota 1,794.89              Total 9.720.67 

Missouri 140.27 

EQUIPMENT. 

t!915  t!914  fl913  t!912  fl911 

Locomotives,  No 1,983  1,976  1,959  1,812  1,712 

Locomotives,  total  tractive  power  (Ibs.) ......            56,614,053  47,797,795  44,720,558 

Locomotives,  average  T.  P.  (Ibs.) 28,490  26,378  26,122 

Freight  cars,  No 65,466  66,897  65,778  58,187  44,095 

Freight  cars,  total  capacity  (tons) 2,198,421  1,952,491  1,864,176 

Freight  cars,  average  capacity  (tons) 34.00  32.9  33.5 

•Passenger  cars  (No.) 1,606  1,563  1,552  1,479  1,451 

Service  cars  (No.) 1,704  1,730  1,712  2,823  2,846 

*  Including  sleeping  cars,  dining  cars,  parlor  cars,  baggage  cars,  etc. 

f  Figures  include  Chicago,  Milwaukee  &  Puget  Sound  Ry. 

OFFICERS  AND  DIRECTORS. 

OFFICERS— A.  J.  Earling,  Pres.;  H.  R.  Williams,  J.  H.  Hiland,  E.  S.  Keeley,  E.  D.  Sewall,  D.  L. 
Bush,  H.  B.  Earling,  Vice-Pres.;  E.  W.  Adams,  Sec'y;  F.  G.  Ranney,  Treas.;  P.  C.  Hart, 
Gen.  Mgr. 

EXECUTIVE  COMMITTEE — A.  J.  Earling,  C.  W.  Harkness,  P.  A.  Rockefeller,  Wm.  Rockefeller" 
J.  A.  Stewart,  H.  R.  Williams. 

DIRECTORS — (1917)  W.  P.  Blisa,  C.  W.  Harkness,  J.  D.  Ryan,  Samuel  McRoberts,  New  York; 
A.  J.  Earling,  Chicago;  (1915)  D.  G.  Geddes,  Wm.  Rockefeller,  J.  A.  Stewart,  H.  R.  Williams, 
New  York;  (1916)  P.  A.  Rockefeller,  New  York;  J.  Ogden  Armour,  Stanley  Field,  Chicago; 
L.  J.  Petit,  Milwaukee. 


AMERICAN  SMELTING  &  REFINING  CO.  759 

COMPARATIVE  CONSOLIDATED  INCOME   ACCOUNT, 
YEARS  ENDED  DECEMBER  31 


Net  earn,  of  smelt.  &  refin. 

pits.  4  Indus,  dependent       1914             1913             1912             1911            fl911         fl910           f!909 
thereon $10.667,822  $10.926.254  $12.568.835  $12.100,761    $6.808,345    $6,738.221          

Net    earn,    from    mining 
properties 935.193      1,185.154     3.113.105     2.000,187        105,619        331,334         

Total  net  earnings. $11,603,015  $12.111,408  $15.681.940  $14.100,948    $6,913.964    $7,069.555          

OTHER  INCOM»— 
Inter.,  rente,  divds.  ree'd, 
etc 1.222,514      1.318,525      1,077,560      1,011.177        972,741        823.418         

Grow  income $12,825,530  $13.429,933  $16,759,500  $15,112,125    $7,886,705    $7,892,971    $8.349.314 


DBDUCTIONB  — 

$924,683 

$896,639 

$758,177 

$767.982 

$368,358 

$375.077 

•$637.335 

Research  &  exam.  exp.  .  . 

55,008 

90,538 

159,619 

Corporate  taxes  

175,859 

210,698 

123,917 

114,198 

102,231 

9.977 

808,064 

900,000 

900,000 

825,000 

50.000 

50,000 

50,000 

45.833 

Depreciation  

.       1.540.350 

1,525,518 

3,013.543 

1,887,399 

750,000 

461.638 

321,234 

Total  deductions.  

.    $3,553,964 

$3,673,393 

$5,005.256 

$3,640,412 

$1,220,589 

$846.692 

$958,569 

Net  income $9,271,565    $9,756,540  $11,754,244  $11,471,713    $6,666,116    $7,046,279    $7,390,745 

Div'da  on  Pfd.  Stocks: 
Amer.  Smelt.  &  Refining 

Co $3,500,000    $3,500,000    $3,500,000    $3,500,000    $3,500,000    $3,500.000    $3,500.000 

Amer.  Smelt.  Secur.  Co. 

Pref."A" 1,017.450      1.020.000      1.020.000      1,020,000          

Amer.  Smelt.  Secur.  Co. 

Pref.  "B" 1,500,000      1.500,000      1,500,000      1,500,000         

Total  pref.  div'ds $6,017,450    $6,020,000    $6,020,000    $6,020,000    $3,500,000    $3,500,000    $3.500.000 

Avail,  for  com.  stock  div- 
idends   $3,254,115  $3,736,540  $5,734,244  $5,451,713  $3,166.116  $3.546,279  $3,890,745 

Divds.  on  Amer.  Smelt.  & 
Refin.  Co 2.000,000  2,000,000  2,000,000  2.000,000  2,000,000  2.000,000  2,000,000 

Surplus  for  year $1,254,115    $1,736,540    $3,734,244    $3,451,713    $1,166,116   $1.546,279    $1.890,745 

Previous  surplus 18,495,943    16.759,402    13,699,726    11.148,223    16,797,547    15,251,268    13,408,219 

Apprais.  val.  of  Amer. 
Smelt.  Sec.  Co.  com. 
stock 10,650,600  


Total  surplus $19,750,058  $18,495,943  $17,433,970  $14.599,936  $28,614,262  $16.797,547  $15,298.964 

Misc.  P.  A  L.  chgs.......         240.000         20,572          

Deprec.  in  value  of  in- 
vestments   367,823  300,572  

Approp.  to  empl.  bonuses 
4pens.fund 306,745  900.210  47.895 

Trans,  to  prop,  acct 15,245,365          

P.  &  L.  surplus $19,510,058  $18,495,943  $16,759,402  $13,699,726  $13.047.753  $16,797.547  $15,251.268 

INDICATED  EARNINGS: 
On     $50.000.000     Pre-  1914  1913  1912  1911          fl911  f!910  f!909 

ferred  Stock 18.54%       19.51%       23.51%       22.94%       13.33%        14.09%        14.78% 

On  $50,000,000  common 

stock 6.51%         7.47%        11.47%        10.90%         8.33%         7.09%         7.78% 

t  Yean  ended  April  30,  including  transactions  of  the  American  Smelting  A  Refining  Co.  only. 
•Includes  taxes. 


760 


AMERICAN  SMELTING  &  REFINING  CO. 


CONSOLIDATED  GENERAL  BALANCE  SHEET— WORKING  CAPITAL. 

(As  OP  December  31) 

ASSETS—                                1914             1913             1912             1911  *1910           *1909           *1908 
1*499*1 

Property  account 140,642,221  140,906,799  140,063,528  139,963,733  86,845,671    86,845,671    86,845,671 

Investm.  in  secur.  of  other 

companies 1,204,502      1,183,653      1,010,538      1,585,670  2,058,388      3,949,958      3,950,088 

Metal  stocks 24,660,943    26,481,003    29,661,019    26,492,980  15,547,541    15,537,487    15,451,158 

Cash,  secur.  &  accd.  int. 

in  funds 594,700        479,637        229,601        232,555  

Unextin.  disc,  on  bds 554,167        604,167        654,167        704,167         

Prep,  tax.,  insur.,  etc 426,512         569,751         327,185        400,149  

Adv.toaffiLcos 282,228        180,425        349,744        333,705  


CUBBENT  ASSETS— 

Materials  and  supplies. ;. 
Cash    on    hand    and    in 

transit 8,034,778 

Foreign  bills  of  exch.  and 


2,785,636     3,017,682      2,783,113      2,566,872      1,278,098      1,330,774      1,380,742 
4,043,666     3,809,374      5,890,708 


Demand  loans  secured  .  .  . 

4,533,945 

5,068,167 

5,935,873 

3,192,050 

Accts.  and  notes  receiv.. 

.      4,857,605 

5,851,433 

4,387,563 

4,236,519 

Net  current  assets  , 

465,140 

500526 

Cash  and  demand  loans. 

til,  620  400 

7  359  239 

5  629  034 

Total  current  assets  

$20,211,964 

19,438,348 

16,915,923 

15,886,149 

12,898,498 

9,155,153 

7,510,302 

Total  assets $188.577,237  189,843,783  189,211,705  185,599,108  117,350,098  115,488,269  113,757,219 

LIABILITIES — 

Pfd.  stock  outstand 96.830,000  97,000,000  97,000,000  97,000,000  50,000,000    50,000,000    50,000,000 

Com.  stock  outstand 50,000,000  50,000,000  50,000,000  50,000,000  50,000,000    50,000,000    50,000,000 

Deb.  bonds  outstand 13,351,000  13,534,500  14,495,000  15,000,000  121,000         237,000         349,000 

Reserve  and   susp.   cred. 

accounts 1,322,192  1,307,788  1,169,216  1,089,272          

P.  &  L.  surplus $19,510,058  18,495,943  16,759,402  13,699.726  16,797,547    15,251,269    13,408,219 


CURRENT  LIABILITIES  — 
Accounts,  drafts  and  wages 

4,710,388 

6,427,881 

6,773,296 

5,598,661 

Defd.  paym.  on  min.  prop- 
erties   

215,500 

330,000 

440,000 

Int.    on    deb.    bds.  —  un- 
claimed and  payable.  .  . 

389,910 

380.100 

412,605 

379,125 

Divds.  unclaimed  and  pay- 
able         

1,924,314 

2,045,897 

1,917,377 

2,517,427 

Accd.  taxes  not  due  

323,875 

321.674 

244,809 

198,493 

116,404 

Net  current  liabil  

431,551          

Total  cur.  liabil $7,563,987     9,505,552      9,788,087     8,810,110        431,551 


Total  liabil $188,577,237  189,843,783  189,211,705  185,599,108  117,350.098  115,488,269  113,757.219 

JNET  woRKma  CAPITAL.  .  $12,647,977     9,932,796     7,127,836     7,076,039    12,466,947     9,155.153     7,510,302 

*  The  fiscal  year  ended  April  30  represents  assets  and  liabilities  of  the  American  Smelting  &  Refining  Co.  After 
the  fiscal  year  April  30,  1910,  the  Balance  Sheets  of  the  American  Smelting  &  Refining  Co.  and  American  Smelting 
Security  Co.  were  consolidated. 

t  Demand  loans  cover  advances  to  affiliated  companies. 

J  Based  on  current  assets  and  current  liabilities  as  indicated  above. 


BETHLEHEM  STEEL  CORPORATION 
BETHLEHEM  STEEL  CORPORATION.* 


761 


Ditidrndi  Paid  in  Calendar  Yearn  Since  Organization— 

Years  1905        1906        1907        1908-12 

7%pref«Ted  ..............    3H%       «%       K%  ••• 

Common  .............................. 

Common  Class  "  B  "  ...........          ...          ...  ... 


1013 

6% 


1914 
5% 


1917 


•Abo  a  dividend  of  200%,  payable  February  17.  1917,  in  Claw  "B"  common  stock  at  par. 
For  any  dividends  paid  during  current  calendar  year,  see  Daily  Dividend  Sheet. 

10-YEAR  ANALYSIS  OF  INCOME  ACCOUNT. 


Ytari  Ended  December  SI. 


Available 

Total 

IVprtv.  it 

for  Interest 

Interest 

Times 

Income 

Depletion 
$17,911.641 

Charges 
$36,067,719 

Charts 
$8,746,082 

Earned 
4.12 

61,717,310 

114,350,786 

47,366.524 

3,772,556 

12.56 

24,821,408 

t4,7l6,000 

20,105,408 

2,342,595 

8.58 

'.1  tVl'l  tills 

1,847,273 

7,802,395 

2,212,374 

3.53 

8,752,1171 

tl,528,785 

7,223,886 

2,101,183 

3  44 

5,114,440 

tl,046,884 

4,067,556 

2,003,915 

2.03 

4,792,713 

tSSS.148 

3,904,565 

1,865,586 

2.09 

4,524.141 

1850,279 

3,673,862 

1  672  250 

2.19 

2  WA  ri'M'i 

tliStV.144 

2,336,592 

1.535,781 

1.52 

2,196,172 

Jt387.817 

1,808,355 

1,441,491 

1.25 

Net  Manufac-  Other 

twin?  Profits  Income 

1917 $51,002,772  $2,976,588 

1916 60,092,551  1,624,758 

1015 23,782.784  1,038.624 

1014 0,378,385  271,282 

1013 8,530,708  221,963 

1912 4,846,8 1 4  267,626 

1911 4,605,410  187,303 

1910 4,396.439  127,702 

1909 2,811,400  182,136 

1908 2.024,025  172.147 

tProvisJon  for  extinguishment  of  mining  investments,  amortisation  of  patents  and  depreciation  of  other 
properties. 

{Includes  excess  of  book  value  over  amounts  realised  on  sale  of  investments  in  subsidiary  companies  amounting 

to  $98,059  in  1907  and  $14,000  in  1908. 


Net 

Div'ds            %           % 

Div'ds    ' 

i  reirrreu  

Income 

Paid          Earned      Paid 

Paid 

Earned        Paid 

1917  

$27,320,737 

$594,480        '91.91         2 

$1,043,560 

179.27         7 

1916  

43,593,968 

1,043,560 

292.4           7 

1915  

17.762,813 

1,043.560 

119.2           7 

1914  

5,590,020 

745,400 

37.5           5 

1913  

5,122,703 

745,400 

34.4          5 

1912  

2,063,641 

13.8 

1011  

2,038.979 

13.7 

1010  

2,001,612 

13  5 

800,811 

5.4 

1908  

366,864 

2.6            ?i 

C 

ommon                          —  Comnu 

>n.  Class  "B"— 

Div'ds 

%            %            Div'ds 

%           % 

Surplus 

Paid 

Earned      Paid            Paid 

Earned      Pal 

id         for  Year 

1917... 

$2,749,470 

f...        18>i       $3,789,810 

t...       8M 

,       $19.143,417 

1916  

4,458,600 

286.3       30             

38,091,808 

1015  

112.5        ..             

16,719.253 

1014  

32.6        ..              

4,844,620 

1013  

27.5        ..             

4,377,303 

1913  

6.9        ..             

2,063,641 

1911  

6.8        ..             

2,038,979 

1910  

6.6        ..             

3,001,612 

1909  

8003H 

1908  

HUM 

•Baaed  on  amount  outstanding  December  31. 

tin  the  year  ended  December  31,  1917,  43.20%  was  earned  on  common  stock  and  common,  class  "B"  stock 


COMPARATIVE  INCOME  ACCOUNT,  YEARS  ENDED  DEC.  SI. 

1017      1016      1915      1014      1013      1013 


1911 


Gross  sales  ft  earn- 
ings  $298,020,531  $216,284.556  • • • • '. 

ManuTg  cost  ft 
oper.  exp.,  includ. 
adminin.,  selling 
and  general  exp.  234.437,465  151,278.302  • • ; • •. 

Net  manufacturing 

profit* 

Other  income 

Total  income $53.979,360    $61,717,310  $624,821,408      $0.649,667      $8,752.671      $5.114.440     $4.702.713 

'From  Standard  Corporation  Records.     Copyright  1018  by  Sundard  Butirtics  Co.,  Inc..  47-49  Welt  8U 
N.  Y.    Thii  information,  while  not  Kuarantoed,  IB  believed  to  be  correct. 


1       ' 

$51.002.772 
2,976.588 

$60.002.551 
1,824.758 

$623,782,784 
1.038.624 

$0,378,885 

HUH 

$8.530.708 
B1.NI 

$4.846.814 

mjm 

$4,605.410 

HUH 

762 


MATERIALS  OF  CORPORATION  FINANCE 


Deductions-' 
Interest  on  notes 
and  advances... 
Bond  interest  
Exting.  of  ™n.  in- 
vest., etc  
Deprec.  4  deplet.. 

1917 

$       407,665 
8,339,317 

|  17,911,641 

1916 

$       761,773  $ 
3,010,783 

14,350,786  | 

1915 

86,105  $ 
2,256,490 

339,000 
4,377,000 

1914 

170,998  $ 
2,041,376 

347,273 
1,500,000 

1913 

137,164  $ 
1,964,019 

256,516 
1,272,269 

1912 

159,437  $ 
1,844,478 

256,300 
790,578 

1911 

210,886 
1,654,700 

213,148 
675,000 

Total  deductions 
Net  income  .... 
8%  pfd.  dividends. 

$  26,658,623 
27,320,737 
594,480 

$  18,123,342  $ 
43,593,968 

7,058,595  $ 
17,762,813 

4,059,647  $ 
5,590,020 

3,629,968  $ 
5,122,703 

3,050,799  $ 
2,063,641 

2,753,734 
2,038,979 

7%  pfd.  dividends. 

1,043,560 

1,043,560 

1,043,560 

745,400 

745,400     . 

2,749,470 

4,458,600     . 

Coin.,   class   "B" 
dividends  

3,789,810 

Surplus $  19,143,417  $  38,091,808  $  16,719,253  $    4,844,620  $    4,377,303  $    2.063,641  $    2,038,979 

Previous  surplus..        9,370,198       6,278,390       2,059,137       2,214,517       1,017,954       7,308,667       5,269,688 


Total  surplus  .  .  . 
Approp.  for  addit. 
to     prop,     and 
working  capital  . 

28,513,615 
17,500,000 

44,370,198 
35,000,000 

18,778,390 
12,500,000 

7,059,137 
5,000,000 

5,395,257 

9,372,308 
7,500,000 

7,308,667 

Adjust,  of  disc,  and 
exp.  on  bonds.  .  . 

3,180,740 

854,354 

P.    &    L.    surplus 
Dec.  31 $11,013,615$    9,370,198$    6,278,390$    2,059,137$    1,214,517$    1,017,954$    7,308,667 

INDICATED  EARNINGS: 
On8%pfd.stk.        W1.9l% 
On    $14,908,000 

7%  pfd.  stock.        179.27% 
On    $14,862,000 

common  stock.  \ 
On    $44,586,0001 

common,  Class  | 

"B"  stock... 


43.20% 


292.42% 
286.30% 


119.15% 
112.49% 


37.49% 
32.59% 


34.36% 
27.45% 


13.84% 
6.86% 


13.67% 
6.69% 


*Not  reported. 

fBased  on  amount  outstanding  Dec.  31. 


GENERAL  BALANCE  SHEET— WORKING  CAPITAL 
(At  of  Dee.  SI.) 

1917  1916  1915  1914  1913  1912  1911 

Astetf— 


1,575,186 

* 

89,462 

34,479 

34,461 

32,739 

251,672 

Funded  assets 

37,402,489 

1,143,108 

1,568,352 

403,839 

Contingent  4  dep- 

794,890 

Deferred  charges  to 
operations  

Current  Attett  — 
Inventories  
Accts.  &  notes  rec. 
Miscel.  investm'ts 
U.S.  Gov't  ctfs.  of 

606,904 

71,051,937 
35,659,910 
fll,R18,172 

18,500,000 

846,474 

38,499,726 
24,201,141 
16,482,695 

502,610 

12,132,552 
11,312,115 
27,617,496 

220,369 

11,130,734 
8,448,852 
231,575 

227,800 

10,206,734 
9,909,956 
235,710 

3,421,461 

8,776,579 
6,534,439 
228,733 

1,625,136 

7,273,875 
5,778,396 
286,080 

Special  deposits  .  .  . 

2,660,000 

Cash  for  coupons.  . 
Cash  

1,081,926 
13,348,020 

852,890 
6,727,362 

221,178 
15,380,351 

437,664 
4,989,336 

365,373 
1,727,571 

232,255 
1,791,614 

30,191 
1,126,391 

Total  current 

assets $153,919,965  $  86,763,814  $  66,663,721  $  25,238,160  $  22,445,344  $  17,563,620  $  14,494,933 

Total  assets....  $381,541,940  $220,737,257  $145,779,850  $106,377,767  $  95,599,300  $  84,418,952  $  75,077.255 

Liabilities — 

7%  pfd.  stock. ...  $  14,908,000  $  14,908,000  $  14,908,000  $  14,908,000  $  14,908,000  $  14,908,000  $  14,908,000 

8%  pfd.  stock....  29,724,000     

Common  stock....  14,862,000  14,862,000      14,862,000      14,862,000      14,862,000      14,862,000      14,862,000 
Com.  stock,  class 

"B" 44,586,000     

Funded  debt 132,938,000  68,590,000      31,099,000      36,207,700      33,599,033      32,441,533      26,291,533 

Reserves....  4,985,863  2.586,590        1,303,146      12,688,496      12,389,129        7,685,118        4,850,379 

Appropriated  surp.  47,500,000  60,000,000      25,000,000      12,500,000        7,500,000        7,500,0001 

Profit  4  loss  surp..  11,013,615  9,370,198       6.278,390       2,059,137       2,214,517       1,017,954  / 


BETHLEHEM  STEEL  CORPORATION 


763 


Current  LiobiliKtt—     1017  1816              1915  1014  1913              1012  1011 

Notes  payable....  S    5,051.638  $  16,987.675  I       371.809  I  1,283,610$  3,383,500$  1,830,500$  3.420.500 

Accts.  payable,  etc.     73,376,273  32,145,451  51,512,379  11.381,009  6,259,314  3.723,241  2,087.730 

Interest  accrued  .        1.514.625  434.453          223.859  256,230  248,007          221,873  162,306 

Coupons  payable..        1,081,926  852.890          221.178  231,575  235.710          228,733  286.080 

Total       current 

liabilities $  81.024,462  $  50.420.469  $  52,329.314  $  13.152.433  $  10.126.621  $  6,004,347  $  6,856.676 


Total  liabilities.  $381.541,040  $220,737,257  $145,779,850  $106,377,767  $  05.500,300  $  84,418,952  $  75,077.255 

•Net  work,  capital  $  72,805,503  $  36,343,345  $  14,334,407  $  12.085,727  $  12,318.723  $  11,550,273  $    7,638,257 
•Baaed  upon  statement  of  current  assets  and  current  liabilities  as  above. 
•(Including  Liberty  bonds  subscribed  for  employes. 


Outstanding 

$29.724,000 

14.008,000 

14,862,000 


CAPITAL  STOCK. 

Authorised 
Preferred,  8%  cum.  eonv.  (par  $100)  ........................................    $30,000.000 

Preferred,  7%  non-cumulative  (par  $100)  ....................................      15,000  000 

Common  (par  $100)  .......................................................      15,000,000 

Common,  Class  "B"  ($100)  .........................................      75,000.000 

•$30,000,000  unissued  Class  "  B  "  common  stock  is  reserved  for  the  conversion  of  the  8%  cumulative  convertible 
preferred  stock. 

NOTE.  —  All  stock  is  fully  paid  and  non-assessable  and  no  personal  liability  attaches  to  shareholders. 

Trontfer  Office.—  Equitable  Trust  Co.,  New  York. 


STOCK  PROVISIONS. 

8%  Cvmulatite  Contertible  Preferred. — The  8%  cumulative  convertible  preferred  stock  is  preferred  as  to  divi- 
dends over  the  7%  preferred  and  common  stocks  and  shares  pari-passu  with  the  7%  preferred  in  a  distribution  of 
assets.  It  is  convertible  at  any  time  at  the  option  of  the  holder  into  class  "B"  common  at  115  and  redeemable 
on  00  days'  notice  any  time  after  three  years  from  date  of  issue  at  115  and  accrued  dividends  in  its  entirety  or  in 
amounts  of  not  less  than  $10,000  each.  No  voting  power  attaches  to  the  8%  preferred. 

7%  Non-Cumulaliie  Preferred. — The  7%  non-cumulative  preferred  stock  shares  pari-passu  with  the  8% 
preferred  in  a  distribution  of  assets.  Disbursements  are  limited  to  7%  per  annum.  Has  equal  voting  power  with 
the  class  "A"  common. 

Clou  "A"  Common. — Class  "A"  common  stock  has  equal  voting  power  with  the  7%  preferred  and  share* 
equally  with  the  class  "B"  common  in  a  distribution  of  assets. 

Clot*  "B"  Common. — Class  "B"  common  stock  ranks  equally  with  the  class  "A"  common  except  in  that 
it  possesses  no  voting  power. 


HIGH  AND  LOW  PRICES  OF  STOCKS. 
(New  York  Stock  Exchange.) 


1016... 

.  186 

%  Pfd.  
Low 
126 

1015  

...  184 

01 

1014  

68 

1013  

74 

62^ 

1012  

80 

56J4 

1011... 

66»* 

54 

•8%  Preferred 
Huh       Low 

—  "A"  Com.  — 
High          Low 
700           415 

600            41114' 

41'  j         25 
51j|         27^ 
38>x4         26 

7%  Preferred          "A"  C 
High       Low           High 
135           84            515 
—  7%1 
High 
1010  »5 

Low 

fd"*-* 
Low 
40 
47 
35 
23 
62 
76 

1000  

69  V6 

1008  

.    57 

1907 

...    65 

1006  

.    88U 

1905... 

.    92W 

•Listed  on  the  New  York  Stock  Exchange  Dec.  12,  1917. 
tLfcted  on  the  New  York  Stock  Exchange  Oct.  4.  1017. 


764 


MATERIALS  OF  CORPORATION  FINANCE 


8 


§ 


I 
1 


8  •     8       §       8 


UNITED  LIGHT  AND  RAILWAYS  CO. 


765 


S       8     8      8  8      8 


766 


MIDWEST  REFINING  COMPANY 


CURRENT  ASSETS: 
Cash  

ASSETS 

1917 
$3,862,203 

1916 
$879,033 

1915 
$1,139781 

Notes  receivable  

,  1,514,655 

13,978 

37697 

Accounts  receivable  

,  1,767,859 

1,020,642 

580  952 

Refined  products     

,  1,613,360 

669,874 

566  691 

Crude  oil  on  hand  , 

387,509 

55,936 

Supplies  (inventory)  , 

2,233,933 

241,045 

138,388 

Total  current  assets  

$11,379,520 

$2,880,508 

$2,463,509 

Deferred  charges.  . 

45,158 

19.344 

31.630 

FIXED  ASSETS  : 

Property,  leases  and  contracts $27,626,141  $17,163,621  $17,321,186 

Field  and  refinery  construction 6,489,640  1,555,421  317,079 

Investments 6,911,395  9,927,596  933,356 

Treasury  stock 664,000  2,000,000 

Total  fixed  assets $41,027,176  $29,310,638  $20,571,621 

Total  Assets $52,451,854  $32,210,490  $23,066,751 


CURRENT  LIABILITIES 


Accounts  payable. 
Other  liabilities. . , 


LIABILITIES 


$615,644 
75,274 


$690,918 
CAPITAL  AND  SURPLUS: 

Capital  stock $25,558,350 

Reserve  for  depreciation 5,417,589 

Reserve  for  taxes 2,762,144 

Surplus 18,022,852 


$544,750 
300,000 


$725,758 
560,000 


$844,750  $1,285,758 

$20,000,000  $20,000,000 

3,007,554         

8,358,  is6  1,780,993 


Total  liabilities $52,451,854    $32,210,490    $23,066,751 


MAY  DEPARTMENT  STORES  CO 


MAY  DEPARTMENT  STORES  CO. 


767 


Diridendi  Paid  Siiut  Orijanitatitm— 
Years—                     Pfd.       Com.        Years— 
1910  1^«K.                     1012 

Pfd.       Com. 

7%       4X3 
7%       6% 
e  Daily  Divid 

P  INCOME 
muory  St. 
Ratio  of 
Op.  Profits 
to  Net  Sales 
83.91 
88.72 
90.73 
92.51 
91.33 
89.62 
88.78 
88.31 

Years— 
j         1915-16 

F 

1 

Td.       Com. 

Deductions 
$1,256.013 
407.845 
454.057 
515,064 
440.663 
393,790 
259.671 
809.758 

Surplus 
for  Years 
$1,772,398 
2,112,182 
786.320 
115,720 
551.068 
1.033.597 
949.414 
764,723 

1912 

$14.S4S.Sl!l 
13.215.974 

1911  ; 

r%        i 

a  paid  duri 
EIQ 

.     $3 

%          1913- 
ng  current  cat 

HT-YEAR  A 
Yi 

Net 
Sales 
5.631,660 
0.347.482 
i,WS02 
5.409,150 
3.314.804 
i.504.769 
1.SS4.S1!) 
t.764,407 

TVn* 

14           .   . 

1917 

1 

For  any  dividend 
1918..., 

endar  year,  se 

NALYSIS  0 

•art  Ended  Jc 

Operating 
Profit* 
$4.246,691 
3.422.362 
2.161.101 

2,2S\'.5\Q 
2,544,153 
l.l)6X,X45 
1,725,158 

.....    1  Q>       1- 

end  Sheet. 
ACCOUNT 

Other 
Income           1 
$31,257         $4, 
22.696           3, 
25.964           2, 
22,215            1, 
37,721            2, 
34,769           2, 
40,240            1, 
14,323            1, 
—  Common  SUx 
''ds             % 
id           Earned 
,000         16.82 
,500         16.83 
,500           7.99 
,000           6.77 
,000           8.67 
500         11.64 
000           7.33 
5.03 
,  1910. 

fDED  JANUAt 

1914 
$26,314,804    K 
24,033,294      ! 

Total 
ncome 
277,948 
445,058 
187.065 
925.104 
319,231 
578,922 
709,085 
739,481 

-Ir 

1917.... 

3i 

1916.... 

a 

1915  

2, 

1914  

2 

1913  

2 

1912.... 

i 

1911  

ti 

1918  $ 

Net 
Income 
3,021,935 
3,037,213 
1,733,008 
1,410,040 
1,878,568 
2,1X.5,132 
1,449,414 
929,723 
>na  of  vend 

PARATIV 

1918 
15,631,660 
11,384,969 

Div'ds             % 
Paid             Earned 
$499,537          42.34 
512,531          41.83 
534,188         22.71 
544,320          18.13 
577,500         22.77 
439,035         34.84 
350,000         28.99 
175,000         37.19 
or  companies  prior  to  organ! 

'E  INCOME  ACCOUNT, 

1917               1916 
$30,347,482    $23,309,802 
26,925,120      21,148,701 

%          Di' 
Paid         Pa 
7         $750, 
7           412, 
7           412 
7           750, 
7          760, 
7          712, 
7           150, 
7 
lation  June  4, 

YEARS  El 

1915 

$25,409,150 
23.506,261 

Paid 
5 

5  * 
6 

1 

B7  SI. 

19io 

J4.504.769 
!1,960,616 

1917  

1916  

1915  

1914  

1913  

1912  

1911  

f  Includes  operatii 
COM 

Net  sales  $! 
Operating  expenses    i 

Operating  profits  $ 
Other  income  

4,246,691 
31.257 

$  3,422,362 
22,696 

$  2.161.101 

25,964 

$  1,902.889 
22,215 

$  2,281,510    $ 
37,721 

2,544,153 
34,769 

$  1.668,845 
40,240 

Total  income.  .  .  $ 
Deductions  — 
Gen.  exp.  and  taxes 
Bad  debts  

4.277,948 

115.987 
71,340 
195,857 
22,829 

850,000 

$  3.445,058 

160,033 
44.318 
190,506 
12.988 

$  2,187,065 

99,056 
52,298 
176,342 
126,362 

$  1.925.104 

104,011 
59.844 
201,085 
150,124 

$  2,319,231    $ 

116,575  \ 
65,663  / 
212,030 
46,395 

2.578.922 

139,517 

218,227 
36,046 

$  1,709,085 

95.143 
164,528 

•Depreciation  

Prov.  for  inc.  and 
excess  profits  taxes 

Total  deductions  $ 

1,256.013 

S     407,845 

$     454,057 

$     515,064 

S     440.663    $ 

393,790 

$     259.671 

Net  income  $ 
Preferred  dividends 
Common  dividends 

3.021,935 
499.537 
750,000 

$  3,037,213 
512,531 
412.500 

$  1,733,008 
634.188 
412,600 

$  1.410,040 
544.320 
750,000 

$  1.878.568    $ 
577.600 
710,000 

2,  1S.V  132 

nsjoo 

$  1.449.414 
350,000 
150.000 

Surplus  $ 

1,772.398 
3,719.707 

$  2.112.182 
1,881.158 

$     786.320 
2,365.355 

$     115,720 
2,288,802 

$     651.068    $ 
1.734.734 

1,033,597 
1,404.137 

$     949.414 
754.723 

Previous  surplus.  .  . 

Total  surplus...  $ 
Transferred  to  spe- 
cial surplus  
Reduction  in  value 
of  investments.  . 
Adjustm't  aort.  of 
•ale  of  business  of 
Boggs   &    Buhl. 
Pittsburgh,  as  of 
Jan.  31   1915     . 

5,492,105 
247,500 
13,625 

$  3.993.340 
247,500 
4,861 

$  3,151.675 
192,500 
2,467 

1,083,047 
7.497 

$  2,404.522 

$2,288,802    $ 

2.437.734 
700.000 

$  1,704.137 
300.000 

4.704 

Disc,  on  acquisition 
of  pfd.  stock  for 

Prem.  paid  on  pfd. 
stock  for  retire- 

16,841 

21.274 

34.403 

Profit   and   loss 

Burp  $ 

5.215.139 

$  3.719.705 

$  1.881.168 

$  2.365.356 

$  2,288.802    $ 

1.737.734 

$  1.404.137 

'From  Standard  Corporation  Records.    Copyright  1918  bv  Standard  Statistic*  Co.,  Inc.,  47-49  West  St.. 
N.  Y.     This  information,  while  i.ot  iruaranteeo  if  believed  to  be  correct 


768 


MAY  DEPARTMENT  STORES  CO. 


INDICATED  EARNINGS 

1918 


1917      1916      1915      1914      1913      1912 

42.34%         41.83%         22.71%          18.13%         22.77%         34.84%         28.99% 
16.82%         16.83%  7.99%  5.77%  8.67%         11.64%  7.33% 

'Depreciation  of  buildings  and  fixtures  and  amortization  of  leases. 

§Based  upon  the  average  preferred  stock  outstanding,  upon  which  dividends  were  paid. 


§0n  pfd.  stock. . 
On  com.  stock. . 


Capital  Stock  Outstanding. 
(Upon  Which  Diridendi  Were  Paid.) 

1918  1917  1916  1915  1914  1913  1912 

Preferred  stock....  $  7,136,250    $7,260,000    $7,631,257    $7,776,000    $8,250,000    $6,271,900    $5,000,000 
Common  stock....     15,000,000      15,000,000      15,000,000      15,000,000      15,000,000      15,000,000      15,000,000 


GENERAL  BALANCE  SHEET— WORKING  CAPITAL. 
(As  of  January  SI.) 


1918 


1917 


1916 


1915 


1914 


1913 


1912 


A  nets  — 
Good-will  and  trade 
names            . 

$14,510,827 

$14,510,827 

$14,510,827 

$15,525,310 

$15,525,310  ' 

5,275,926 

5,185,668 

6,310,591 

6,533,378 

6,028  067  j 

^  $19,122,875 

$17,775,746 

Investments  

896,710 

855,601 

763,396 

646,375 

909,134 

582,677 

320  827 

77,434 

92,918 

77,697 

128,074 

141  530 

81  207 

44270 

Pfd.  stock  acquired 

266,168 

Current  Assets  — 
Cash  

1,902  023 

1  130  447 

736  956 

1,297  853 

813600 

839510 

815  437 

U.  S.  Lib.  Loan  bds. 

253,500 

Accts.  and  notes  re- 

3  413  371 

2  956  642 

2  390  778 

2  910  822 

2636645 

2208944 

626988 

Sundry  debtors.  .  .  . 
Inventories  

176,173 

6,652,413 

111,938 

5,669,089 

113,472 
4,051,010 

84,666 
4,952,118 

124,979 
4,962,419 

114,874 
4,391  899 

96,271 

2688762 

Prepayments  

141.377 

129,164 

132,301 

204,540 

154,534 

98,199 

53,314 

Total   current 
assets $12,538,857    $9,997,280    $7,424,517    $9,449,999    $8,692,178    $7,653,426    $4,280,772 


Total  assets....  $33,299,754    $30,642,294    $29,087,028    $32,283,135    $31,562,387    $27.440.187    $22,421,616 
Liabiliiiet  — 
Preferred  stock....  $  7,012,500    $7,260,000    $7,507,500    $7,755,000    $8,250,000    $8,250,000    $5,000,000 
Common  stock....     15,000,000      15,000,000      15,000,000      15,000,000      15,000,000      15,000,000      15,000,000 
Purchase  money 
mtge  150.000           150.000           150.000           150.000           300.000 

Reserve  for  depre- 
ciation and  amor- 
tization   

1,051,373          968,969          767,885          181,379 

115,339 
300,000 
1,404,138 

Special  surp.  acct.  . 
Profit  and  loss  surp. 
Current  Liabilitiet- 
Notes  payable  .  .  .  .  j 
Accts.  payable  
Sundry  creditors  .  . 
Reserve  for  trading 
stamps.taxes,  etc. 
Reserve  for  Fed.  in- 
come war  taxes, 
etc  

1,687,500        1,440,000        1,192,500       1,000,000        1,000,000       1.000,000 
5,215,138       3,719,706       1,881,160       2,365,355       2,288,802       1,737,734 

[  1,100,000    $  1,000,000    $  1,000,000    $  3,025,000    $  2,325,000    $     650,000 
1,244,853        1,310,530          869,027        1,224,851        1,470,262          497,181 
907,722          510,154          279,752          642,544        123,892 

457,578 
144,563 

132,041] 
I       251,903          155,714          151,416          160,439       

850,000  j 

Total  cur.  liabil...  $  4,234,616    $  3,072,587    $  2,304,493    $  5,043,811    $  3,955,701    $  1,271,073  $     602,141 

Total  liabilities..  $33,299,754    $30,642,294    $29,087,028    $32,283,135    $31,562,387    $27,440,187  $22,421,616 

•Net  working  capital  I  8,304,241    $6,924,693    $5,120,024    $  4,406,188    $  4,736,477    $6,382,353  $3,678,631 
•Based  upon  statement  of  current  assets  and  current  liabilities  as  above. 

Earning  Power. 

Eight  Years  Annual 

1911-1918  Average 

Aggregate  net  profits  available  for  dividends $15,645,033  $1,955,629 

Percentage  earned  on  $6,485,912,  the  average  preferred  stock  outstanding 241 . 22%  30 . 15% 

Percentage  earned  on  $15,000,000  common  stock,  after  deducting  7%  preferred 

dividends 80.08%  10.01% 


JOINT  ACCOUNT  LETTERS  AND  FORMS  769 

JOINT  ACCOUNT  LETTERS  AND  FORMS  i 


July  8th,  1915. 
Messrs.  Brown  &  Co., 

Dear  Sirs : — We  are  writing  to  confirm  our  telephone  conversation 
of  this  morning  to  the  effect  that  you  would  join  Smith  &  Co.  and 
ourselves  in  a  joint  account  for  the  purchase  and  sale  of  $1,500,000 
City  of  Springdale,  Iowa,  5%  20  year  bonds  due  August  1st,  1935,  for 
which  bids  will  be  received  by  the  city  treasurer  on  the  17th  inst. 

You  are  taking  a  participation  of  $300,000  in  the  account. 

We  are  to  be  Manager  of  the  Account  and  submit  a  bid  of  @100.55, 
payment  and  delivery  in  Springdale,  la.,  in  the  name  of  Jones  &  Co., 
Brown  &  Co.  and  Smith  &  Co.  in  the  order  stated. 

The  account  will  be  Divided  Carrying,  Unlimited  Liability.  The 
rules  for  the  conduct  of  the  Account  will  be  agreed  on  in  event  that 
we  are  the  successful  bidders,  and  in  general  the  terms  used  and  the 
account  agreement  will  be  understood  as  stated  in  the  Joint  Account 
forms  published  by  the  Investment  Bankers  Association  of  America. 

Will  you  please  let  us  know  if  your  understanding  of  our  agreement 
is  in  accord  with  this  letter? 

Very  truly  yours, 

JONES  &  CO. 


July  12th,  1915. 
Messrs.  Jones  &  Co. 

Dear  Sirs: — Your  letter  of  the  8th  itast,  referring  to  the  Joint 
Account  for  the  purchase  of  City  of  Springdale,  la.  bonds  correctly 
states  our  understanding. 

Very  truly  yours, 

BROWN  &  CO. 


July  20th,  1915. 
Messrs.  Brown  &  Co., 

Dear  Sirs: — We  are  writing  to  confirm  the  understanding  for  rules 
of  the  account  reached  at  a  meeting  held  at  our  office  this  morning 
of  the  members  of  our  joint  account  in  City  of  Springdale,  la.  bonds. 

1  From  a  booklet  of  this  name  by  Hastings  Lyon,  published  by  the  Investment 
Bankers  Association  of  America. 


770          MATERIALS  OF  CORPORATION  FINANCE 

We  determined  that  the  selling  price  should  be  $102.75,  and  in- 
terest. A  member  shall  have  a  selling  commission  of  a  half  and  may 
allow  a  broker's  commission  of  a  quarter.  Expenses  of  a  member  for 
purposes  of  the  account  shall  be  deducted  from  the  amount  allowed 
him  as  commissions.  Delivery  shall  be  only  on  the  manager's  order, 
and  on  receipt  by  him  of  the  selling  price  and  interest  without  allow- 
ance for  commissions.  Members  may  offer  and  sell  the  bonds  without 
restriction  as  to  territory.  All  advertising  shall  be  done  and  cir- 
culars prepared  and  printed  by  the  Manager  at  the  expense  of  the 
Account  in  the  name  of  Jones  &  Co.,  Brown  &  Co.,  and  Smith  &  Co. 
in  the  order  stated.  Unless  earlier  terminated  by  agreement  the 
Account  shall  continue  until  all  the  bonds  are  sold.  In  general  the 
terms  used  and  the  rules  of  the  account  will  be  understood  as  stated 
in  the  joint  account  forms  published  by  the  Investment  Bankers 
Association  of  America. 

Will  you  please  confirm  this  understanding  of  the  rules  of  the  ac- 
count ? 

Very  truly  yours, 

JONES  &  CO. 

Messrs.  Jones  &  Co. 

Dear  Sirs: — Your  letter  of  the  20th  inst,  referring  to  the  "ules  of 
the  Joint  Account  for  the  purchase  of  City  of  Springdale,  la.  bonds, 
correctly  states  our  understanding. 

Very  truly  yours, 

BROWN  &  CO. 


AGREEMENT  FORMING  THE  ACCOUNT 

Four  matters  must  be  decided  in  making  this  agreement.     They 
are: — 

1 : — Name — 

The  name  or  names  in  which  the  bid  is  to  be  submitted  (or 
the  purchase  made)  and  the  order  in  which  they  are  to 
appear. 

2 : — Purchase  Price — 

3  : — Carrying — 

Divided,  Undivided  or  Special. 


JOINT  ACCOUNT  LETTERS  AND  FORMS  771 

4 : — Liability — 

Unlimited,  Limited,  or  Limited  but  Unlimited  as  to  Selling; 
and  Option  to  Limit  and  Proportional  Lessening. 

All  other  matters  of  the  Account  are  to  be  provided  for  in  Rules 
of  the  Account  expressed  in  a  Supplementary  Agreement. 

AGREEMENT  FORMING   THE  ACCOUNT 

An  agreement  for  a  joint  account  hereinafter  called  the  Account, 
made  the day  of 

19. ...  by  and  between 

Party  of  the  first  part,  as  Account  Manager,  hereinafter  called  the 

Manager,  and 

Party  of  the  second  part,  hereinafter,  with  the  Manager,  called  the 
Members,  and  each  of  whom  is  hereinafter  termed  the  Member.  The 
Manager  or  any  Member,  whether  partnership,  corporation  or  indi- 
vidual, is  referred  to  herein  as  "he"  or  "him." 

WHEREAS  the  City  of has  advertised  for 

bids  to  be  received  on  the  day  of 

19 for  an  issue  of  bonds,  as  follows : — 

or  (Alternative  clause  for  a  corporation  issue). 

WHEREAS  the 

a  corporation  of  the  State  of ,  having  its  head 

office  at   

desires  to  sell  bonds  as  follows: — 

WHEREAS  the  Members  desire  to  form  with  the  Manager  an  Account 
for  the  purchase  and  sale  of  the  said  bonds. 

Now,  THEREFORE,  THIS  AGREEMENT  WITNESSETH,  That  in  con- 
sideration of  the  premises,  and  of  their  mutual  promises  the  parties 
hereto  agree  with  each  other  as  follows: — 

Section  1.  The  parties  hereto,  not  as  partners,  though  acting  joint- 
ly for  the  special  purposes  hereof,  form  an  Account  to  purchase  the 
said  bonds,  and,  if  and  when  the  Account  has  purchased  the  said 
bonds,  for  the  purpose  of  selling  or  disposing  of  them,  all  on  the 
terms  and  conditions  hereinafter  set  forth. 

Sec.  2.  Each  Member  shall  set  opposite  his  name  subscribed  hereto 
the  amount  of  his  participation  in  the  Account  in  terms  of  the  par 


772          MATERIALS  OF  CORPORATION  FINANCE 

value  of  the  bonds,  expressing  his  proportionate  interest  in  the  Ac- 
count undertaking;  and  each  Member  shall  be  liable  for  and  called 
upon  to  pay  only  such  a  proportion  of  the  total  obligation  of  the 
Account  as  his  participation  shall  bear  to  the  total  amount  of  the 
said  bonds,  unless  otherwise  hereinafter  set  out. 

Sec.  3.  The  Manager  shall  submit  the  bid  of  the  Account  for  the 
said  bonds  (or  shall  negotiate  for  the  purchase  of  the  said  bonds),  and 
shall  carry  out  all  matters  connected  therewith.  If  the  bonds  shall 
be  sold  to  the  Account,  the  Manager  shall,  on  payment  by  the  Members 
as  hereinafter  provided  in  Section  5,  make  payment  therefor  and 
take,  or  give  directions  for  delivery  thereof. 

Sec.  4.  The  Manager  is  authorized,  on  behalf  of  the  said  Account, 
to  submit  for  the  said  bonds  a  bid  (or,  to  purchase  the  said  bonds) 

in  the  names  of  and  in  the  order  stated : , 

of which  is  called  herein  the  Purchase 

Price,  and  accrued  interest payment 

at  

delivery  at  

Sec.  5.    CARRYING  THE  BONDS. 

A. — DIVIDED  CARRYING. 

At  a  day  fixed  in  the  reasonable  discretion  of  the  Manager  to  enable 
him  to  make  payment  for  the  bonds,  and  on  notice  given  in  his 
reasonable  discretion  before  the  day  so  fixed,  each  Member  shall  pay  the 
Manager  at  the  Purchase  Price  and  interest  an  amount  sufficient  to 
pay  for  and  shall  take  delivery  of  his  proportion  of  the  bonds.  The 
Member  shall  thereafter  carry  for  the  Account  his  proportion  of  the 
Account  bonds  in  the  manner  provided  herein  and  in  an  agreement 
to  be  made  supplementary  thereto.  The  Member  carrying  the  bonds 
shall  bear  any  loss,  and  benefit  by  any  gain,  in  respect  to  the  bonds 
he  is  carrying,  which  may  arise  through  any  difference  between  the 
interest  accruing  on  the  bonds  and  the  interest  charge  or  other  expense 
incurred  in  carrying  them. 

B. — JOINT  CARRYING. 
(Alternative  Clause) 

The  Manager  shall  arrange  a  loan  or  loans  upon  the  said  bonds 
as  collateral  therefor,  and  at  a  day  fixed  in  his  reasonable  discretion 
to  enable  him  to  make  payment  for  the  bonds,  and  on  notice  given 
at  a  day  in  the  Manager's  reasonable  discretion  before  the  day  so 
fixed,  each  Member  shall  pay  the  Manager  that  Member's  proportion 
of  the  margin  or  amount  beyond  the  amount  of  the  loan  necessary 


773 

to  pay  fer  the  bonds.    Any  profit  or  loss  made  in  the  carrying  shall 
be  borne  by  or  accrue  to  the  benefit  of  the  Account. 

If  the  Manager  is  unable  to  arrange  for  a  loan  to  carry  the  bonds 
as  herein  provided,  the  Manager  shall  notify  the  Members  and  each 
Member  shall,  on  or  before  the  day  fixed  for  delivery,  as  requested 
by  the  Manager,  pay  the  Manager  for,  at  the  Purchase  Price  and  ac- 
crued interest,  and  take  delivery  of  his  proportion  of  the  bonds,  and 
any  profit  or  loss  made  in  the  carrying  shall  accrue  to  the  benefit  of 
or  be  borne  by  the  Member  carrying  the  bonds. 

C. — ONE  MEMBER  CARRYING  ALL  BONDS,  ETC. 
(Alternative  Clause) 

(If  it  is  desired  that  one  Member  of  the  Account  carry  all  or  any 
special  proportion  of  the  bonds  in  lieu  of  selling  or  for  any  other  rea- 
son, and  enjoy  the  profits  of  the  Account,  or  be  liable  for  the  losses, 
in  any  special  proportion,  the  stipulation  must  be  expressly  drawn. 
It  does  not  seem  possible  to  draw  a  clause  of  sufficiently  general  appli- 
cability to  fit  this  case.) 

Sec.  6.    LIABILITY. 

A. — UNLIMITED  LIABILITY. 

Each  member,  irrespective  of  the  amount  of  bonds  he  may  sell,  shall 
share  any  profits  of  the  account  in  the  proportion  of  his  participation. 
He  shall  remain  until  the  close  of  the  account  fully  liable  to  other 
members  of  the  Account  for,  and  shall  assume,  and  pay  through  the 
Manager  on  an  accounting  by  him,  any  losses  as  a  result  of  the 
Account  transaction,  and  at  the  close  of  the  Account  shall  take  for  his 
own  account  and  riwk  any  bonds  remaining  unsold,  all  in  such  propor- 
tion as  hid  participation  shall  bear  to  the  total  bonds  of  the  Account. 
B. — LIMITED  LIABILITY. 

Limited  Selling 
(Alternative  Clause) 

Each  Member  shall  sell,  and  may  not  be  compelled  to  part  with  the 
right  to  sell,  the  amount  of  bonds  comprising  his  own  participation 
in  the  Account,  and  at  the  termination  of  the  Account  shall  take  for 
his  own  account  and  risk  any  part  of  that  amount  then  remaining 
unsold;  and,  except  that  he  shall  be  liable  for  his  proportion  of  the 
joint  expenses,  he  shall  assume  no  other  liability  hereunder,  anything 
else  herein  to  the  contrary  notwithstanding.  He  shall  be  entitled  to 
the  profit  or  shall  bear  the  loss  on  his  sale  of  the  bonds  of  his  participa- 
tion at  whatever  price  he  may  actually  sell  them,  which,  however, 
shall  always  be  the  Selling  Price  of  the  Account  at  the  time  the 
Member  makes  the  sale. 


774          MATERIALS  OF  CORPORATION  FINANCE 

C. — LIMITED  LIABILITY. 

Unlimited  Selling. 

(Alternative  Clause) 

Each  Member  may  be  required  to  sell  the  amount  of  bonds  compris- 
ing his  own  participation  in  the  account,  or  at  the  termination  of  the 
Account  may  be  required  to  take  for  his  own  account  and  risk  any 
part  of  that  amount  then  remaining  unsold ;  and  except  that  he  shall 
be  liable  for  his  proportion  of  the  joint  expenses,  he  shall  assume  no 
other  liability  hereunder,  anything  else  herein  to  the  contrary  not- 
withstanding. He  shall  be  entitled  to  the  profit  or  shall  bear  the 
loss  on  his  sale  of  the  bonds  of  his  participation  at  whatever  price 
he  may  actually  sell  them  which,  however,  shall  always  be  the  Selling 
Price  of  the  Account  at  the  time  the  Member  makes  the  sale. 

So  long  as  the  Account  continues,  however,  any  Member  who  has 
sold  an  amount  of  bonds  equal  to  his  participation  may  continue 
to  sell  bonds  of  the  Account,  and,  as  hereinafter  provided,  call  upon 
the  Manager  to  deliver,  or  order  delivered,  to  him  unsold  bonds  of 
the  Account.  If  he  sells  bonds  of  the  Account  in  excess  of  his  par- 
ticipation he  shall  be  entitled  to  the  profit  on  the  sale  of  bonds  so 
sold.  In  that  event  he  shall  share  the  expense  of  the  Account  in  pro- 
portion to  the  bonds  he  actually  sells,  and  other  Members  shall  bear 
the  expenses  in  proportion  to  the  bonds  they  sell,  and  shall  be  entitled 
to  the  profits  only  on  the  sale  of  the  bonds  they  actually  sell. 

Sec.  7.    PRICE  AGREEMENT. 

During  the  existence  of  the  Account  no  Member  shall  sell  any  of 
the  bonds  at  a  price  less  than  the  Account  price,  to  be  determined  by 
the  Supplementary  Agreement  provided  for  herein. 

Sec.  8 — AGREEMENT  FOR  SUPPLEMENTARY  AGREEMENT. 

As  soon  as  practicable  after  the  purchase  of  the  bonds,  the  Members, 
at  the  request  of  the  Manager,  or,  if  he  fails  to  request,  then  at  the 
request  of  any  of  the  Members,  shall  enter  into  a  supplementary  agree- 
ment stipulating  the  selling  price  and  all  other  matters  necessary  or 
deemed  desirable  for  the  conduct  of  the  Account.  The  vote  of  a  ma- 
jority in  interest  of  the  Members  shall  be  sufficient  to  determine  the 
stipulations  of  the  supplementary  agreement  and  this  vote  and  any 
other  vote  provided  for  therein  or  herein  may  be  given  orally  in 
person  at  a  meeting  of  the  Members  called  by  the  Manager  for  this, 
purpose,  and  entered  by  him  on  the  records,  or  may  be  given  by 
letter  or  telegram.  But  if  the  place  of  business  of  any  member  is 
not  in  the  same  city  or  town  as  the  place  where  the  meeting  is  called, 


JOINT  ACCOUNT  LETTERS  AND  FORMS  775 

then  that  member  may  vote  by  letter  or  telegram,  or  in  the  discretion 
of  the  Manager,  unless  a  majority  in  interest  request  by  letter  or  tele- 
gram to  the  contrary,  any  vote  may  be  taken  wholly  by  letter  or  tele- 
gram. Notice,  which  shall  state  the  purpose  of  the  vote,  sufficient  in 
the  reasonable  discretion  of  the  Manager  to  enable  every  member  to 
vote,  shall  be  given  by  letter  or  telegram  of  every  vote  to  be  taken. 
The  terms  of  the  supplementary  agreement  need  not  all  be  stipulated 
at  one  time  but  each  term  of  the  agreement  shall  become  binding  on 
the  account  as  agreed  upon  by  the  majority  in  interest. 

IN  WITNESS  WHEREOF,  the  Manager,  party  of  the  first  part,  has 
subscribed  the  original  hereof,  and  the  Members,  parties  of  the  sec- 
ond part,  have  subscribed  the  original  or  counterparts  thereof  as  of 
the  day  and  year  of  the  date  hereof,  and  have  added  to  their  sub- 
scription the  address  to  which  all  communications  hereunder  are  to 
be  directed. 

Name  Address  Amount 

In  response  to  some  demand  for  a  modification  of  the  unlimited 
liability  principle  the  following  suggestions  have  been  made,  which 
if  not  acceptable  exactly  as  they  stand,  may  serve  as  the  basis  of  dis- 
cussion of  the  matter.  They  have  been  inserted  out  of  order  because 
of  their  special  nature. 

D. — OPTION  TO  LIMIT  LIABILITY. 

(Alternative  Clause) 

When  any  member  shall  have  sold,  or  taken  up  at  the  Take  Down 
Price  to  be  agreed  on  in  an  agreement  supplementary  hereto,  as  here- 
inafter provided,  or,  in  event  of  divided  carrying,  declared  that  he 
holds  for  his  own  account  and  risk  the  bonds  he  is  carrying,  up  to  a 
total  amount  of  bonds  equal  to  the  amount  of  his  participation,  he 
may  notify  the  Manager  of  his  withdrawal  from  the  Account.  There- 
upon he  shall  be  free  from  further  liability  to  other  members  of  the 
Account  for  losses  incurred  thereafter  or  bonds  unsold  as  a  result  of 
the  Account  transaction,  except  for  the  expenses  of  the  Account  there- 
tofore incurred.  He  shall  not,  however,  be  entitled  to  any  profits  un- 
til all  the  bonds  are  sold  or  the  Account  closed  and  unsold  bonds 
distributed,  whereupon  he  shall  be  entitled  to  share,  in  proportion  to 
his  participation,  any  profits  that  then  appear  in  the  account. 

PROPORTIONAL  LESSENING  OF  LIABILITY. 

(Alternative  Clause) 

Each  member,  irrespective  of  the  size  of  his  participation,  may  and 
shall  continue  to  sell  bonds  so  long  as  the  account  shall  continue,  and 


776          MATERIALS  OF  CORPORATION  FINANCE 

shall  share  any  profits  in  proportion  to  the  size  of  his  participation. 
The  selling  price  shall  never  be  less  than  the  purchase  price,  but  in 
the  event  that  it  is  not  found  possible  to  dispose  of  the  bonds  at  the 
purchase  price  or  better,  the  account  shall  be  closed,  and  the  unsold 
bonds  shall  be  distributed  as  follows: 

Each  member  who  has  sold  bonds  in  excess  of  the  amount  of  his 
participation  shall  have  his  proportional  amount  of  the  unsold  bonds 
reduced  by  an  amount  which  shall  be  the  same  per  cent  of  the  unsold 
bonds  as  he  has  sold  of  the  account  in  excess  of  his  participation. 
The  total  of  these  reductions  shall  be  added  to  the  amounts  of  those 
members  who  have  sold  less  than  their  participations  in  propor- 
tion to  that  percentage  of  the  account  by  which  their  sales  have  fallen 
short  of  their  participations. 


EULES  OF  THE  ACCOUNT  (SUPPLEMENTARY  AGREEMENT) 
MUST  PROVIDE  FOR 

1.  SELLING  PRICE. 

2.  BROKER'S  COMMISSION. 

3.  MEMBER'S  SELLING  COMMISSION. 

Shall  there  be  any  at  all  ? 

If  a  commission,  shall  it  begin  at  once? 

Or  only  after  the  member  has  sold  his  proportion? 

4.  DURATION  OF  ACCOUNT. 

To  continue  until  securities  disposed  of  unless  earlier  ter- 
minated by  agreement  of  Members. 

To  continue  for  a  definite  period  and  to  be  terminated  at 
the  end  of  that  period  unless  members  then  agreed  to 
extend. 

5.  TAKE  DOWN  PRICE. 

Selling  Price. 

Or  Selling  Price  less  Member's  Commission. 
Purchase  Price  less  any  pro  rata  already  paid  by  Members, 
Selling  Price  less  any  pro  rata  already  paid  by  Members. 
Selling  Price  less  Commission  and  any  pro  rata  already  paid 
by  Members. 


JOINT  ACCOUNT  LETTERS  AND  FORMS  777. 

6.  DELIVERY. 

Only  on  Manager's  order. 
Without  Manager's  order. 

7.  TERRITORY. 

Unrestricted. 
Restricted. 

8.  ADVERTISING. 

By  Manager  in  name  of  all  at  expense  of  account. 

Or  by  each  in  the  name  of  all  and  at  his  individual  expense. 

Or  by  each  in  his  own  name  and  at  his  own  expense. 

RULES  OF  THE  ACCOUNT  (SUPPLEMENTARY  AGREEMENT). 

An  agreement  made  the day  of  . ...  19 . . . . ,  in  ac- 
cordance with  an  agreement,  herein  called  the  First  Agreement,  en- 
tered into  the day  of 19 . . . . ,  creating  a  joint 

account,  therein  and  hereinafter  called  the  "Account,"  for  the  pur- 
chase and  sale  of  $ of  the  bonds  of by 

and  between  the  parties  thereto,  who  are  also  the  parties  thereto, 
namely : 

Joint  Account  Manager  herein  called  the  "Manager,"  party  of  the 
first  part,  and 


party  of  the  second  part,  herein  with  the  Manager  called  the  Mem- 
bers, and  each  of  whom  is  herein  termed  the  Member,  hereby  enter  into 
this  Supplementary  Agreement,  which  becomes  a  part  of  the  said 
First  Agreement  and  together  with  it  forms  one  agreement,  the 
terms  whereof  are  agreed  upon  by  the  vote  of  a  majority  in  interest 
in  the  Account  created  by  the  said  First  Agreement,  and  as  therein 
stipulated. 

Section  I.— SELLING  PRICE. 

No  Member  shall  offer  or  sell  any  of  the  said  bonds  at  a  price  less 

than and  interest  (or  in  lots  of 

at  a  price  less  than  and  interest.)  This  shall 

be,  and  is  called  herein,  the  Selling  Price.  If  voted  by  a  majority 
in  interest  of  the  Members  the  Manager  shall  change  the  Selling 
Price  to  the  price  so  voted.  The  Manager  shall  notify  all  the  Members 
of  the  Selling  Price  and  any  change  thereof. 


,778          MATERIALS  OF  CORPORATION  FINANCE 

Sec.  2— BROKER'S  COMMISSION. 

A  Member  may  allow  a  commission  of per  cent  of 

the  par  value  of  ten  bonds  to  brokers,  and  to  them  only,  under  an 
agreement  with  the  broker,  which  may  be  oral,  that  the  broker  will 
not  split  the  commission  or  sell  the  bonds  at  a  price  less  than  the 
Selling  Price  hereinabove  set  forth.  In  the  settlement  of  the  Account 
this  commission  shall  be  deducted  from  the  Member's  selling  com- 
mission, if  any  is  stipulated  for  herein.  If  voted  by  a  majority  in 
interest  of  the  Members  the  Manager  shall  change  the  Broker's  Com- 
mission to  the  commission  so  voted  and  shall  notify  all  the  Members 
of  the  change. 

Sec.  3— SELLER'S  COMMISSION. 

On  all  sales  made  by  a  Member  (or-alternative-beyond  the  amount 
of  his  participation)  the  Member  shall  be  allowed  a  seller's  commis- 
sion of per  cent,  of  the  par  value  of  the  bonds,  which  in 

the  settlement  of  the  Account  shall  be  added  to  his  share  in  the  profits, 
or  allowed  him  in  deduction  from  his  proportion  of  the  losses.  Ex- 
penses of  a  member  for  purposes  of  the  account  shall  be  deducted 
from  the  amount  allowed  him  as  commissions.  Or  (alternative) 
Expenses  of  a  member  for  purposes  of  the  account  shall  not  be  de- 
ducted from  the  amount  allowed  him  as  commissions. 

Sec.  4— DELIVERY. 

A. — (DELIVERY  ONLY  ON  THE  MANAGER'S  ORDER.) 

A  Member  shall  deliver  bonds  he  is  carrying  for  the  Account  only 
on  the  order  of  the  Manager,  and  a  Member  shall  at  any  time  deliver 
such  bonds  to  the  Manager's  order  on  receiving  the  purchase  price 
therefor.  When  a  Member  reports  a  sale  to  the  Manager,  if  the 
Manager  instructs  the  Member  to  make  the  delivery  from  bonds  of 
the  Account  the  Member  is  carrying,  the  Member  shall  so  make  the 
delivery;  otherwise  the  Member  shall  remit  to  the  Manager  for  the 
bonds  the  Take  Down  Price  agreed  on  herein,  and  on  receiving  it  the 
Manager  shall  deliver  or  cause  to  be  delivered  to  the  Member  the  bonds 
required. 

B. — DELIVERY  WITHOUT  THE  MANAGER'S  ORDER — DIVIDED  CARRYING. 

(Alternative  Clause) 

A  Member  shall  at  any  time  deliver  bonds  he  is  carrying  of  the 
Account  to  the  Manager's  order  on  receiving  the  purchase  price  there- 
for. But  so  long  as  a  Member  is  carrying  bonds  which  the  Manager 
has  not  instructed  him  to  deliver  otherwise,  a  Member  shall  make 
deliveries  on  his  own  sales  from  bonds  of  the  Account  he  is  carry- 
ing. If  a  Member  has  no  bonds  of  the  Account  to  deliver  on  his  own 


JOINT  ACCOUNT  LETTERS  AND  FORMS  779 

sale,  he  shall  remit  to  the  Manager  for  the  bonds  the  Take  Down 
Price  agreed  on  herein,  and  on  receiving  it  the  Manager  shall  deliver 
or  cause  to  be  delivered  to  the  Member  the  bonds  required. 

Sec.  5.— TAKE  DOWN  PRICE. 

When  and  as  a  Member  shall  wish  to  procure  bonds  through  the 
Manager,  as  herein  provided,  he  shall  pay  the  Manager  an  amount 
>qual  to 

(a)     The  Selling  Price  agreed  upon  hereunder  and  accrued  in- 
terest without  allowance  for  any  commissions; 

or  (b)  (alternative)  the  Selling  Price  agreed  upon  hereunder 
and  accrued  interest  less  the  selling  Member's  commission. 

or  (c)  (alternative)  an  amount  sufficient  to  pay  off  enough  of  the 
said  loan  to  procure  the  release  of  the  bonds  as  collateral — 
i.  e.,  the  Purchase  Price  and  accrued  interest  less  any  pro 
rata  for  each  bond  paid  by  the  Member  when  the  joint 
loan  was  arranged; 

or  (d)  The  Selling  Price  less  any  pro  rata  paid  by  each  Member 
when  the  loan  was  arranged; 

or  (e)  The  Selling  Price  less  the  Seller's  commission  and  less 
any  pro  rata  paid  by  each  Member  when  the  loan  was  ar- 
ranged. 

Note. — Obviously  (a)  and  (d)  leave  all  profits  including  com- 
missions in  the  hands  of  the  Manager,  and  (b)  and  (e)  all  profits 
except  commissions  in  his  hands;  (c)  would  leave  all  profits  in 
the  hands  of  the  Members  to  be  accounted  for  to  the  Manager. 
Obviously,  too,  (c),  (d)  and  (e)  are  provisions  in  the  event 
of  carrying  by  a  joint  loan. 

Whereupon  the  Manager  shall  procure,  in  the  manner  herein  stipu- 
lated, the  bonds  called  for  and  deliver  them  to  the  Member.  The  price 
here  provided  for  shall  be  known  herein  as  The  Take  Down  Price. 

Sec.  &—NOTIFICA  T10N. 

On  making  a  sale  a  Member  shall  immediately  notify  the  Manager 


780          MATERIALS  OF  CORPORATION  FINANCE 

by  telephone  or  telegraph  and  shall  confirm  this  notification  by  let- 
ler. 

Sec.  7  — TERRITORY. 

A. — UNRESTRICTED. 

Members  may  offer  and  sell  the  bonds  without  restriction  as  to 
territory. 

B. — KESTRICTED. 
(Alternative  Clause) 
It  is  agreed  that 

shall  offer  or  advertise  the  bonds  only  in,  or  sell  them  only  to  pur- 
chasers residing  in 

(Kepeat  until  all  the  Members  are  provided  with  territory.) 

Sec.  8.— DURATION  OF  ACCOUNT. 

A. — TIME  LIMITED. 

Unless  all  the  bonds  are  earlier  sold,  whereupon  the  Account  shall 
be  closed,  selling  under  this  Account  shall  come  to  an  end  at  the 
close  of  the day  of ,  19 . . . .,  and  Mem- 
bers shall  then  take  for  their  own  account  in  proportion  to  their 
participation  herein,  unless  otherwise  herein  expressly  provided,  any 
bonds  then  remaining  undisposed  of,  and  the  Manager  shall  pro- 
ceed to  a  settlement  of  the  Account.  If,  however,  a  majority  in 
interest  in  the  Account  before  the  said  day  shall  so  vote,  the  Manager 
shall  forthwith  give  notice  to  all  the  Members  that  the  Account  will 
continue  in  accordance  with  the  vote  of  the  majority  in  interest. 

B. — TIME  INDETERMINATE. 
(Alternative  Clause) 

Unless  earlier  terminated  as  herein  provided  this  agreement  shall 
continue  until  all  the  bonds  are  sold  or  disposed  of.  Whereupon  the 
Manager  shall  notify  the  Members  that  the  Account  is  closed  and 
proceed  to  a  settlement  of  the  Account.  If,  however,  a  majority  in 
interest  herein  of  the  Members  shall  so  vote,  the  Manager  shall  forth- 
with give  notice  to  all  the  Members  that  the  Account  will  be  closed 
on  a  day  named  in  the  notice  and  the  Members  shall  take  up  in  pro- 
portion to  their  participation  herein  any  bonds  then  remaining  un- 
disposed of,  unless  otherwise  herein  expressly  provided. 


JOINT  ACCOUNT  LETTERS  AND  FORMS  781 

Sec.  9.— ADVERTISING. 

All  advertising  in  newspapers  or  periodicals  shall  be  done,  and  all 
circulars  prepared  and  printed  by  the  Manager  at  the  expense  of  the 

Account  in  the  names  of The  terms 

of  this  provision  may  be  changed  by  the  note  of  a  majority  in  in- 
terest. 

B. — (Alternative  Clause.) 
Each  Member  may  advertise  the  bonds  in  newspapers  and  printed 

circulars  thereon  at  his  own  expense  in  the  names  of 

But  all  such  advertising  and  circulars  shall  be  approved  by  the  Man- 
ager. The  terms  of  this  provision  may  be  changed  by  vote  of  a 
majority  in  interest. 

C. — (Alternative  Clause.) 

Each  Member  may  advertise  the  bonds  in  newspapers  and  periodi- 
cals, and  may  issue  circulars  thereon  at  his  own  expense  and  in  his 
own  name.  But  all  such  advertising  shall  be  approved  by  the  Man- 
ager. The  terms  of  this  provision  may  be  changed  by  vote  of  a 
majority  in  interest. 

Sec.  10.— POWER  OF  ATTORNEY  TO  MANAGER. 

The  Members  nominate  and  appoint  the  Manager  their  agent  and 
attorney,  with  full  power  and  authority  to  do  any  and  all  acts  and 
to  enter  into  and  execute  any  and  all  agreements  or  other  instru- 
ments necessary  or  proper,  or  by  the  Manager  deemed  expedient  in 
the  premises,  to  carry  out  the  purposes  of  this  agreement.  The  Man- 
ager shall  have  the  sole  direction,  management  and  the  entire  con- 
duct of  the  Account,  and  the  enumeration  of  particular  or  specific 
powers  in  this  agreement  shall  not  be  considered  as  in  any  way 
limiting  or  abridging  the  general  power  or  discretion  intended  to  be 
conferred  upon  and  reserved  to  the  Manager  in  order  to  authorize 
him  to  do  any  and  all  things  proper,  necessary  or  expedient  in  his 
discretion  to  carry  out  the  purposes  of  this  agreement 

Sec.  11.— EXPENSES  AND  PROFITS  AND  LOSSES. 

The  Manager  shall  keep  the  books  of  the  Account,  and  apportion 
the  expenses  and  the  profits  or  losses  in  accordance  with  the  pro- 
visions of  this  agreement.  All  expenses  incurred  by  the  Manager  on 
account  of  the  Account,  including  counsel  fees,  the  expense  of  receiving 
and  delivering  bonds,  and  all  other  disbursements  and  expenses  made 
by  him  in  connection  with  the  carrying  out  of  the  purpose  of  this 


782          MATERIALS  OF  CORPORATION  FINANCE 

agreement  shall  be  a  charge  to  the  Account.  Also  expenses  of  mem- 
bers for  telegrams,  telephone  calls,  postage,  printing  and  other  pur- 
poses incurred  by  them  in  carrying  out  the  purposes  of  this  agreement 
shall  be  allowed  by  the  Manager  in  his  reasonable  discretion  as  ex- 
penses of  the  account  and  charged  to  it. 

Sec.  12. — Each  Member  hereby  ratines,  assents  to  and  agrees  to  be 
bound  by  any  action  of  the  Manager  taken  under  this  agreement,  and 
agrees  to  perform  all  of  his  undertakings  hereunder  from  time  to 
time  on  the  call  of  the  Manager  to  the  full  extent  of  his  liability  here- 
under. 

Sec.  13. — Each  and  every  Member,  will,  upon  reasonable  request, 
execute  and  deliver  any  further  writing  or  writings  which  may  be 
necessary  or  proper  to  carry  this  agreement  into  effect. 

Sec.  14. — The  failure  of  any  Member  to  perform  any  of  his  under- 
takings hereunder  shall  not  release  any  other  Member,  but  if  any 
Member  fails  to  perform  any  undertaking  hereunder  his  liability 
shall  be  borne  by  the  other  Members  in  proportion  to  their  participa- 
tion in  the  Account. 

Sec.  15.— All  notices  issued  by  the  Manager  hereunder  shall  be 
telegraphed  or  mailed  to  or  delivered  at  the  addresses  of  the  Members 
as  given  below,  opposite  their  respective  names.  Requests  of  Mem- 
bers to  the  Manager  shall  be  in  writing  mailed  or  delivered  or  shall 
be  transmitted  by  telegraph  to  the  address  of  the  Manager  given  be- 
low. 

Sec.  16. — In  event  of  the  resignation  of  the  Manager  a  majority  in 
interest  herein  of  the  Members  shall  choose  a  successor  and  the  suc- 
cessor shall  have  all  the  duties  and  powers  of  the  Manager  as  herein 
set  forth. 

IN  WITNESS  WHEREOF,  the  Manager,  party  of  the  first  part,  has 
subscribed  the  original  hereof,  and  the  Members,  parties  of  the  sec- 
ond part,  have  subscribed  the  original  or  counterparts  thereof  as  of 
the  day  and  year  of  the  date  hereof. 

Name.  Address. 


PHYSICAL  VALUATION  OF  CHICAGO   TEL.  COS.      783 

VALUATION  OF  PUBLIC  UTILITY  PROPERTY  l 

TABLE  OF  CONTENTS  PAGE 

Letter  of  Transmittal  785 

Introduction   785 

Territory  Covered J'. .'.... 787 

Previous    Investigations 788 

Some  Contrasts  with  Other  Companies 790 

The  Problem  Before  Us 791 

Gross  Earnings,  Expenses  and  Profits . . ; ; 793 

Operating  Expenses   795 

Payment  to  the  American  Telephone  and  Telegraph  Company 796 

Maintenance  and  Depreciation  Reserve 799 

Decline  in  Maintenance 802 

Similar  Tendencies   in   St.  Louis 804 

Changes  in  the  Art 804 

Long  Life  Property,  Proportion  of 808 

Depreciation  Reserve  of  the  Company 809 

The  Appraisal   811 

Copper   813 

Overhead   814 

Land,  Base  and  Overhead  817 

Paving    818 

Working  Capital    820 

Plant  Development,  Cost  of 821 

Development  of  Business,  Cost  of 822 

Early  Profits   824 

Present  Value    825 

Life  826 

Depreciated  or  Present  Value 828 

Method  of  Building  Up  a  Depreciation  Reserve 830 

Maintenance  and  Depreciation  in  Other  Bell  Companies 832 

Rate  of  Return   837 

Possibilities  of  Reduction  840 

Toll  Earnings  and  Expenses 843 

Municipal  Requirements — The  Subway  843 

Depreciation,  Extraordinary 844 

Office  Buildings  and  Equipments,  Displacement  of 847 

Semi-Mechanical  Switchboards 850 

Extraordinary  Depreciation,  Conclusions  on ^,nt;. . .  . . 850 

Ordinance  of  1907,  Results  of 851 

Improvement  in  the  Service 853 

City  Telephone  Bureau 853 

Measured  Service  for  Residences  854 

Meters    ..•//.. . . .'-.  .-.'* 854 

Conclusions    855 

Table.  LIST  OP  TABLES 

1.  Expenses  and  Profits  since  1890 794 

2.  Percentage  of  Expenses  and  Profits  to  Investment 794 

i  From  Report  on  the  Investigation  of  the  Chicago  Telephone  Company  sub- 
mitted to  the  Committee  on  Gas,  Oil  nnd  EWtric  Light  (lion.  Anton  J. 
Cerniak,  Chairman)  by  Prof.  Edward  W.  Beniis. 


784         MATERIALS   OF   COKPOKATION   FINANCE 


PAGI 

3.  Rentals  to  American  Telephone  and  Telegraph  Company 799 

4.  Depreciable  Property  and  Percentage  for  Maintenance 801 

5.  Declining  Ratio  of  Maintenance  to  Investment 802 

6.  Repairs  and  Reconstruction,  1903 803 

7.  Appraised  Value  New  812 

8.  Copper  since  1892 813 

9.  Overhead,  Summary  of 815 

10.  Land  Appraisal  and  Cost 816 

1 1.  Land,  Base  and  Overhead 817 

12.  Rejected  Items  and  Conceded  Value 825 

13.  Life , 826 

14.  Salvage  827 

15.  Annual  Depreciation 827 

16.  Present  or  Depreciated  Value 828 

17.  Maintenance  and  Depreciation  of  Bell   Companies,   including  Long 

Distance 834 

18.  Maintenance,  Depreciation  and  Investment  of  Bell  Companies,  aside 

from  Long  Distance 835 

19.  Expenses  and  Profits  Within  City,  Revised 842 

20.  Earnings  and  Telephones  since  1904 852 

21.  Declining  Rate  of  Return,  with  Additional  Bonds 857 

LIST   OF   APPENDICES 
Appendix. 

1.  Balance  Sheets  since  1880   859 

2.  Appraisal,  Chicago  and  Suburban  866 

3.  Appraisal,  City  867 

4.  Cost  of  Property  New,  City  and  Suburban 868 

5.  Growth  of  Plant 869 

6.  Plant  and  Cost  Statistics: 

A.  Underground  Conduit  870 

B.  Underground  Cable  and  Wire 871 

C.  Underground  Conduit  and  Cable 871 

D.  Central  Office  and  Subscribers'  Station  Equipment 872 

E.  Total  Equipment  and  Stations 872 

F.  Maintenance  since  1890   873 

G.  Conduit  and  Wire  since  1883 873 

H.    Wire  and  Stations  since  1883 874 

7.  Base  Figures  vs.  Book  Value 874 

8.  Base,  Overhead  and  Total  Appraisal 877 

9.  Buildings,  Appraisal  vs.  Book  Value 880 

10.  Defense  of  Building  Appraisal,  by  J.  G.  Wray 880 

11.  Subway  Construction  of,  Effect  of  (According  to  J.  G.  Wray) 885 

12.  Growth  of  Investment  and  How  Paid  For 889 

13.  Depreciation,  How  Treated  by  Company 890 

14.  Maintenance  and  Addition  to  Reserve,  in  City,  1908-12 892 

15.  Composite  Life,  Salvage  and  Annual  Depreciation 893 

16.  Quantities  According  to  Inventory,  City  and  Suburbs 894 

17.  City  Purchase,  Provisions  of  Ordinance 895 


PHYSICAL  VALUATION  OF  CHICAGO  TEL.  COS    785 

CITY  HALL,  CHICAGO,  Oct.  25.  1912. 

Alderman  Anton  J.  Cermdk,  Chairman  Committee  on  Qas,  Oil  and 
Electric  Light  of  the  City  Council,  Chicago,  III. 

DEAR  SIB: 

I  herewith  transmit  the  results  of  my  studies  of  the  Chicago  Tele- 
phone Company,  so  far  as  they  related  to  the  ability  of  the  Company 
to  reduce  rates  or  improve  the  service. 

Until  the  Committee  shall  decide  upon  the  wisdom  of  my  recom- 
mendations upon  these  matters,  an  apportionment  of  the  total  amount 
of  reduction  in  rates  to  the  various  classes  of  service  need  not  be 
made. 

Invaluable  assistance  has  been  rendered. from  the  beginning  to  the 
present  time  by  the  accounting  firm  of  Marwick,  Mitchell,  Peat  & 
Co.,  and  particularly  by  the  head  of  the  Chicago  branch,  Mr.  James 
Hall,  and  his  assistant,  Mr.  Andrew  Sangster.  Their  work  not  only 
appears  in  the  special  report  which  they  submitted  to  me  some  time 
ago,  and  which  is  herewith  transmitted  to  the  Committee,  but  in  the 
constant  assistance  they  have  rendered  in  following-  out,  at  my  sug- 
gestion, special  lines  of  inquiry  into  the  accounts  of  the  Company. 

In  the  large  amount  of  investigation  which  has  been  necessary  in 
the  preparation  of  this  report,  the  Chicago  Telephone  Company  has 
fully  co-operated.  The  ordinance  of  November  6,  1907,  gives  the 
City  access  to  the  plants  and  accounts  of  the  Company.  But  the  of- 
ficials have  gone  further  than  this,  and  have  assisted  in  working  out 
data  and  in  making  investigations  requested  by  the  City's  represen- 
tatives. 

Very  respectfully  submitted, 

EDWARD  W.  BEMIS. 


INTRODUCTION 

The  regulation  of  telephone  rates  in  large  cities  by  any  public  body 
is  practically  a  virgin  field.  Aside  from  the  action  of  the  Chicago 
City  Council,  November  6,  1907,  fixing  the  rates  now  charged  in  Chi- 
cago, there  have  been  only  two  notable  studies  of  the  subject  in  this 
country.  One  in  1909-10  by  the  Massachusetts  Highway  Commission 
for  Boston  and  its  suburbs,  and  one  in  1911  by  the  Maryland  Public 
Service  Commission,  for  the  City  of  Baltimore. 

There  have  been,  to  be  sure,  several  investigations  of  the  telephone 
rates  in  smaller  places,  by  the  Wisconsin  Railroad  Commission  and 


786         MATEEIALS    OF    CORPOEATION    FINANCE 

the  New  Jersey  Public  Utilities  Commission,  but  they  have  little 
direct  bearing  upon  Chicago  conditions.  The  same  lack  of  applica- 
tion to  conditions  here  applies  to  an  investigation  in  Los  Angeles  and 
one  in  Seattle,  in  each  of  which  cities  there  are  two  competing  com- 
panies of  substantially  equal  size. 

No  court  or  commission  has  thus  far  brought  together  such  tabu- 
lated comparisons  of  operating  expenses,  construction  costs,  etc.,  per 
unit  of  telephone  plant  or  of  service  rendered,  as  is  the  case  with  gas, 
electric  light  and  street  railways. 

This  has  been  partly  due  to  the  rapid  growth  of  the  telephone  busi- 
ness and  partly  to  the  reliance  hitherto  upon  competition  in  most 
sections  outside  of  New  England,  rather  than  upon  public  regulation. 
With  the  tendency  of  late  to  division  of  territory  between  the  Bell 
Company  and  the  independent  companies,  the  need  of  information 
to  serve  as  a  basis  for  public  regulation  is  now  seriously  felt. 

Furthermore,  the  relations  of  local  Bell  companies  to  the  American 
Telephone  and  Telegraph  Company,  hereafter  to  be  referred  to  by  its 
usual  abbreviation,  the  A.  T.  &  T.,  are  so  close  that  it  is  difficult  to 
study  local  conditions  without  the  help  of  the  National  Government 
as  to  the  facts  with  regard  to  the  parent  company,  whose  business  is 
nation  wide.  Fortunately,  the  power  to  secure  this  information  has 
just  been  granted  to  the  Interstate  Commerce  Commission,  but  it  will 
take  time  to  secure  results  from  this  source. 

In  Europe  and  Australia  the  telephones  are  so  largely  owned  by 
the  national  governments,  and  conditions  are  so  different  from  here, 
that  little  help  can  be  secured  in  that  direction. 

All  this,  together  with  the  magnitude  of  the  interests  at  stake, 
make  the  Chicago  investigation  difficult.  "We  have  here  to  deal  with 
the  second  largest  telephone  company  in  the  world.  Only  New  York 
has  more  telephones  than  Chicago.  Contrast  the  251,614  'phones  in 
Chicago,  January  1,  1912,  with  the  220,781  in  London,  85,961  in 
Paris  and  133,860  in  Berlin,  at  the  same  time,  and  with  the  453,000 
in  Greater  New  York,  of  which  number  326,122  were  in  the  Borough 
of  Manhattan.  According  to  the  United  States  Consular  Reports  for 
1912  (page  357),  the  entire  number  of  telephones  taken  over  by  the 
British  Government  on  January  1  from  the  National  Telephone  Com- 
pany was  only  560,000  for  all  of  Great  Britain  and  Ireland,  or  only 
72%  more  than  were  operated  by  the  Chicago  Telephone  Company 
in  the  city  and  suburban  district,  and  only  2^  times  the  number  with- 
in the  city  limits.  The  number  of  telephones  throughout  Canada  in 
1911,  according  to  the  United  States  Consular  Eeport  from  March 
28,  1912,  was  only  302,759,  or  less  than  in  Chicago  and  its  suburbs. 
The  American  Telephone  and  Telegraph  Company  gives  the  following 


PHYSICAL   VALUATION    OF   CHICAGO    TEL.    COS.   787 

as  the  number  of  telephones  (partly  estimated)  in  various  countries, 
January  1,  1912.  The  number  in  use  by  the  Chicago  Telephone 
Company  in  the  city  and  suburbs  are  given  for  comparison : 

Chicago  Telephone  Company 335,652 

Canada   335,000 

West  Indies  17,000 

South  America  120,000 

Australasia    124,000 

Oceanica    17,000 

Asia   166,000 

Africa    41,000 

Europe    3,239,000 

All  the  world  outside  the  United  States,  Europe  and  Canada  is  re- 
ported as  having  only  517,000  'phones,  or  less  than  twice  the  number 
in  the  Chicago  district. 

TERRITORY   COVERED 

The  Chicago  Telephone  Company  embraces  two  divisions,  the  city 
and  the  suburban.  The  city  division,  with  a  population  of  2,185,283 
in  1910,  covers  the  area  of  the  city,  which  since  July  17,  1911,  has 
been  194.4  square  miles.  The  suburban  division,  with  a  population 
of  656,655  in  1910,  embraces  5,194  square  miles,  extending  fully  100 
miles  along  the  lake  and  from  30  to  60  miles  back  from  the  lake. 
Thus  the  Company,  covering  388  square  miles,  embraces  Lake,  Cook, 
McHenry,  Kane,  DuPage,  Kendall,  Grundy  and  Will  Counties  in 
Illinois,  and  Lake  and  Porter  Counties  in  Indiana.  It  includes,  El- 
gin, Aurora  and  Joliet,  111.,  Gary  and  Valparaiso,  Ind.,  and  toll  lines 
to  Kenosha  and  Lake  Geneva,  Wis. 

There  are  33  exchanges  in  the  city  and  95  in  the  suburban  division ; 
25  of  those  in  the  city  are  of  the  central  battery  type,  with  a  capacity 
of  4,900  to  10,500  subscribers.  Of  the  exchanges  in  the  suburbs,  23 
are  of  the  same  type,  averaging  a  capacity  of  about  4,900  subscribers. 
There  are  in  the  city  eight  local  battery  type  offices,  often  called  mag- 
neto offices,  and  72  in  suburban  districts;  they  average  only  200  sub- 
scribers. Conditions  in  every  way  are  quite  different  in  the  city  and 
suburban  district ;  in  the  former  the  wires  are  mostly  in  underground 
conduits,  while  in  the  latter  they  are  in  overhead  cables  or  are  bare 
wire  on  poles.  In  the  city  a  large  part  of  the  service  is  on  a  meas- 
ured basis ;  in  the  suburbs  it  is  on  a  flat  rate  basis,  such  as  is  common 
in  small  cities  and  rural  communities.  The  revenues  and  expenses, 
naturally,  differ  in  these  two  sections.  The  city  only  has  jurisdiction 
of  the  rates  and  services  within  the  city,  and  special  attention1,  there- 


788         MATERIALS    OF   CORPORATION    FINANCE 

fore,  must  be  given  to  that  part  of  the  business  of  the  Company. 
Since,  however,  it  is  one  company  in  both  city  and  suburbs,  and  since 
it  is  impossible  to  separate  entirely  the  two  branches,  it  is  well  to 
begin  with  a  study  of  the  Company  as  a  whole  and  then  take  up  the 
city  division. 

PREVIOUS   INVESTIGATION 

Three  investigations  of  the  Chicago  Telephone  Company  have  been 
made.  The  first,  covering  substantially  a  year,  under  the  auspices  of 
the  Committee  on  Gas,  Oil  and  Electric  Light  of  the  City  Council, 
aided  by  the  telephone  engineers,  Messrs.  D.  C.  Jackson,  W.  H.  Crumb 
and  G.  W.  Wilder,  ended  with  the  passage  by  the  City  Council  of  the 
telephone  ordinance  of  November  6,  1907,  under  which  the  Company 
is  now  operating.  The  second  investigation  concluded  May  9,  1910, 
was  by  Messrs.  D.  C.  and  W.  B.  Jackson,  engineers,  and  Messrs. 
Young  &  Company,  accountants,  for  the  year  ending  March  31,  1910. 
This  was  made  to  the  City  Comptroller,  Mr.  W.  H.  Wilson,  and  was 
a  supplement  to  a  report  they  had  already  made,  December  30,  1908, 
outlining  a  plan  of  accounting  for  the  Telephone  Company.  The  re- 
port of  May  9,  1910,  was  considered  by  the  Committee  on  Gas,  Oil 
and  Electric  Light,  in  various  sessions,  from  May  19  to  June  2,  1910. 
The  fact  that  the  accountants  employed  were  also  accountants  for  the 
Telephone  Company  led  the  Committee  to  vote  on  June  2d  that  other 
experts  should  be  employed  to  go  over  the  report. 

On  June  16,  1910,  the  Committee  on  Gas,  Oil  and  Electric  Light 
were  informed  by  its  sub-committee  that  Mr.  W.  J.  Hagenah,  of  Madi- 
son, Wis.,  had  been  engaged  to  do  this  work.  From  January  5  to 
January  23,  1911,  the  Committee  considered  Mr.  Hagenah's  report 
covering  the  calendar  year  1909.  To  enable  Mr.  Hagenah  to  report 
on  the  changes  in  each  of  the  several  classes  of  rates  that  could  be 
wisely  made  in  connection  with  a  total  reduction  of  about  $200,000, 
the  Committee,  on  January  23,  took  a  recess. 

The  consideration  of  the  final  report  of  Mr.  Hagenah,  dated  May 
2,  1911,  was  postponed  until  after  the  consideration  of  the  gas  or- 
dinance. Immediately  thereafter,  on  July  17th,  the  undersigned  was 
asked  to  take  up  the  investigation.  A  prior  engagement  caused  more 
or  less  delay,  until  it  finally  seemed  wise  to  include  not  only  the  pros- 
perous experience  of  the  Company  in  1910,  under  the  reduced  rates 
of  the  1907  ordinance,  but  also  to  include  the  rapid  growth  of  the 
Company  and  its  continued  prosperity  in  1911.  It  also  developed, 
near  the  close  of  1911,  that  the  Company,  in  the  summer  of  1911,  had 
undertaken  an  expensive  and  exhaustive  inventory  and  appraisal  of 
all  its  property.  It  was  so  evidently  unwise  to  ignore  such  an  ap- 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      789 

praisal  that  no  apology  need  be  made  for  delaying  the  report  until 
the  Company  was  able,  August  17,  1912,  to  place  the  entire  results 
of  this  valuation  at  the  disposal  of  the  City,  and  until  those  results 
could  be  given  the  consideration  which  their  importance  and  bulk, 
in  nine  large  volumes,  demanded. 

According  to  the  Jackson- Young  report,  the  existing  rates  yielded 
only  3.83%  on  the  investment.  After  paying  5%  interest  on  the 
bonds  and  8%  dividends  on  the  stock,  properly  applicable  to  the  in- 
vestment within  the  city  limits,  there  was,  if  the  report  be  accepted, 
a  deficit  for  March  31,  1909-10,  on  business  within  the  city  limits,  of 
$908,533.52.  These  figures  were  based  upon  the  theory  of  the  investi- 
gators that  the  Company  was  not  allowing  a  sufficient  amount  for 
depreciation.  The  Company  had  spent  $622,296  that  year  on  recon- 
struction and  replacements.  The  investigators  considered  that  the 
depreciation  for  the  year  was  in  excess  of  this  amount  by  $956,626.20. 

In  his  final  report,  for  May  2,  1911,  page  64,  Mr.  Hagenah  esti- 
mated that  the  Company,  after  paying  interest  on  its  bonds  and  8% 
on  the  balance  of  what  fie  considered  its  depreciated  investment  within 
the  city  limits,  would  have  had  a  surplus  in  1909  of  $309,488.36. 

When  the  Committee  on  Gas,  Oil  and  Electric  Light  were  consider- 
ing substantially  these  figures,  on  January  23,  1911,  and  were  about 
to  make  a  motion  to  reduce  the  rates  charged  by  about  $216,000,  or 
about  2%  of  the  gross  receipts,  the  other. $100,000  of  surplus  being 
considered  as  needed  by  the  Company  for  emergencies,  Mr.  B.  E. 
Sunny,  President  of  the  Chicago  Telephone  Company  said : 

"An  attempt  to  distribute  that  amount,  $216,000,  would  be  futile,  first,  be- 
cause the  amount  is  wholly  erroneous ;  second,  that  it  would  give  the  Telephone 
Company  rates  which  would  be  unreasonable  and  which  it  could  not  accept. 
*  *  *  There  is  no  chance  in  the  world  of  the  Telephone  Company  being 
able  to  accept  rates  on  the  basis  suggested." 

The  Committee  voted,  however,  as  follows: 

"That  Mr.  Hagenah  be  instructed  to  proceed  with  the  preparation  of  the 
schedule  of  telephone  rates  on  the  analysis  contained  in  the  report  made  to  the 
Committee,  and  that  he  reduce  the  rates  to  the  extent  of  the  surplus,  of  ap- 
proximately $216,000,  where  his  cost  analysis  shows  the  present  schedule  to 
be  excessive  or  inequitable,  and  that  the  said  schedule  of  telephone  rates  be 
reported  back  to  this  Committee  for  its  future  action." 

Mr.  Hagenah  held  that  the  plant  had  depreciated  22.5%  and  must 
set  aside  yearly  $2,717,890  within  the  city  for  maintenance  and  to 
meet  depreciation,  or  13.65%  of  the  then  value  and  11.61%  of  the 
book  cost  of  the  property,  including  land  and  working  capital. 

In  this  situation,  with  Mr.  Hagenah  basing  the  possibility  of  a  re- 
duction of  $216,000  upon  the  assertion  of  an  amount  of  depreciation 


790         MATEEIALS    OF    COEPOEATION    FINANCE 

which  President  Sunny  denied,  it  became  exceedingly  important  to 
have  the  fullest  access  to  the  books  of  the  Company  throughout  its 
history,  and  to  study  the  appraisal  just  completed  for  the  Company 
by  Messrs.  Byllesby  and  Arnold. 

SOME    CONTRASTS    WITH    OTHER    COMPANIES 

The  Chicago  Telephone  Company  differs  from  many  other  public 
utilities  in  several  very  important  respects : 

1.  The  Company  has  not  only  thrown  open  all  of  its  books  and 
other  accounts  and  plants  to  the  inspection  of  the  City's  representa- 
tives, as  contemplated  in  the  ordinance  of  1907,  but  it  has  freely  given 
much  other  valuable  material  and  assistance  which  it  was  under  less 
obligation  to  furnish.     Inquiries  which  called  for  considerable  in- 
vestigation were  much  more  promptly  and  fully  answered  than  is  cus- 
tomary, or  than  could  have  been  legally  demanded.     There  has  been 
no  evidence  of  an  attempt  to  keep  back  anything  that  was  asked  for 
relative  to  the  Company. 

2.  There  have  been  no  fires,  suspicious  or  otherwise,  to  destroy 
the  early  records  of  the  Company. 

3.  There  has  been  no  change  of  ownership  to  complicate  the  situ- 
ation.    One  company,  and  that  one  always  controlled  by  the  A.  T.  & 
T.  Co.,  has  been  in  charge  since  the  first  consolidation  in  1881,  two 
years  after  the  beginning  of  the  telephone  business  in  Chicago. 

4.  There  has  been  no  telephone  competition  in  the  city  since  1880, 
with  the  exception  of  the  thus  far  negligible  competition  of  the  Chi- 
cago Tunnel  Company. 

5.  There  were  no  early  losses  or  failure  to  pay  both  development 
costs  and  good  dividends  out  of  the  revenues  of  the  Company  from 
the  very  start. 

6.  While  there  have  been  increases  of  plant  out  of  earnings  and 
increases  of  stock  to  represent  this  new  plant,  without  direct  payment 
at  the  time  by  the  stockholders,  the  par  value  of  the  outstanding 
stocks,  bonds  and  notes  has  rarely  exceeded,  and  on  January  1,  1912, 
did  not  exceed,  the  present  value  of  the  physical  assets  of  the  Company. 
In  other  words,  water,  in  the  sense  of  the  excess  of  outstanding  securi- 
ties above  tangible  assets,  does  not  appear  in  the  stock  of  the  Com- 
pany. 

7.  A  depreciation  reserve  of  about  $5,000,000,  or  over  15%.  of  the 
outstanding  stocks  and  bonds,  has  been  accumulated  out  of  earnings 
to  meet  depreciation,  and  has  been  invested  in  extensions. 

Some  of  these  points  will  be  enlarged  upon  elsewhere.  It  is  suf- 
ficient now  to  congratulate  the  Chicago  Telephone  Company  upon  its 
unique  position  in  combining  so  many  good  features. 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      791 

The  investigation  of  the  profits  and  the  regulation  of  rates  are 
made  far  less  difficult  by  the  above  situation. 

On  the  other  hand,  because  of  the  great  size  of  the  Company,  with 
over  $35,000,000  of  assets,  and  with  a  service  touching  most  closely 
the  homes  and  comfort  and  business  of  the  entire  city,  and  because 
of  the  novelty  and  complexity  of  the  problems  to  be  handled,  there  is 
call  for  the  most  thorough  investigation  and  the  most  judicial  thought 
that  can  be  brought  to  the  task. 

The  revenues  of  all  the  gas,  water  and  telephone  properties  con- 
trolled by  the  Wisconsin  Railroad  Commission  are  no  greater  than 
those  of  the  Chicago  Telephone  Company. 

THE  PROBLEM  BEFORE  US 

The  problem  before  us  arises  from  the  ordinance  of  November  6, 
1907,  giving  a  franchise  to  the  Chicago  Telephone  Company  until 
January  8,  1929. 

It  provided,  with  reference  to  that  portion  of  the  Company's  busi- 
ness within  the  city  limits,  a  complete  control  by  the  City  Council  of 
rates  for  periods  of  five  years  each,  after  the  expiration  of  the  first 
thirty  months.  The  rates  for  the  first  two  and  one-half  years  were 
prescribed  in  the  ordinance  of  1907.  Since  the  City  Council  has  not 
prescribed  new  rates  since  1907,  those  ordered  for  the  first  thirty 
months,  ending  in  April,  1910,  have  continued. 

The  full  provisions  of  the  city  ordinance  of  November  6,  1907,  on 
this  point  are  here  quoted : 

"7.  Future  Rate  Regulation — Special  Ordinance — Right  Reserved — Con- 
sent of  Company. 

"The  City  Council,  as  one  of  the  conditions  of  the  grant  of  the  privileges 
herein  confered  upon  the  Chicago  Telephone  Company,  hereby  reserves  to 
itself  the  right  from  time  to  time  during  the  period  of  this  grant,  by  special 
ordinance  amendatory  hereof,  to  hereafter  establish,  fix,  prescribe  and  regu- 
late the  rates,  charges,  prices  and  tolls,  or  other  compensation  or  any  limita- 
tions thereupon,  for  each  and  every  kind  of  service,  facilities  and  equipment 
which  the  Chicago  Telephone  Company  furnishes  or  supplies,  or  may  furnish 
or  supply,  in  the  City  of  Chicago,  under  this  ordinance,  and  also  the  baste, 
method,  manner  and  means  of  computing,  exacting,  imposing,  paying  and  col- 
lecting such  rates,  charges,  prices  and  tolls,  or  other  compensation  of  said 
Chicago  Telephone  Company. 

"Included  in  the  right  or  rights  above  reserved  to  the  City  Council  is  the 
right  to  hereafter  alter,  change  or  reduce  the  maximum  ratos  for  any  service, 
facilities  or  equipment  hereinbefore  described,  and  any  other  rates,  charges, 
prices,  tolls  or  compensation  for  any  service,  facilities  or  equipment  which 
may  now  or  hereafter  under  this  ordinance  be  established,  fixed,  proscribe!, 
imposed  or  collected  by  said  grantee,  as  the  City  Council  may  deem  ex- 


792         MATERIALS    OF   CORPORATION   FINANCE 

pedient  and  reasonable,  and  to  pass,  by  a  special  amendatory  ordinance,  from 
time  to  time,  all  reasonable  rules  and  regulations  relative  to  the  rates,  charges, 
prices,  tolls  or  other  compensation  of  said  grantee,  for  any  service,  facilities 
or  equipment.  The  Chicago  Telephone  Company,  by  the  filing  of  the  ac- 
ceptance of  the  terms  and  conditions  of  this  ordinance  hereinafter  provided 
for,  shall  be  understood  as  expressly  consenting  and  agreeing  to  promptly 
accept,  adopt,  put  into  effect  and  operate  its  system  of  wires,  cables,  electrical 
conductors,  poles  and  conduits,  in  the  City  of  Chicago,  under  any  reasonable 
schedule  or  schedules  of  rates,  charges,  prices,  tolls  or  compensation  for 
telephone  service,  instruments,  facilities  or  equipment,  or  for  all  or  any 
of  them,  or  any  reasonable  schedule  or  schedules  of  limitations  upon  such 
rates,  charges,  prices,  tolls  or  compensation,  or  any  reasonable  rules  and 
regulations  relating  thereto,  and  also  the  basis,  method,  manner  and  means 
of  computing,  exacting,  imposing,  paying  and  collecting  such  rates,  charges, 
prices  and  tolls,  or  other  compensation  of  said  Chicago  Telephone  Company, 
which  the  City  of  Chicago  may,  by  special  amendatory  ordinances,  establish, 
fix  or  prescribe  from  time  to  time,  after  the  expiration  of  thirty  months  from 
the  time  thia  ordinance  goes  into  force  and  effect,  and  any  reasonable  schedule 
or  schedules  of  rates,  charges,  prices,  tolls,  or  other  compensation  for  any 
other  service,  instruments,  facilities  or  equipment,  other  than  those  herein 
mentioned,  or  for  all  or  any  of  them,  or  any  reasonable  schedule  or  schedules 
of  limitations  upon  such  other  rates,  charges,  prices,  tolls  or  compensation, 
or  all  or  any  of  them,  or  any  reasonable  rules  and  regulations  relative  thereto, 
which  the  City  of  Chicago  may,  by  special  ordinance,  establish,  fix  or  pre- 
scribe from  time  to  time  after  this  ordinance  goes  into  force  and  effect. 
Provided,  that  any  schedule  or  schedules  of  rates,  charges,  prices,  tolls  or 
compensation  or  of  limitations  thereupon,  which  are  established,  fixed  or  pre- 
scribed as  aforesaid  shall  not  be  fixed  by  the  City  of  Chicago  to  continue  for 
a  period  of  more  than,  or  of  less  than,  five  years,  unless  at  the  time  of  the 
passage  of  any  such  special  amendatory  ordinance  the  unexpired  term  of 
this  grant  is  less  than  five  years. 

"Whenever  the  City  desires  to  take  up  the  regulation  of  rates  as  hereinbe- 
fore provided  for,  the  Comptroller  shall  give  to  the  Chicago  Telephone  Com- 
pany at  least  thirty  days'  notice,  and  shall  require  the  Company  to  produce, 
and  the  Company  shall  produce,  all  the  facts,  data  and  information  in  its 
possession  which  the  City  may  require  to  assist  the  City  to  make  a  proper 
and  reasonable  regulation  of  rates. 

"If  at  any  time  said  Chicago  Telephone  Company  shall  in  any  way  contest 
or  deny  the  reasonableness  of  any  rates,  charges,  prices,  tolls  or  other  com- 
pensation, or  any  limitation  or  limitations  thereupon,  for  any  kind  of  service, 
facilities  or  equipment  prescribed  by  a  special  amendatory  ordinance,  aa 
hereinbefore  provided,  or  by  a  general  ordinance  as  hereinafter  provided,  and 
pending  the  detemination  of  any  proceeding,  litigation  or  contest  whatever, 
ahall  collect  or  receive  rates,  charges,  prices,  tolls  or  other  compensation  in 
excess  of  the  rates,  charges,  prices,  tolls  or  other  compensation,  or  any  limi- 
tation or  limitations  thereupon  fixed  by  ordinance,  said  Chicago  Telephone 
Company  shall  upon  the  final  determination  of  any  such  proceeding,  litigation 
or  contest  repay  to  each  and  all  of  its  lessees,  subscribers  and  patrons  the 
excessive  amount  which  it  haa  collected  or  received  therefrom,  together  with 
interest  thereon  at  the  rate  of  five  per  cent.  (5%)  per  annum  from  the  date 
of  said  collection  or  receipt  unless  the  unreasonableness  of  the  rates,  charges. 


PHYSICAL  VALUATION   OF  CHICAGO  TEL.   COS.      793 

prices,  tolls  or  other  compensation,  or  any  limitation  or  limitations  thereupon, 
which  have  been  attacked,  shall  have  been  established. 

"Right  of  Regulation  by  General  Ordinance  Reserved. 

"Nothing  in  this  ordinance  contained  shall  be  construed  or  taken  as  prevent- 
ing the  City  of  Chicago  whenever  it  shall  be  empowered  by  the  General  As- 
sembly so  to  do  from  passing  from  time  to  time  any  general  ordinance  or 
ordinances  establishing,  fixing,  prescribing  or  regulating  the  rates,  rentals  or 
charges  of  telephone  companies  for  any  service,  instruments,  facilities,  equip- 
ment or  licensing,  regulating  or  taxing  telephone  companies,  it  being  the- 
intention  of  this  ordinance  that  the  City  of  Chicago  shall  in  no  way  surrender 
any  right  it  may  now  have  or  may  hereafter  acquire  to  tax,  license  or  regulate 
telephone  companies  or  to  establish,  fix,  prescribe  or  regulate  the  price,  rates, 
rentals,  charges  or  compensation  to  be  charged  for  telephones,  or  any  service, 
facilities  or  equipment,  provided,  also,  that  nothing  in  this  ordinance  con- 
tained shall  be  construed  as  preventing  the  City  of  Chicago  from  granting  an 
ordinance  to  any  other  telephone  company.  The  Chicago  Telephone  Company 
by  the  acceptance  of  this  ordinance  shall  be  understood  as  agreeing  to  comply 
with  the  terms  and  conditions  of  any  reasonable,  general  ordinance  or  ordi- 
nances passed  as  aforesaid." 

Evidently  the  first  question  to  be  determined  is  the  amount  of 
profit  that  the  Company  has  made  during  the  four  years  of  operation 
of  the  existing  ordinance,  and  the  ratio  of  that  profit  to  the  actual 
investment  in  the  property. 

Other  questions  will  follow,  such  as  the  relation  of  investment  to 
present  value,  the  amount  needed  for  depreciation,  the  reasonable 
rate  of  return,  prospects  of  future  profits  and  costs  as  affected  by  pos- 
sible competition,  the  building  of  subways,  etc. 


GROSS  EARNINGS,  EXPENSES  AND  PROFITS 

In  the  following  tables  are  presented  the  actual  receipts  and  the 
actual  expenditures  as  shown  by  the  books  of  the  Company  since 
1890.  Allowances  for  depreciation  and  other  reserves  not  actually 
expended  are  omitted.  The  accountants  have  made  a  few  minor 
adjustments  of  the  books  in  the  table  below,  but  only  one  is  of  suffi- 
cient importance  to  deserve  mention,  and  that  is  of  not  any  large 
importance. 

Unusual  expenditures  of  1911  of  $144,583.92  on  account  of  the  ap- 
praisal and  $44,453.40  in  connection  with  a  strike,  or  a  total  of  $189,- 
037.32,  were  in  large  part  thrown  back  and  apportioned  over  the  last 
seven  years,  thus  making  the  burden  less  severe  in  1911. 

The  investment  in  Table  2  is  based  on  the  cost  reported  by  the 
Company  on  its  books  without  any  deductions  for  depreciation. 


794         MATERIALS    OF   CORPORATION    FINANCE 

TABLE  1 

EXPENSES  AND  PROFITS,  CITY  AND  SUBURBAN 
Before  Making  Additions  to  the  Depreciation  Reserves 


Year 

Ended       Earnings 
Dec.  31 

Expenses 

Miscellaneous 
Net  Earnings       Revenue 

Net  Profit 

1891 

$1,036,569 

.19 

$597,469 

.90 

$439,099 

.29 

$3,689 

.45 

$442,788 

.74 

1892 

1,194,715 

.58 

738,184 

.30 

456,531 

.28 

4,093 

.15 

460,624 

.43 

1893 

1  417,829 

.73 

881,451 

.53 

536,378 

.20 

536,378 

.20 

1894 

1,479,878 

.85 

902,057 

.02 

577,821 

.83 

2,950 

.94 

580,772 

.77 

1895 

1,616,028 

.79 

1,036,396 

.64 

579,632 

.15 

18,931 

.87 

598,564 

.02 

1896 

1,797,567 

.17 

1,059,164 

.00 

738,403 

.17 

22,237 

.51 

760,640 

.68 

1897 

1,908,615 

.11 

1,039,169 

.47 

869,445 

.64 

18,869 

.85 

888,315 

.49 

1898 

2,137,609 

48 

1,210,214 

.17 

927,395 

31 

16,089 

.70 

943,485 

,01 

1899 

2,480,184, 

12 

1,477,596 

.99 

1,002,587. 

13 

17,930 

.53 

1,020,517 

,66 

1900 

2,870,489 

.44 

2,065,021 

.19 

805,468 

25 

21,214 

.84 

826,683 

09 

1901 

3,484,130 

.95 

2,197,770 

.28 

1,286,360. 

67 

27,226 

.89 

1,313,587 

.56 

1902 

4,290,950 

99 

2,781,390 

.23 

1,509,560 

,76 

27,868 

,21 

1,537,428 

97 

1903 

5,308,201 

13 

3,495,831.06 

1,812,370 

07 

45,315 

03 

1,857,685, 

10 

1904 

6,265,124 

57 

3,602,428 

.85 

2,662,695. 

72 

59,730 

39 

2,722,426 

11 

1905 

7,016,057. 

39 

4,346,963 

.09 

2,669,094. 

30 

42,149, 

07 

2,711,243. 

37 

1906 

7,810,293. 

54 

4,920,422 

,46 

2,889,871  . 

08 

52,181 

51 

2,942,052. 

59 

1907 

8,635,102. 

08 

6,621,059 

09 

2,014,042. 

99 

56,703, 

06 

2,070,746  , 

05 

1908 

8,617,238. 

09 

6,642,647. 

95 

1,974,590. 

14 

81,768. 

37 

2,056,358. 

51 

1909 

9,745,954. 

46 

7,238,688.52 

2,507,265. 

94 

54,589, 

07 

2,561,855. 

01 

1910 

11,092,879. 

07 

7,824,205. 

,70 

3,268,673. 

37 

42,934, 

01 

3,311,607. 

38 

1911 

12,474,022. 

15 

8,836,827. 

49 

3,637,194. 

66 

43,540. 

78 

3,680,735, 

44 

TABLE  2 

PER  CENT.  EARNINGS,  EXPENSES  AND  NET  RETURN  TO  AVERAGE 
INVESTMENT,  ELIMINATING  ALLOWANCE  FOR  DEPRECIATION 

City  and  Suburban 


Total 

Expenses 

Net 

Miscel- 

Net Returr 

Calendar 

Telephone 

of 

Telephone 

laneous 

to  Average 

Year 

Earnings 

Operation 

Earnings 

Revenue 

Investment 

1891 

51.01% 

29.40% 

21.61% 

.18% 

21.79% 

1892 

42.11 

26.02 

16.09 

.14 

16.23 

1893 

38.23 

23.77 

14.46 

14.46 

1894 

35.83 

21.84 

13.99 

.07 

14.06 

1895 

36.52 

23.42 

13.10 

.43 

13.53 

1896 

37.42 

22.05 

15.37 

.46 

15.83 

1897 

36.92 

20.10 

16.82 

.37 

17.19 

1898 

37.61 

21.29 

16.32 

.28 

16.60 

1899 

36.68 

21.85 

14.83 

.27 

15.10 

1900 

34.39 

24.74 

9.65 

.25 

9.90 

1901 

33.59 

21.19 

12.40 

.27 

12.67 

1902 

33.17 

21.50 

11.67 

.22 

11.89 

1903 

34.54 

22.74 

11.80 

.29 

12.09 

1904 

36.77 

21.14 

15.63 

.35 

15.98 

1905 

37.77 

23.40 

14.37 

.23 

14.60 

1906 

36.67 

23.10 

13.57 

.25 

13.82 

1907 

33.90 

26.00 

7.90 

.22 

S.12 

1908 

29.77 

22.95 

6.82 

.28 

7.10 

1909 

31.40 

23.32 

8.08 

.17 

8.25 

1910 

33.13 

23.37 

9.76 

.13 

9.89 

1911 

33.53 

23.76 

9.77 

.12 

9.89 

City 

1908 

31.91% 

25.21% 

6.70% 

.31% 

7.01% 

1909 

33.39 

25.34 

8.05 

.15 

8.20 

1910 

35.00 

25.16 

9.84 

.13 

9.97 

1911 

35.38 

25.58 

9.80 

.13 

9.93 

PHYSICAL  VALUATION   OF   CHICAGO   TEL.   COS.      795 

OPERATING    EXPENSES 

No  conclusions  can  be  drawn  from  the  tables  just  given  until  a  study 
is  made  of  the  operating  expenses,  investment  and  reasonable  allow- 
ance for  depreciation.  Operating  expenses  will  be  first  considered. 

Of  the  total  average  expenditures  for  operation  and  new  construc- 
tion in  1911  of  about  $13,183,339.79,  of  which  $8,836,827.49  was  for 
operation,  the  payroll  amounted  to  $6,332,485  and  taxes  to  $720,000. 
There  is  no  evidence  that  these  expenses  can  te  materially  reduced. 
Expenditures  this  year  in  the  department  of  station  removals  and 
changes  are  falling,  but  on  the  whole  the  upward  trend  of  wages  found 
in  other  industries  has  affected  and  will  still  continue  to  affect  the 
telephone  business. 

In  a  report  of  the  United  States  Department  of  Commerce  and 
Labor  to  the  Senate,  February  23,  1910,  upon  telephone  companies 
(61st  Congress,  2d  Session,  Document  No.  380),  it  is  shown  (page 
94)  that  outside  of  Colorado  and  farther  west,  Chicago  was  paying 
higher  monthly  wages  to  its  operators  than  in  most  other  cities. 

The  total  number  of  employees  in  1907 — 6,843 — had  an  average 
monthly  payroll  of  $43.97.  The  8,475  employees  in  1911  had  an 
average  payroll  of  $51.31.  While  the  number  of  employees  had 
increased  23.8%,  the  monthly  payroll  was  increased  44.5%. 

Of  more  interest,  perhaps,  are  the  figures  for  the  traffic  department, 
containing  the  operators  who  handle  all  the  messages.  These  in- 
creased from  4,090  in  1907,  with  an  average  monthly  wage  of  $31.17, 
to  5,116  in  1911,  with  an  average  monthly  wage  of  $35.23.  The 
average  pay  per  employe  increased  13%. 

The  pay  for  an  eight-hour  day  for  an  ordinary  operator  doing  no 
Sunday  or  holiday  work  rises  from  $23.84  a  month  during  the  first 
six  months  of  employment  to  $39  the  last  half  of  the  third  year,  and 
by  successive  steps  to  $49.86  the  tenth  year.  Higher  wages  are  given 
to  supervisors,  whose  pay  gradually  increases  to  $56.36  a  month  in 
the  seventh  year. 

Plans  are  now  being  considered  for  a  pension  scheme  in  all  the  Bell 
companies,  which  will  add  somewhat  to  the  expenses  of  the  Company. 
Further  increase  of  wages,  with  increased  cost  of  living  and  the  in- 
crease of  wages  elsewhere,  are  also  likely  during  the  next  five  years. 

Since  the  Company,  however,  has  successfully  met  previous  in- 
creases and  seems  to  be  doing  quite  as  well  by  its  employees  as  do 
other  telephone  companies,  there  does  not  appear  to  be  any  reason  for 
giving  further  consideration  to  the  subject  at  the  present  time. 

The  Chicago  Telephone  Company  spends  more  money  per  telephone 
than  do  other  large  Bell  companies  in  operators'  wages,  schooling,  rest 
and  lunch  room  expenses.  In  this  respect  the  cost  per  telephone  in 


796         MATERIALS    OF   CORPORATION   FINANCE 

Chicago  last  year  was  $1.8?  greater  than  the  average  of  all  the  Bell 
companies,  and  $1.40  greater  than  in  the  seaboard  states  from  Maine 
to  Virginia. 

To  what  extent  this  excess  of  expenses  in  the  traffic  department 
is  due  to  the  large  number  of  nickel  'phones  and  the  extent  of  the  flat 
rate  service,  and  to  what  extent  it  is  due  to  better  wages  and  greater 
interest  in  the  welfare  of  the  employees,  it  has  been  found  impossible 
to  determine.  Certain  it  is  that  the  welfare  work,  such  as  rest  and 
lunch  rooms,  schooling,  etc.,  among  the  employees  is  carried  much 
farther  in  Chicago  than  in  most,  and  probably  than  in  any  other 
places. 

The  yearly  expense  here  is  73  cents  a  telephone  for  these  purposes, 
as  compared  with  31  cents  on  the  average,  for  the  country  as  a  whole, 
and  41  cents  on  the  average  for  New  England  and  the  other  seaboard 
states  north  of  the  Potomac. 

Practically  all  supplies  and  materials  for  construction,  outside  of 
buildings,  are  obtained  from  the  Western  Electric  Company.  Since 
the  majority  of  its  stock  is  owned  by  the  A.  T.  &  T.,  which  also  owns 
over  95%  of  the  stock  of  the  Chicago  Telephone  Company,  there  is 
naturally  some  suspicion  of  the  prices  paid  by  the  local  company.  In- 
vestigation elsewhere,  as  well  as  studies  that  it  has  been  possible  to 
make  in  preparation  of  this  report,  have  not  confirmed  these  sus- 
picions. At  least,  so  far  as  the  present  report  is  concerned,  this  par- 
ticular matter  may  be  omitted  from  further  consideration. 

Two  other  expenses,  aside  from  those  of  the  traffic  department,  are 
materially  greater  in  Chicago  than  elsewhere.  One  of  these  is  the  ex- 
pense for  station  removals  and  changes,  and  the  other  is  the  expense 
for  repairs. 

The  considerable  percentage  of  the  population  of  Chicago  which 
moves  every  year,  and  the  extent  to  which  the  cheaper  type  of  tele- 
phone, the  nickel  'phone,  has  been  extended,  are  supposed  to  account 
for  the  difference  in  expenses  with  regard  to  station  removals,  which 
average  over  $2  per  telephone.  The  larger  cost  of  repairs  in  Chicago 
than  elsewhere  probably  has  a  tendency  to  keep  down  the  need  for  re- 
newals and  will  be  considered  further  in  connection  with  the  subject 
of  depreciation. 

PAYMENT   TO   THE  A.   T.    &   T. 

The  operating  expenses  thus  far  considered  were  higher,  in  some 
respects,  than  in  other  companies,  but  have  a  sufficient  justification  to 
warrant  our  acceptance  of  the  same  in  this  report. 

Very  different  in  character  is  the  yearly  payment  by  the  local  com- 
pany, in  common  with  every  other  Bell  Company,  of  4£%  of  its  gross 


PHYSICAL  VALUATION   OF  CHICAGO   TEL.   COS.      797 

receipts  from  telephones  to  the  A.  T.  &  T.  Co. — a  company,  it  must 
be  remembered,  which,  by  its  ownership  of  the  majority  of  the  stock 
of  these  various  companies,  stands  at  both  ends  of  the  bargain.  The 
more,  however,  that  the  right  hand — the  A.  T.  &  T.  Co.— decides  that 
its  left  hand — the  Chicago  Telephone  Company — shall  pay,  in  the 
form  of  a  percentage  of  the  gross  receipts,  the  higher  must  be  the 
charges  against  the  subscriber,  to  pay  this  disguised  dividend.  The 
payment  made  by  the  Chicago  Telephone  Company  in  1911,  of  $537,- 
585.12,  amounted  to  $1.69  for  each  of  the  318,135  telephones,  often 
called  stations,  in  use  on  the  average,  during  the  year.  It  was  equiva- 
lent to  1.45%  of  the  average  investment  of  $37,194,587.95.  (Hall's 
Report,  pages  4,  36-9.)  The  payment  for  the  City  portion  of  the  busi- 
ness was  $445,550.42  and  will  doubtless  be  about  $500,000  in  1912. 

In  return  for  this  payment,  the  Chicago  company  receives  three 
advantages:  First,  the  rental,  with  all  repairs  and  renewals,  of  the 
electrical  portion  of  the  subscribers'  equipment — the  transmitter,  re- 
ceiver and  induction  coil;  second,  certain  patents;  and  third,  legal, 
accounting  and  engineering  assistance  from  time  to  time.  These 
points  will  be  considered  in  the  above  order : 

1.     Transmitter,  Receiver  and  Induction  Coil: 

The  Western  Electric  Company,  which  makes  these  instruments, 
has  refused  the  writer's  request  for  information  on  their  cost,  or  the 
cost  of  maintenance  and  renewals.  The  Kellogg  Switchboard  Com- 
pany, of  Chicago,  claims  to  sell  an  equally  good  set  for  $2.80,  with  a 
reduction  of  15%  if  bought  even  in  small  lots,  in  connection  with  the 
Bell  cord,  stand  and  other  small  parts  that  go  with  a  desk  or  wall 
outfit.  If  the  price,  under  these  circumstances,  and  with  the  discount, 
is  only  $2.38,  it  may  fairly  be  presumed  that  the  cost,  with  a  fair 
profit  to  the  Western  Electric,  which  supplies  all  these  parts  for  over 
4,000,000  telephones,  must  be  below  this  figure. 

For  our  present  purposes,  one  needs  to  know  not  only  the  cost  new, 
and  the  fact  that  about  one-fourth  of  the  number  are  yearly  returned 
oy  the  Chicago  Telephone  Company  for  some  repairs,  but  also  the  cost 
of  these  repairs,  and  the  life  of  the  instrument  as  a  whole.  In  the 
refusal  of  the  Western  Electric  to  give  this  information,  we  may  fall 
back  upon  the  fact  that  on  September  6,  1907,  the  Chicago  Telephone 
Company  met  the  bids  of  independent  companies  for  the  sale  of  trans- 
mitters, receivers  and  induction  coils,  by  agreeing  to  rent  the  same 
to  the  City  of  Chicago  and  repair  and  renew  them,  for  50  cents  apiece 
per  year.  The  city  accepted  the  offer,  and  took  1,557  such  sets  for 
the  Police,  Fire  and  Street  departments,  at  this  rate,  and  would  have 
probably  continued  to  act  on  this  contract  had  not  the  ordinance  of 


798         MATERIALS    OF   CORPORATION   FINANCE 

November  6,  1907,  given  the  City,  in  return  for  the  franchise,  the 
right  to  use  the  transmitter  and  receiver  free  of  charge.  In  the 
absence  of  any  access  to  the  books  of  the  Western  Electric  Company, 
it  must  be  assumed  that  the  contract  with  the  City  by  the  Chicago 
Telephone  Company  was  not  a  losing  one.  It  would  indeed  be  fair  to 
assume  that  if  the  company  could  afford  to  make  a  50  cent  price  in 
competition  with  other  companies  for  the  small  number  needed  by  the 
City  departments,  it  could  afford  to  make  a  still  lower  price  to  the 
Chicago  Telephone  Company  for  the  vastly  larger  number  needed  by 
the  latter. 

2.    Patents: 

The  Chicago  Telephone  Company  does  not  appear  to  buy  patents 
as  such,  but  to  buy  from  the  Western  Electric  Company  goods  many 
of  which  are  patented.  Since  most  of  the  goods,  however,  have  been 
sold  of  late  on  substantially  the  same  terms  to  independent  telephone 
companies,  the  question  at  issue  relates  only  to  the  few  patented 
articles  which  the  Western  Electric  Company  refuses  to  sell  to  other 
than  the  Bell  companies.  The  only  one  of  these  patented  articles 
upon  which  the  Chicago  Telephone  Company  lays  any  stress,  is  the 
so-called  Pupin  coil,  invented  by  Prof.  Pupin  of  Columbia  University, 
New  York  City,  about  twelve  years  ago.  Its  purpose  is  to  reinforce 
the  electric  current  at  various  points  along  the  telephone  line  so  that 
a  small  wire  will  carry  the  sound  as  distinctly  as  a  larger  and  there- 
fore more  expensive  wire  would  otherwise  do.  Its  chief  use  is  on  long 
distance  lines.  In  Chicago  it  is  only  used  on  some  of  the  connecting 
trunk  lines  from  one  central  office  to  another  when  the  latter  is  over 
nine  miles  distant.  Figures  have  been  presented  by  the  Chicago  Tele- 
phone Company  to  prove  that  even  on  these  lines  the  Pupin  coils  have 
saved  an  investment  of  $2,000,000  worth  of  copper  wire,  whose  yearly 
value,  on  a  7%  basis,  with  an  allowance  of  1£%  depreciation,  is 
$170,000  a  year. 

There  is,  however,  another  side  to  this  question.  It  is  not  only 
what  these  patents  may  be  worth  to  the  local  company,  but  their  cost 
to  the  parent  company.  Especially  is  this  important  when  the  parent 
company  absolutely  owns  and  controls  the  policies  of  the  local  com- 
pany, and  all  bargains  which  it  may  make.  Now,  the  A.  T.  &  T.,  in 
its  Annual  Reports  up  to  and  including  those  for  1907,  gave  a  yearly 
statement  of  the  value  of  all  its  patents.  It  is  to  be  regretted  that  this 
policy  of  publicity  was  not  continued.  However,  since  the  Pupin  coil 
was  patented  about  1900,  and  since  no  important  patents  since  1907 
have  been  emphasized  as  defenses  for  the  payments  by  the  local  com- 
panies, the  Balance  Sheet  of  the  A.  T.  &  T.  for  January  1,  1908,  may 
be  quoted  as  very  significant.  According  to  that  report  the  entire 


PHYSICAL  VALUATION  OF  CHICAGO  TEL.  COS.      799 

value  of  all  the  patents  owned  by  the  A.  T.  &  T.  at  the  close  of  1907, 
was  given  to  the  stockholders  as  only  $277,937.35.  Since  the  total 
number  of  telephones  belonging  to  the  Bell  companies  in  the  United 
States  at  that  time  was  3,035,533,  the  value  of  these  patents  per  tele- 
phone was  only  9  cents,  and  the  entire  capital  value  to  be  apportioned 
to  Chicago,  on  the  basis  of  the  202,600  stations  then  in  service  by  the 
local  company,  was  less  than  $20,000.  To  be  sure,  the  smaller  com- 
panies have  less  use  for  the  Pupin  coil  than  has  Chicago,  but  by  far 
the  greatest  use  is  on  the  long  distance  lines. 

3.    Engineering,  Accounting  and  Legal  Services: 

The  company  undoubtedly  receives  some  benefit  from  the  parent 
company  in  these  ways.  Whether  the  latter  does  not  receive  a  suf- 
ficient reward  in  the  dividends  on  the  majority  of  the  stock  owned 
by  it,  in  every  local  company,  is  another  question. 

As  regards  all  three  of  the  above  lines  of  service  from  the  national 
company,  it  may  be  said  that  the  reports  of  this  company  to  the  Mass- 
achusetts Highway  Commission,  indicate  a  very  large  profit  from  the 
aid  given  in  the  above  ways  to  the  local  companies. 

The  4£%  payment  to  the  A.  T.  &  T.  yielded  in  1911  for  business 
within  the  city  $445,550.  This  was  $1.76  for  each  of  the  253,753 
phones  in  use  on  the  average  last  year.  Of  this  $1.76  per  phone,  the 
amount  justly  earned  by  the  A.  T.  &  T.  does  not  appear  to  be  over  $1 
made  up  as  follows : 

TABLE  3 
RENTALS  TO  AMERICAN  TELEPHONE  AND  TELEGRAPH  COMPANY 

Rental  of  transmitter,  receiver  and  induction  coil $0.50 

Interest,  depreciation,  taxes,  royalties,  etc.,  on  patents,  estimated  at  22% 

of  the  cost — 9  cents  per  phone — of  said  patents,  as  above 02 

Services  and  unknown  or  undervalued  items,  not  over 48 

Total   reasonable  payment   $1.00 

Amount  of  excess  payment  per  phone 76 

Amount  of  excess  payment,  total $192,837.00 

Per  cent,  of  said  excess  payment  to  the  present  conceded  value  of  all  the 

telephone  property  in  the  city,  of  $25,495,036 76% 

There  may  be  a  legal  question  as  to  the  power  of  the  city  to  reduce 
this  payment  directly,  but  that  these  considerations  should  have  some 
bearing  on  the  fixing  of  rates,  which  in  the  end  inure  to  the  benefit 
of  the  A.  T.  &  T.  now  owner  of  over  95%  of  the  stock,  is  clear. 

MAINTENANCE    AND   DEPRECIATION    RESERVE 

The  final  element  in  operating  expenses  centers  around  the  effort 
to  keep  the  original  value  of  the  property  intact 


800         MATEEIALS    OF   COKPOKATION   FINANCE 

Before  we  can  consider  a  fair  return  on  the  cash  put  into  a  prop- 
erty by  the  stockholders  and  bondholders,  we  must  assume  that  the 
principal  of  the  investment  has  not  depreciated  in  value.  Otherwise 
the  investor  will  have  the  right  to  demand  in  his  turn  not  only  a  fair 
profit,  but  insurance  against  loss  of  the  original  investment. 

Now  a  telephone  company,  like  other  municipal  utilities,  has  to 
face  a  tendency  to  the  decline  in  value  of  its  property  from  four  causes, 
viz.,  physical  decay,  inadequacy,  obsolescence,  and  municipal  require- 
ments. A  word  may  be  said  with  regard  to  each. 

1.  Physical  decay  or  wear  and  tear :    All  material  things  wear  out 
in  time,  or  are  liable  to  destruction  by  accident.     Eepairs  must  be 
constantly  made,  and  in  time  the  plant  must  be  renewed  or  replaced. 

2.  Inadequacy:    The  development  of  the  business  of  a  telephone 
plant  often  requires  the  substitution  of  larger  switchboards,  under- 
ground cables  with  more  wires,  etc. 

3.  Obsolescence:     Invention  frequently  leads  to  the  substitution 
of  new  plant  for  old.    For  example,  we  no  longer  are  content  with  the 
ringing  of  a  bell  in  order  to  secure  the  attention  of  "Central,"  but 
seek  immediate  attention  by  the  mere  removal  of  the  receiver  from 
the  hook.     New  types  of  cable  and  duct  are  introduced  from  time 
to  time. 

4.  Municipal  requirements:     Cities  more  and  more  require  the 
burial  of  wires  in  expensive  conduits,  and  sometimes  require  the  re- 
location of  the  conduits  themselves  to  make  room  for  subways,  etc. 

All  four  forms  of  decline  in  value  have  been  encountered  here. 
Three  lines  of  expense  have  been  incurred  to  meet  them, — repairs, 
reconstruction  and  depreciation  reserves.  The  first  two,  repairs  and 
reconstruction,  or  renewals,  are  often  classed  together  under  the 
name  of  maintenance.  They  alone  represent  actual  expenditures, 
directly  designed  to  keep  the  plant  intact.  The  Chicago  Telephone 
Company,  however,  has  accumulated  a  reserve  to  meet  extraordinary 
requirements  and  such  depreciation  from  inadequacy  and  obsolescence 
as  in  a  rapidly  growing  plant  might  not  be  fully  met  from  the  main- 
tenance account. 

Postponing  for  the  moment  any  other  method  of  meeting  depre- 
ciation, attention  should  be  called  first  to  the  amount  the  company 
has  actually  expended  for  repairs  and  reconstruction,  during  the  last 
20  years. 

Until  1904  the  company  carried  all  its  expenditures  to  meet  these 
various  forms  of  depreciation  in  one  account,  known  as  the  main- 
tenance account.  In  1904  two  divisions  were  made, — that  of  "repairs," 
and  that  of  "rconstruction  and  renewal."  In  January,  1910,  a  third 
division  was  created,  known  as  "station  removals  and  changes."  This 
account  had  previously  been  carried  in  the  maintenance  account.  The 


PHYSICAL  VALUATION  OF  CHICAGO  TEL.  COS.  801 

present  system  of  accounts  is  much  better.  A  large  part  of  the  ex- 
pense of  change  and  removal  of  the  telephone  transmitter,  receiver 
and  house  wiring  is  not  an  expense  of  repair  or  renewal,  but  a  mere 
removal,  or  change  of  location.  The  estimate  of  the  accountants 
(Hall's  Report,  pages  23-24)  relative  to  the  amount  of  repairs  and 
reconstruction  follows  in  the  table  below : 

It  gives  the  average  investment,  except  land,  working  capital,  furni- 
ture, fixtures,  tools,  vehicles  and  construction  in  process,  as  found  by 
Hall,  and  the  actual  expenditures  for  repairs  and  renewals  since  1890. 
The  average  investment  is  found  by  adding  to  the  investment  of  Jan- 
uary 1st  of  each  year,  half  of  the  additions  of  the  year. 

TABLE  4 

AVERAGE  INVESTMENT  IN  DEPRECIABLE  PROPERTY  AND  ACTUAL 
EXPENDITURES  FOR  THE  MAINTENANCE  AND  RENEWAL 
OF  THE  SAME,   1891-1911 


Year 

Average 
Depreciable 
Investment. 

Maintenance  and 
Reconstruction. 

Percentage  of 
Maintenance  and 
Reconstruction  to 
average  investment. 

1891    

$1,901,859.40 

$200,304.50 

10.53% 

1892    

2,580,278.78 

255,014.45 

9.88 

1893   

3,322,833.13 

276,627.40 

8.33 

1894   

3,730,321.71 

352,082.68 

9.44 

1895  

4,010,432.25 

435,669.12 

10.86 

1896    

4.363,523.12 

413,886.99 

9.49 

1897   

4,703,850.31 

355,453.96 

7.55 

1898   

5,177,723.69 

452,645.93 

8.74 

1899   

6,171,416.78 

515,218.40 

8.35 

1900  

7,651,999.46 

883,761.27 

11.55 

1901   

9,560,846.96 

816,851.97 

8.54 

1902  

11,981,429.11 

1,025,846.49 

8.56 

1903   

14,312,487.60 

1,272,578.20 

8.89 

1904   

15,909,051.27 

1,102,970.74 

IM 

1905   

17,304,637.09 

1,560,822.09 

9.01 

1906    

19,785,525.00 

1,435,440.69 

7.26 

1907  

23,549,541.08 

2,311,304.05 

9.81 

1908    

26,293,430.46 

2,271,707.11 

8.64 

1909  

27,754,261.76 

2,336,507.47 

8.42 

1910  .      . 

29,854,483.44 

2,323,353.78 

7.78 

1911   .. 

33,277,902.01 

2,313,597.12 

6.95 

1912*  

37,350,508.47 

2,759,830.68 

7.39 

*  Based  on  the  first  six  months — January  1 — June  30,  which  showed  a  net 
increase  of  construction  of  $1,952,052.31,  which  should  be  added  to  the  de- 
preciable property  December  3,  1911,  of  $35,425,456.16.  The  current  repairs  of 
$1,401,933.94  less  $365,053.60  station  removals,  leaves  $1,036,880.34.  To  thin 
should  be  added  replacements  of  $343,035,  or  a  total  for  the  half  year  of 
$1,379,915.  This  is  at  the  rate  of  $2,759,830.68  for  the  year. 

SANTA  BARBARA  SfATE  COLLEGE  LIBKAK  i 

• 


802         MATEEIALS    OF    COEPOEATION    FINANCE 

DECLINE   IN   MAINTENANCE 

While  there  have  been  frequent  fluctuations  from  year  to  year  in 
the  percentage  of  actual  expenditures  for  repairs  and  renewals  to  the 
investment  for  the  year,  there  has  been,  on  the  whole,  a  steady  decline 
in  this  percentage.  It  is  best  shown  in  the  following  way : 

During  the  first  three  years  of  1891-1893,  inclusive,  the  total 
expenditures  for  maintenance  and  reconstruction  were  $731,949.35, 
and  the  sum  of  the  average  investments  of  the  three  years  was  $7,804,- 
971.31.  The  percentage  was  9.38.  Then  in  the  same  way  the  per- 
centage can  be  found  for  1892-1894,  inclusive,  1893-1895,  inclusive, 
etc.,  down  to  and  including  1910-1912,  inclusive.  In  the  same  way  a 
five  year  period  may  be  taken,  beginning  with  1891-1895,  inclusive, 
following  with  1892-1896,  inclusive,  etc.  Finally,  a  seven  year  period 
may  be  taken,  beginning  with  1891-1897,  inclusive,  etc.  The  results 
are  here  tabulated: 

TABLE  5. 

DECLINING  RATIO   OF  MAINTENANCE   AND  RENEWALS   TO  AVER- 
AGE   INVESTMENT    BY    GROUPS    OF    YEARS. 


Last  Year 

One-  Year 

Three-  Year 

Five-  Year 

Seven-  Year 

of  Period. 

Period. 

Period. 

Period. 

Period. 

1891  

10.53 

1892  

9.88 

1893  

8.33 

9.38% 

1894  

9.44 

9.17 

1895  

10.86 

9.62 

9.78 

1896  

9.49 

9.93 

9.63 

1897  

7.55 

9.21 

9.11 

9.30 

1898  

8.74 

8.58 

9.14 

9.11 

1899  

3.35 

8.24 

8.90 

9.00 

1900  

11.55 

9.74 

9.34 

9.52 

1901  

8.54 

9.48 

9.09 

9.30 

1902  

8.56 

9.34 

9.11 

9.00 

1903  

8.89 

8.69 

9.09 

8.94 

1904  

6.93 

8.06 

8.59 

8.58 

1905  

9.01 

8.28 

8.37 

8.66 

1906  

7.26 

7.73 

8.07 

8.39 

1907  

9.81 

8.75 

8.46 

8.47 

1908  

8.64 

8.64 

8.44 

8.50 

1909  

8.42 

8.92 

8.65 

8.48 

1910  

7.78 

8.26 

8.39 

8.32 

1911  

6.95 

7.67 

8.21 

8.18 

1912  

7.39 

7.39 

7.77 

7.96 

The  large  jump  upward  in  1900  was  due  to  the  almost  revolu- 
tionary changes  incident  to  the  rapid  introduction  of  ten-party  lines 
and  many  changes  in  switchboards. 


PHYSICAL  VALUATION  OF  CHICAGO  TEL.  COS,   803 

A  smaller  impulse  appeared  in  1907-8,  with  the  discontinuance  of 
ten-party  lines  and  with  the  many  other  changes  that  attended  the 
passage  of  the  present  ordinance  in  1907. 

A  trend  line  has  been  drawn,  showing  the  general  tendency.  Its 
prolongation  to  1917  reveals  7.5%  in  1912  and  7.2%  in  1917,  or 
an  average  of  7.35%  as  the  probable  expenditure,  yearly  during  the 
coming  five  years, — that  is,  the  average  percentage  of  expenditures 
for  maintenance  to  the  average  depreciable  investment.  This  closely 
approaches  the  average  of  7.39%  for  1912  and  for  the  three  years 
1910-12,  inclusive,  and  7.59%  for  the  four  years  1909-12,  inclusive.1 
It  therefore  seems  fair  to  assume  7.5%  as  a  conservative  percentage 
for  maintenance  for  the  next  five  years,  unless  the  causes  of  the 
present  conditions  cease  to  operate,  or  are  counter-balanced  by  other 
influences. 

In  his  annual  report,  January  18,  1899,  Mr.  John  M.  Clark,  the 
then  president  of  the  telephone  company,  anticipated  the  decline  in 
maintenance,  when  he  wrote:  "The  business  is  still  to  some  extent 
in  the  experimental  stage,  but  it  is  confidently  believed  that  that 
stage  will  soon  be  passed,  and  that  when  the  various  kinds  of  appa- 
ratus which  are  required  shall  become  standard,  when  new  and  ex- 
pensive switchboards  will  not  become  obsolete  within  two  or  three 
years  from  the  date  of  their  completion,  that  a  better  service  will 
become  possible,  and  that  lower  rates  may  prevail  in  the  interest  of 
the  subscribers  and  in  fairness  to  the  company." 

The  following  table  gives  the  separation  that  has  been  made  on 
the  books  of  the  company  between  repairs  and  reconstruction  since 
the  attempt  was  made  to  keep  them  separately  in  1904. 

TABLE  6 
REPAIRS  AND  RECONSTRUCTION  SINCE  1903 


Years 

Repairs 

Percentage  of 
Repairs  to 
Average 
Investment 

Reconstruc- 
tion 

Percentage  of 
Reconstruc- 
tion to  Aver. 
Investment 

1904 
1905 
1900 
1907 
1908 
190<) 
1910 
1911 

1912* 

$1,008,730.56 
1,144,847.97 
1,274,071.10 
6,796,855.29 
1,308,415.07 
1,421,313.66 
1,769,706.64 
1,815,292.40 

6.34 
6.61 
6.44 
7.63 
4.97 
5.12 
5.93 
5.45 

5.96 
5.55 

$94,240.18 
415,947.12 
161,369.59 
514,448.76 
965,292.04 
915,193.81 
553,647.14 
498,304.72 

0.59 
2.40 
.82 
2.18 
3.67 
3.30 
1.85 
1.50 

2.12 
1.84 

$ll,537i259.69 
2,073,760.68 

$4,118,443.36 
686,070.00 

*Based  on  the  first  six  months. 
1  Detailed  computations  for  four-year  period  are  omitted. 


804         MATEEIALS    OF   CORPORATION   FINANCE 

This  matter  of  increase  of  life  and  reduction  of  repair  and  renewal 
charges  is  so  important  that  further  discussion  of  the  subject  is  de- 
sirable. 

This  is  especially  true  in  consequence  of  the  elaborate  studies  that 
have  been  recently  made  by  the  company  to  show  the  probable  up- 
ward trend  of  maintenance  in  case  of  a  great  reduction  in  the  rate 
of  growth  and  no  increase  in  the  length  of  life  of  the  telephone  plant. 

It  should  be  noted,  however,  that  a  reduction  in  the  rate  of  growth 
will  check  that  large  source  of  present  maintenance  charges,  viz., 
the  necessity  of  tearing  out  good  cables  and  switchboards  to  make 
room  for  larger  ones. 

Inadequacy  in  the  telephone  business  is  an  important  cause  of 
expenditure  for  maintenance.  The  slower  the  growth,  the  fewer 
would  be  the  100-pair  and  300-pair  cables  pulled  out  to  make  room 
for  600-pair  cables,  and  the  less  would  central  stations  have  to  be  en- 
larged and  built  to  make  room  for  more  switchboards. 

SIMILAR  TENDENCIES  IN  ST.   LOUIS 

The  Bell  Telephone  Co.  of  Missouri  has  a  property  whose  present 
physical  value  in  St.  Louis  and  other  parts  of  Missouri,  has  recently 
been  reported  by  the  well  known  engineering  firm  of  Westinghouse, 
Church,  Kerr  &  Co.,  as  about  $7,000,000.  An  appraisal  by  these 
engineers  and  a  report  by  the  accountants,  Haskins  &  Sells,  was  made 
in  March,  1911,  to  a  committee  of  the  Board  of  Directors  of  the 
Missouri  company.  It  is  shown  that  the  total  expenditures  for  main- 
tenance and  renewals,  1901-10,  inclusive,  fell  from  an  average  of 
7.71%  of  the  value  of  the  depreciable  property,  during  the  first  six 
years,  to  5.65%  during  the  last  four  years  of  the  ten  year  period. 
Haskins  &  Sells  thus  discussed  the  matter. 

"Throughout  the  ten-year  period  the  annual  average  has  amounted  to  6.46 
per  cent,  of  the  value  of  the  depreciable  property  and  24.61  per  cent,  of  the 
gross  earnings.  The  decrease  during  recent  years  in  the  relative  amount  of 
these  expenditures  is  the  natural  consequence  of  the  improvement  in  the  char- 
acter of  construction  which  has  taken  place  within  the  last  ten  years,  such  as 
the  use  of  conduits,  installation  of  cables — underground  and  aerial — and  the 
increased  stability  of  the  art  of  telephony." 

CHANGES   IN  THE  ART 

A  review  of  the  development  of  the  company  indicates  that  far 
greater  and  more  revolutionary  changes  have  taken  place  in  the  past 
than  are  likely  to  occur  in  the  future.  Switchboards  and  subscribers' 
stations  may  change,  but  conduits  and  cables  have  come  to  stay.  The 
repair  of  all  classes  of  telephone  property  is  admittedly  less  expen- 
sive than  formerly.  Some  illustrations  will  make  this  clear : 


PHYSICAL  VALUATION  OF  CHICAGO  TEL.  COS.  805 

Aerial  Construction: 

All  telephone  transmission  prior  to  1884,  was  upon  poles,  in  the 
outlying  districts  of  the  city,  and  on  the  housetops  in  the  business 
districts.  Later  all  the  wiring  was  placed  underground. 

These  changes  were  brought  about  not  only  by  the  requirements  of 
the  city  ordinances,  but  also  by  the  discovery  by  the  company  that 
with  improved  methods  of  burying  the  wires,  and  the  ability  to  place 
several  hundred  pairs  of  wires  in  a  single  duct  and  with  the  avoidance 
of  injury  from  sleet  storms,  mischief-makers  and  other  troubles,  con- 
duits were  cheaper  in  the  city  than  pole  lines.  Even  the  wires  that 
do  remain  upon  poles  within  the  city,  are  mostly  not  part  of  the 
original  pole  lines,  but  are  short  stretches  in  alleys. 

The  change  has  been  less  rapid  in  the  suburbs,  yet  in  the  territory 
as  a  whole  the  percentage  of  open  wire  on  poles  declined  from  84% 
of  the  total  wire  in  use  in  1885  to  8%  in  1911.  Within  the  city  less 
than  one  per  cent,  of  the  milage  is  open  wire. 

Conduits: 

The  original  conduit  installation,  of  any  magnitude,  was  in  1884. 
The  history  since  then  may  be  divided  into  seven  chapters : 

1.  The  original  installation  of  the  so-called  Dorsett  conduit,  a  6" 
compound  duct.    It  was  in  3-foot  lengths,  and  made  of  a  composition 
of  tar,  sand  and  cement.    It  was  divided  into  two  halves  by  a  hori- 
zontal shelf  partition  or  covering.    Manholes,  consisting  of  a  cylinder 
four  feet  in  diameter,  with  a  bell-shaped  top,  were  built  of  the  same 
material,  and  located  along  the  line  of  the  conduit,  300  or  400  feet 
apart. 

2.  The  Brooks  conduit,  in  1886,  of  steel  pipe  from  2"  to  4"  in 
diameter,  with  splicing  boxes  at  various  intervals,  in  the  form  of  a 
ball. 

3.  A  square  trough,  about  one  foot  on  each  side  and  about  half 
filled  with  sand  and  cement. 

4.  A  vitrified  tile  duct,  in  1889  and  1890,  3  feet  long  and  10" 
square,  with  a  horizontal  dividing  shelf,  known  ordinarily  as  10"xlO". 
This  conduit  was  laid  in  a  rough  support  at  the  joints  upon  bricks, 
the  joints  being  covered  by  a  cemented  burlap  bandage.    Brick  man- 
holes, generally  square,  were  constructed ;  some  small  concrete  vaults 
were  also  built.     These  are  the  first  conduits  of  which  any  sections 
remain.     At  the  close  of  1888,  3,127  miles  of  wire  had  been  laid 
underground. 

5.  Cement  lined  iron  pipes,  consisting  of  a  3"  tube  of  stovepipe 
sheet  iron,  lined  with  cement,  was  the  next  improvement  after  1892. 
At  the  same  time  creosoted  wooden  pump  log,  resembling  but  in- 


806         MATERIALS    OF   CORPORATION    FINANCE 

ferior  in  various  points  to  a  somewhat  similar  construction  to-day, 
was  also  introduced  at  this  time. 

6.  In  1896  the  10x10  single  duct  vitrified  tile,  known  as  camp 
tile,  came  into  use.    The  duct  was  surrounded  by  a  concrete  envelope. 

7.  In  1900,  the  McRoy  or  Multiple  duct,  likewise  a  vitrified  clay 
product,  was  introduced,  and  later  it  came  into  general  use.     For 
several  years  it  has  been  the  standard  duct,  and  little  improvement 
is  considered  likely. 

Methods  of  Installation  of  Wires  and  Conduits: 

1.  The  Dorsett  conduit  above  described  contained  one,  two  and 
sometimes  three  small  cables.     For  an  outside  protection  the  whole 
was  wound  with  hemp,  which  was  impregnated  with  an  asphaltum 
mixture. 

After  the  cables  were  pulled  into  both  the  Dorsett  and  the  Brooks 
conduits,  from  1884  to  1888,  the  entire  conduit  was  filled  with  oil. 
The  cable  itself  was  boiled  in  kettles  of  hot  oil.  These  kettles,  with 
the  necessary  fuel  for  heating,  were  carried  from  place  to  place. 

After  the  cable  was  installed,  in  this  expensive  and  difficult  manner, 
no  access  could  be  had  without  excavation.  There  was  a  great  objec- 
tion among  the  people  and  the  city  authorities  to  the  smoke  and 
stench  coming  from  the  oil.  It  was  with  great  difficulty  that  the  men 
were  permitted  to  do  the  work  except  on  Sundays  or  at  night. 

2.  About  1888,  a  lead  pipe  armor,  or  protection  of  the  hemp  and 
tar  compound,  both  for  aerial  and  underground  cables,  was  intro- 
duced.    The  cables,  with   their  wires   insulated  with   cotton   were 
drawn  by  hand  through  50  to  100  feet  sections  of  these  lead  pipes. 
The  sections  were  then  soldered  together  by  a  plumber,  and  the  entire 
cable  subjected  to  heat,  filled  with  hot  paraffin,  sealed,  wound  on  a 
reel,  and  made  ready  for  shipment. 

Cables: 

While  revolutionary  changes  were  taking  place  in  the  poles,  con- 
duits and  wires,  an  equally  important  change  was  taking  place  in 
the  grouping  of  wires  into  cables  for  installation  upon  pole  lines,  or  to 
a  vastly  larger  extent,  for  insertion  in  conduits. 

1.  Cables  of  twenty  No.  18  gauge  rubber-covered,  untwisted  wires, 
introduced  in  1884,  in  the  Dorsett  circuit  already  described. 

2.  Cotton  insulated,  straight  wires,  pulled  into  the  Brooks  circuit 
of  wire  pipe,  1886,  filled  with  hot  oil,  as  already  described. 

3.  The  introduction  of  a  lead  pipe  covering,  in  1888,  to  protect 
the  wires  against  moisture  and  other  damage,  in  both  aerial  and  un- 
derground  cables.     Untwisted   cotton   insulated  wires  were   wound 
with  string  into  a  tight  cable,  and  then  pulled  into  the  lead  pipe, 


PHYSICAL   VALUATION   OF   CHICAGO   TEL.   COS.  807 

which  was  then  filled  with  hot  paraffin.  The  cable  was  exceedingly 
noisy,  and  not  at  all  practicable.  The  pulling  of  these  cotton  in- 
sulated wires  by  hand,  sometimes  90  pairs  at  a  time,  into  50  or  100 
feet  sections  of  lead  pipe  at  the  factory,  before  insertion  of  the  hot 
paraffin,  was  a  tedious  job. 

4.  Twisted  pair  cables  appeared  in  1892,  and  were  the  next  im- 
provement.   But  the  cables  were  solid  and  inaccessible,  the  location 
and  remoral  of  trouble  was  unsatisfactory  and  expensive. 

5.  The  present  day  type  of  paper  insulated,  twisted  pair  cables 
was  developed  between  1892  and  1895. 

6.  Increase  in  the  number  of  pairs  possible  in  a  cable  and  there- 
fore in  the  duct  of  a  conduit.    The  increase  was  from  90  pairs  in  the 
80's  to  120  pairs  of  No.  19  cable  in  1892,  400  pairs  of  No.  22  gauge 
cable  in  1900  and  600  pairs  of  the  same  cable  in  1904. 

7.  Loading  coils,  in  1906  and  1907,  and  the  installation  of  spe- 
cial toll  cables  of  large  gauge  conductors,  were  some  of  the  most  re- 
cent steps  in  the  evolution  to  the  present  type  of  cable,  which,  like 
the  type  of  wire  and  of  conduit,  appears  to  have  reached  a  point  of 
slow  advance  instead  of  the  progress  by  leaps  and  bounds  that  had 
been  going  on  up  to  about  five  years  ago. 

Central  Office  Switchboards: 

1.  The  telegraphic  switchboard,  adapted  for  telephone  use.     In 
this  board,  in  1880,  the  telephone  operator  at  Central  received  the 
call  for  a  subscriber  on  a  tape  register.    He  would  then  connect  his 
telephone  with  the  subscriber's  line  and  ask  what  was  wanted.    The 
whole  process  was  tedious. 

2.  The  subscriber  was  given  a  means  of  signalling  the  operator 
direct  on  the  same  wires  that  he  talked  over. 

3.  The  multiple  switchboard  was  invented  in  the  later  80's,  and 
one  of  the  largest  of  its  kind,  at  the  time,  was  installed  in  Chicago. 

4.  The  so-called  "Express"  board,  invented  about  1894,  partly 
displaced  the  magneto  board.    Lamp  signals  took  the  place  of  drops, 
and  the  so-called  Fuller  battery,  at  the  subscribers'  instrument,  was 
replaced  by  a  storage  battery.    The  subscriber  could  now  signal  the 
operator  by  merely  removing  the  telephone  transmitter  from  the  hook, 
instead  of  turning  the  crank,  as  in  the  magneto  system. 

5.  The  present  type  of  relay  common  battery  switchboard  was  in- 
vented about  1898,  but  so  many  improvements  were  subsequently 
made,  up  to  about  five  years  ago,  that  it  has  been  necessary  to  recon- 
struct most  of  the  earlier  switchboards  of  this  type. 

These  various  improvements  reduced  the  average  time  necessary 
for  making  connection  for  calls,  according  to  President  Sunny,  from 
90  seconds  in  1886  to  18  seconds  in  1908.  This  has,  of  course,  been 


808         MATEEIALS    OF   CORPORATION   FINANCE 

accompanied  with  a  large  reduction  of  expense  of  the  operator's  time 
in  handling  messages. 

If  the  semi-mechanical  system  now  in  operation  in  the  big  labora- 
tory building  of  the  A.  T.  &  T.  and  of  the  Western  Electric  in  New 
York  shall  prove  the  success  it  promises,  it  will  be  used  for  new  cen- 
tral stations  and  will  justify  its  introduction  by  the  large  decline  it 
will  effect  in  the  number  of  operators  and  in  other  costs. 

Wire: 

1.  Iron  Wire.     Prior  to  1890  practically  all  the  wire  used  in  the 
outside  plant  was  No.  12  iron. 

2.  Copper  Wire.     About  1890,  when  15,000  miles  of  wire  were 
in  use,  copper  wire  began  to  supercede  iron  wire,  although  there  was 
a  short  interval  in  which  trial  was  made  of  some  phosphor  bronze 
wire. 

3.  About  1892,  owing  to  the  interference  of  the  high  voltage  of 
electric  railways  and  lighting  plants,  the  telephone  company  began 
to  change  its  single  wire  copper  lines  to  2-wire  metallic  circuits. 
Each  of  the  above  transformations,  from  iron  to  a  single  copper  wire, 
and  then  to  a  2-wire  circuit  involved  a  complete  transformation  of 
the  wire  system. 

The  telephone  ordinance  compels  the  Company  to  place  and  keep 
in  underground  conduits  all  its  wires  from  the  Chicago  Eiver  on  the 
North  to  Twelfth  street  on  the  South,  and  from  Lake  Michigan  on 
the  East  to  the  South  branch  of  the  Chicago  River  on  the  West,  while 
in  nearly  all  the  rest  of  the  city  it  must  place  all  its  wires  under- 
ground, with  the  exception  of  wires  not  to  exceed  two  blocks  in 
length  from  underground  connections  to  subscribers  stations.  Even 
these  wires  cannot  be  placed  on  poles  on  streets  if  there  are  alleys. 

In  a  general  way  it  may  be  said  that  the  Chicago  Telephone  Com- 
pany can  only  use  pole  lines  North  of  Howard  avenue,  West  of  West- 
ern avenue  and  Fortieth  avenue,  and  South  of  Seventy-ninth  street. 
The  exact  boundaries  are  to  be  found  in  paragraph  10  of  the  Ordi- 
nance of  1907. 

PROPORTION   OF   PROPERTY   OF   LONG  LIVED   CONSTRUCTION 

At  the  close  of  1895  only  50%  of  the  wires  in  the  Chicago  tele- 
phone territory,  city  and  suburban,  were  underground.  At  the  close 
of  1905,  64%  were  under  ground,  and  at  the  close  of  1911,  81% 
were  under  ground. 

So  great,  however,  has  been  the  reduction  in  the  cost  of  con- 
struction per  foot  of  conduits  and  cables  that  the  proportion  of  the 
entire  investment  in  land,  buildings,  right  of  way,  and  under  ground 
construction,  exclusive  of  toll  properties  whose  data  is  not  fully  avail- 


PHYSICAL  VALUATION  OF  CHICAGO  TEL.  COS.     809 

able,  has  only  increased  throughout  the  Chicago  telephone  territory 
from  37.6%  of  the  total,  in  1891,  to  40.1%  in  1911,  and  in  the  city 
the  increase  has  been  from  39%  to  43.9%.  These  figures  are  readily 
computed  from  the  data  given  in  Mr.  Hall's  Exhibits  B,  C  and  D. 

The  life,  however,  of  both  conduits  and  cables  has  itself  so  much 
increased  that  the  real  average  life  has  undoubtedly  increased  much 
more  than  is  indicated  by  the  above  figures.  The  cost  of  repairs,  as 
already  remarked,  has  undoubtedly  declined  with  the  growth  in  the 
art.  This  view  is  confirmed  by  President  Vail,  of  the  A.  T.  &  T.  in 
his  report  for  1910.  (Page  7.) : 

"The  present  policy  of  the  Bell  System  is  to  provide  against  every  probable 
contingency  and  to  base  the  amount  and  extent  of  such  provision  on  past 
experience — not  on  future  expectations.  It  is  conjectured  that  the  future  will 
show  a  decrease  in  the  depreciation  or  reconstruction  due  to  decay,  wear  and 
tear,  and  obsolescence.  Changes — improvements — are  going  on  as  rapidly  as 
in  the  past,  but  the  general  character  of  plant  and  methods  is  assuming  more 
permanency.  The  improvements  are  being  evolved  from  and  are  being  grafted 
on  to  the  old  system  and  methods.  The  disturbing  and  sometimes  seemingly 
destructive  conditions  following  the  rapid  development  of  high  pressure  power 
and  transmission  have  been  to  a  great  measure  overcome. 

"All  this  has  been  made  possible  through  the  unremitting  study  and  research 
of  the  staff  of  the  Engineering  and  Experimental  Departments  of  the  Com- 
pany, who,  by  close  attention,  observation  and  study,  anticipate  and  provide 
for  all  such  contingencies  and  conditions  as  can  possibly  be  anticipated  or 
provided  for  in  advance. 

"Under  these  conditions  there  is  small  probability  that  any  such  causes 
as  those  which  forced  the  wholesale  reconstruction  or  rearrangement  of  plant 
in  the  past  will  again  occur;  it  is,  however,  for  the  benefit  of  the  public  and 
of  the  corporation  to  have  an  ample  reserve  for  any  contingency  which  may 
happen." 

THE  COMPANY'S  DEPRECIATION  RESERVE 

The  Chicago  Telephone  Company  has  collected  from  the  subscriber 
and  set  aside  as  a  depreciation  reserve,  a  further  sum  of  $5,091,823.19 
to  meet  depreciation  that  may  be  revealed  at  some  time  in  the  future. 
Of  this  fund  about  $2,241,141  was  set  aside  in  1910  and  1911.  This 
depreciation,  assumed  to  exist  after  all  current  expenditures  for  re- 
pairs and  renewals  may  be  called  residual  depreciation.  The  property 
of  the  company  on  January  1,  1912,  had  been  built  up  from  the  fol- 
lowing sources: 

First  mortgage  5%  bonds $.'5,000,000.00 

Loans  by  banka 1,000,000.00 

Capital  Stock 27,000,000.00 

$33,000,000.00 

Depreciation  reserve $6,091,823 . 19 

Insurance  fund 807,648.21 

Other  reserves 244,735.49 

6,644.106.89 

$38,644,108.89 


810         MATEEIALS    OF   COKPOKATION    FINANCE 

In  addition  to  the  above,  current  assets  of  cash,  bills,  accounts  re- 
ceivable and  prepaid  expenses  amounted  to  $1,690,067.42,  but  these 
were  balanced  by  current  liabilities  of  accounts  payable  and  accrued 
liabilities  not  due,  amounting  to  $1,886,285.34.  Leaving  out  of  ac- 
count these  latter  items  of  current  assets  and  current  liabilities,  which 
virtually  offset  each  other,  there  remains  as  just  stated  two  chief 
sources  of  the  property  of  the  Telephone  Company,  to  wit:  $33,- 
000,000  furnished  by  the  stock  and  bond  holders  and  banks,  and 
about  $5,650,000  supplied  by  the  telephone  users,  in  order  to  keep 
the  investment  of  the  stock  and  bondholders  intact. 

The  question  will  later  arise  whether  the  $27,000,000  supplied  by 
the  stockholders  came  in  part  from  earnings  in  addition  to  large 
dividends,  but  that  problem  does  not  arise  at  this  point. 

The  depreciation  reserve  above  referred  to  is  not  the  only  amount 
that  the  company  set  up  in  the  past  as  representing  depreciation. 
From  1894  until  1907  the  company,  after  distributing  dividends  of 
10%,  had  charged  to  operations  $3,767,233.55,  which  was  written  off 
the  plant  account.  Early  in  1908  the  company  appears  to  have  con- 
cluded that  the  property  had  not  depreciated  to  any  such  extent. 
The  whole  of  this  $3,767,233.55  was  transferred  to  surplus,  leaving 
the  plant  account  as  it  would  have  been  without  any  such  deduction. 
This  credit  to  surplus  formed  the  basis  of  the  stock  dividend  of 
$4,500,000  in  that  year.  Not  only  was  the  above  amount  of  $3,767,- 
233.55  charged  to  operations  and  maintenance,  but  it  has  been  shown 
that  an  additional  amount  of  $1,575,000  was  charged  during  the 
above  period  as  maintenance,  which  likewise  eventually  found  its  way 
into  the  surplus.  (Hall^  page  20.)  The  total  amount  thus  included 
in  operations,  purporting  to  represent  a  provision  for  depreciation,  or 
for  deferred  maintenance,  but  which  was  diverted  to  the  benefit  of 
the  stockholders,  was  therefore  $5,342,233.55.  The  dividends  were 
indeed  reduced  in  1908  from  10%  to  8%,  so  that  the  total  dividends 
were  not  materially  changed.  But  in  so  far  as  an  8%  dividend  is 
less  subject  to  public  criticism  and  less  liable  to  reduction  in  a  change 
of  rates  than  is  a  10%  dividend,  the  stockholders  gained. 

In  another  way,  they  also  gained.  By  writing  up  the  plant  invest- 
ment several  million  dollars,  the  justification  for  the  increase  of 
stock  and  for  a  profitable  return  thereon,  was  given  to  the  public. 

The  important  feature  of  the  transaction  was  the  revelation  that 
the  company  considered  that  there  had  been  less  depreciation  by 
$4,845,000,  than  the  books  had  hitherto  shown.  Consequently  the 
telephone  users,  in  paying  such  charges  as  to  permit  the  accumulation 
of  that  fund,  in  reality  had  not  been  accumulating  a  fund  with  which 
to  meet  depreciation,  but  had  been  increasing  the  profits  of  the  com- 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      811 

pany,  which  the  latter  had  invested  as  surplus  in  extension  and  then 
capitalized. 

Naturally,  such  a  transaction  makes  one  a  little  critical  with  re- 
gard to  the  new  accumulation  of  $4,971,823.19  in  one  depreciation 
account  and  of  $120,000  in  another. 

THE   APPRAISAL 

At  this  point  the  appraisal  made  for  the  Company  by  Byllesby  & 
Arnold  becomes  of  vital  importance.  Does  this  appraisal,  made  with 
great  care  and  regardless  of  expense,  show  that  enough  has  been 
collected  from  the  subscriber  to  keep  intact  the  investment  by  the 
stock  and  bondholders,  of  approximately  $33,000,000?  If  not,  then 
the  investor  is  justified  in  calling  on  the  telephone  user  for  a  larger 
yearly  addition  to  the  depreciation  reserve.  On  the  other  hand,  if 
the  payments  by  the  subscriber  to  this  fund  have  more  than  kept 
the  property  intact,  a  smaller  contribution  may  henceforth  be  rea- 
sonably made  by  the  public. 

In  approaching  this  appraisal,  however,  hasty  conclusions  must  not 
be  drawn.  An  attempt  must  be  made  to  correct  the  appraisal  where 
it  is  found  to  be  in  error,  even  if  in  so  doing,  the  value  of  the  prop- 
erty may  be  reduced  and  the  need  for  a  depreciation  reserve  be  there- 
by increased.  In  the  long  run  the  public  will  gain  by  a  complete 
knowledge  of  the  situation,  and  will  not  desire  to  take  any  unfair 
advantage  of  the  appraisal. 

On  its  face  the  appraisal  would  indicate  that  not  only  had  the 
actual  expenditures  for  maintenance  kept  the  value  of  the  property 
up  to  the  above  $33,000,000,  but  the  appraisal  would  also  indicate 
that  in  the  opinion  of  Byllesby  &  Arnold,  the  property  was  worth 
much  more  to-day  than  even  the  sum  of  this  $33,000,000  of  invest- 
ment and  of  the  depreciation  reserve.  The  following  table  will  make 
this  clear. 


812         MATERIALS    OF   CORPORATION    FINANCE 


TABLE  7 

APPRAISED  VALUE  NEW  AUGUST  1.  1911 
PHYSICAL  PROPERTY 


Subject 

Chicago 
Reproduction 
Value 

Suburban 
Reproduction 
Value 

Total 
Reproduction 
Value 

Buildings  

$2,642,405  00 

$320498  00 

$2  962  903  00 

Land  

1,173,937  00 

157,706  00 

1  331  643  00 

Central  office  equipment  
Subscribers'    station   equip- 
ment   

4,960,673.00 
6,409,151.00 

747,298.00 
1,281,074  00 

5,707,971.00 
7,690,225  00 

Exchange  lines  

14,746,383  00 

5,388,296  00 

20,134,679  00 

Toll  lines  

934,369  00 

1,936,761  00 

2  871,130  00 

Construction  inprocess  
Office  furniture  and  fixtures. 
Tools  and  vehicles  

1,392,861.00 
245,151.00 
275,426  00 

196,340.00 
20,957.00 
99,222.00 

1,589,201.00 
266,108.00 
372,648  00 

Supplies  

660,288  00 

261,308  00 

921,596  00 

Working  capital  

887,250  00 

162,750  00 

1,050,000  00 

Total  

$34,325,894.00 

$10,572,210.00 

$44,898,104.00 

Plant  development  expense. 
Total  physical  property  
Cost  of  deveolping  the  busi- 
ness   

$564,636.00 
34,890,530.00 

4,753,993  00 

$183,352.00 
10,755,562.00 

2,340,253.00 

$747,988.00 
45,646,092.00 

7,094,246  00 

Total  property  and  business. 

$39,644,523.00 

$13,095,815.00 

$52,740,338.00 

Referring  to  the  totals  in  the  last  line,  before  deducting  the  de- 
preciation, Byllesby  and  Arnold  write  (Appraisal  Vol.  1,  Page  24-25) : 

"These  totals  represent  the  investment  of  the  Chicago  Telephone  Company 
in  its  property  and  its  attached  business  on  the  basis  outlined,  and  include  in 
addition  to  the  appraised  value  of  the  physical  property  and  the  development 
cost  of  such  property,  no  element  of  what  is  commonly  designated  as  "going 
concern"  value  other  than  that  represented  by  the  cost  of  establishing  the 
business,  which  cost  has  been  worked  out  on  the  definite,  conservative  premises 
hereinabove  described." 

It  would  be  fortunate  indeed  for  the  city,  if  the  Chicago  Tele- 
phone Company  were  really  entitled,  in  this  rate  investigation,  to 
this  value  new  of  $52,740,338  or  even  to  the  present  value  of  $42,- 
915,926  based  on  the  largest  amount  of  observed  and  estimated 
depreciation  which  the  appraisers  were  able  to  compute.  The  less 
the  depreciation  the  lower  need  be  the  rate  of  return  to  secure  a 
fair  profit  on  the  investment.  If  there  were  no  net  deprecia- 
tion whatever,  not  only  would  depreciation  charges  be  eliminated, 
but  the  property  would  appear  so  much  safer  to  the  average  in- 
vestor that  he  would  furnish  money  for  needed  extensions,  at  a 
lower  rate  of  return,  than  if  the  physical  property  every  year  bore 
a  lower  and  lower  proportion  to  the  outstanding  securities.  The 
larger  the  physical  value  back  of  stocks  and  bonds,  the  lower  the  rate 
of  return,  other  things  being  equal,  that  will  be  demanded  by  the  in- 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      813 

vestor.  A  continual  rise,  for  example,  in  the  price  of  labor  and  ma- 
terial, would  increase  the  cost  of  construction  and  the  appraised 
value  of  the  property,  but  would  lessen  the  percentage  of  the  present 
investment  that  would  be  borne  by  the  old  investment  that  is  scrapped 
from  time  to  time. 

It  seems  necessary,  however,  to  dissent  from  some  of  the  positions 
taken  by  Byllesby  and  Arnold,  and  consequently  to  differ  from  some 
of  the  conclusions  reached  by  them.  In  this  no  reflection  is  intended 
upon  their  well  known  ability  and  integrity  of  purpose. 

COPPER 

Among  the  doubtful  points  in  the  appraisal  may  be  mentioned  the 
price  of  copper  and  the  assumed  life  and  net  salvage  employed  by  the 
appraisers.  Copper  was  taken  at  16  cents  a  pound,  as  of  August  1, 
1911.  The  following  table  gives  the  average  yearly  price  for  each 
of  the  19  years,  1893-1911,  inclusive,  as  taken  from  the  Iron  Age 
by  the  Chicago  Telephone  Company.  These  prices  are  a  little  lower 
than  those  given  in  the  Telephony  Directory  of  the  telephone  indus- 
try, 1912  edition  (page  333) : 

TABLE  8 

AVERAGE  PRICE  OF  COPPER 

1902..  .  .11.626c 

1893 10.817c      1903 13.235c 

1894 9.472c      1904 12.823c 

1895 10.693c      1905 15.590c 

18%..  ..10.964C      1906 ...19.278c 


1893-6 10.487C  1902-6 14.510c 

1897..            ..10.250c  1907....           .  .20.004c 

1898 11.954c      1908 13.208c 

1899 17.729C      1909 12.982c 

1900 16.545c      1910 12.738c 

1901..            ..16-llOc  1911..            ..12.576C 


1897-1901 14.518c  1907-11 14.302c 

Average  for  1893-1901 12.726c 

Average  for  1902-1911 14.406c 

Average  for  1891-1911 13.610o 

January,      1912 14.24c 

March.         1912 14.60o 

May,  1912 16.000 

July,  1912 16.90o 

September,  1912 17.40c 

Average,  January  to  September 15.82o 

The  above  table  would  indicate  that  16  cents  was  high.    The  com- 
pany, however,  has  established  an  elaborate  trend  curve  of  prices  of 


814         MATERIALS    OF   CORPORATION    FINANCE 

copper  to  show  that  16  cents  a  pound  is  in  line  with  the  trend  or 
tendency  of  prices,  at  the  time  of  the  appraisal.  Since  the  earliest 
quotations  at  hand  beginning  in  1883,  copper  has  averaged  less  than 
16  cents  every  year  save  in  1888,  1899-1901,  inclusive,  and  1905-1907, 
inclusive.  During  those  years  only  309,433  miles  of  wire  out  of 
807,571  in  use  at  the  close  of  1911,  or  38%  were  laid.  It  would  be 
easy  to  show  that  copper  had  not  from  the  beginning  averaged  over 
15  cents  and  had  not  even  averaged  that  during  any  period  of  five 
or  more  years  preceding  the  appraisal.  At  the  same  time  if  the  test 
of  value  is  not  to  be  the  actual  cost  or  recent  costs,  but  probable  costs 
of  material  and  labor  during  the  next  five  years,  then  16  cents  may  be 
accepted  as  a  probable  price. 

OVERHEAD 

We  will  first  take  up  the  appraisal  of  the  property  new  and  later 
consider  the  depreciation. 

The  appraisers,  Byllesby  &  Arnold,  have  assumed  that  the  Tele- 
phone Company's  property  and  business  are  not  in  existence,  but 
are  to  be  constructed  new.  After  an  exhaustive  inventory  of  the 
principal  items  of  the  property,  they  have  estimated  the  cost  of 
materials,  tools  and  labor  required  to  reproduce  new  each  item  in 
place  as  of  date  of  August  1,  1911.  In  this  base  figure  were  included 
all  contractors'  charges,  which  would  embrace  his  costs,  his  profits 
and  his  allowance  for  contingencies.  No  general  contractor  was  as- 
sumed, but  a  contractor  was  allowed  only  for  such  portions  of  the 
work,  as  have  usually  been  put  in  by  contract,  such  as  buildings  and 
central  office  switchboards.  To  the  base  cost  obtained  as  above,  a 
percentage,  varying  with  the  different  classes  of  work,  was  added  for 
reorganization,  engineering  and  incidentals.  In  these  items  were 
included  general  office  expenses  in  securing  bids,  awarding  contracts, 
making  out  bills  of  material,  purchasing  materials,  legal  expenses 
and  salaries  of  the  officials,  whose  work  is  chargeable  to  construction. 
Engineering  includes  preparation  of  plans,  drawings  and  specifica- 
tions, and  the  expense  of  general  supervision  and  inspection  in  the 
carrying  out  of  the  plans  and  specifications.  Incidentals  include 
insurance  against  fire  and  accident,  and  all  general  expenses  lying 
outside  of  the  estimated  contract  cost;  such  as  small  changes  in 
design.  They  might  be  included  as  extras  on  the  contract  price. 

These  expenses  vary  from  5  to  15%  in  the  various  schedules,  aggre- 
gating 12.19%.  In  case  of  land  only  5%  was  added,  which  was 
intended  to  corer  selection  of  site,  search  of  title,  purchase  fees  and 
such  of  the  reorganization  and  incidental  expenses  mentioned  above 
as  were  anplicable. 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      815 

After  adding  to  the  base  figures  the  above  allowance  of  11  to  12% 
for  reorganization,  engineering,  etc.,  a  further  percentage  of  about 
7%  was  added  to  cover  interest  and  taxes  during  construction,  and 
other  so-called  carrying  charges  and  cost  of  obtaining  money.  They 
have  all  been  termed  brokerage.  This  was  small  in  the  case  of 
substation  equipment,  tools,  vehicles  and  supplies,  which,  it  is  as- 
sumed, are  put  in  service  immediately  upon  purchase.  The  following 
table  summarizes  the  matter  of  overhead. 

TABLE  9 
SUMMARY  OF  OVERHEAD 

Percent-       City  and        Percent- 
Description  City  age  of        Suburban        age  of 

Base  Base 

*Base  Figure $26,762,224.69  100.00  $35,217,600.90  100.00 

Organization,  engineering,  etc.    3,263,204.54  12.19  4,468,147.48  12.68 

Total  of  Above 30,025,429.23  112.19  39,685,748.38  112.68 

Brokerage 2,020,353.27  7.55  2,573,153.96  7.31 

Entire  Value  New 32,045,782.50  119.74  42,258,902.34  119.99 

Entire  Overhead,  Included  in 

Above 5,283,557.81  19.74  7,041,301.44  19.99 

*  Aside  from  construction  in  process  and  working  capital. 

If  the  value  of  this  plant  is  to  be  determined  by  what  it  would  cost 
to  duplicate  it, — if  all  knowledge  of  the  present  location  of  the 
conduits  and  central  stations,  etc.,  were  suddenly  obliterated  from  the 
mind  of  man, — then  this  allowance  of  19.99%  for  overhead  on  top 
of  contractors'  profits  on  each  portion  of  the  work  is  no  higher  than 
engineers  often  claim  in  such  appraisals. 

The  writer,  however,  has  always  contended  that  one  could  not  as- 
sume such  a  fanciful  theory  as  the  above,  but  must  assume  that  the 
knowledge  now  possessed,  and  indeed,  in  large  part  reduced  to  writ- 
ing in  the  inventory,  cannot  be  blotted  out  of  men's  minds  even  for 
the  purpose  of  an  appraisal. 

The  Wisconsin  Railroad  Commission  only  allows  12%  above  base 
figures  and  in  its  base  does  not  include  so  much  contract  work.  The 
Massachusetts  Gas  and  Electric  Light  Commission  will  have  nothing 
of  this  theory  of  reproduction,  but  sticks  to  the  historical  costs. 

All  of  the  installation  of  cables  and  much  of  the  subscribers'  sub- 
station and  some  of  the  central  office  equipment  were  done  direct 
by  the  Chicago  Telephone  Company,  without  any  contractor  and 
probably  with  less  than  15%  for  overhead  instead  of  19.99%. 

As  for  brokerage,  of  which  the  chief  item  is  interest  during  con- 
struction, this  Chicago  company  has  always  earned  enough  to  pay 
all  such  charges  and  large  dividends  besides.  If  brokerage  had  been 


816 


MATERIALS    OF   CORPORATION   FINANCE 


charged  to  construction  in  the  past,  operating  expenses  would  have 
appeared  less  and  profits  greater.  A  greater  reduction  of  the  rates 
in  1907  might  then  have  been  secured.  The  company  having  secured 
the  benefits  of  charging  brokerage  to  operating  expenses  can  hardly 
put  the  charge  now  into  construction. 

If  the  overhead  allowed  by  the  appraisers  had  been  only  15%, 
instead  of  19.74%  in  the  city,  and  19.99%  in  the  entire  territory, 
the  appraisal  new  would  have  been  reduced  $1,268,696  in  the  city, 
and  $1,757,684  in  the  entire  territory. 

LAND 

The  land  owned  by  the  company  in  the  city  and  suburbs,  cost  the 
company,  according  to  their  books,  $601,801.14.  Its  present  value 
is  given  by  Byllesby  &  Arnold  at  $1,331,642.60,  an  increase  of 
$729,841.46  or  121%. 

In  the  following  table  is  given  the  book  value;  that  is,  the  cost 
as  appearing  on  the  books,  and  the  appraised  value,  after  the  addition 
of  all  the  overhead  charges  and  the  relation  between  the  cost  and 
the  appraisal  for  each  piece  of  land  in  the  city. 

TABLE  10 
LAND  APPRAISAL  AND  COST 


Appraisal       Book  Value 


Increase          Per 
over  cent. 

Book  Value  Increase 


Austin  Office  

$16,124.06 

$9,200.00* 

$6,924.06 

75.3 

Calumet  Office  

61,425.00 

33,513.08 

27,911.92 

83.3 

Canal  Office  

7,371.00 

6,000.00 

1,371.00 

22.8 

Central  Division  Headquarters 

21,498.75 

17,539.75 

3,959.00 

22.6 

Cortland  Street  Lots  

2,457.00 

1,652.49 

804.51 

48.7 

Douglas  Office  

19,751.99 

18,084.00 

1,667.99 

9.2 

Edgewater  

3,071.25 

2,000.00 

1,071.25 

53.6 

Harrison  Street  Lot  

257,985.00 

176,972.77 

81,012.23 

45.8 

Humboldt  Office  

5,769.34 

4,200.00 

1,569.34 

37.4 

Hyde  Park  Office  

6,142.50 

5,687.50 

455.00 

8.0 

Irving  Park  Office  

6,081.08 

3,530.00 

2,551.08 

72.3 

Kedzie  Office  

4,422.60 

3,120.00 

1,302.60 

41.8 

Lake  View  Office  

4,422.60 

3,360.00 

1,062.60 

31.6 

Lawndale  Office  

7,033.16 

4,000.00 

3,033.16 

75.8 

Lincoln  Office  

5,307.12 

5,500.00 

192.  88t 

3.5 

Main  Office  

462,723.58 

40,420.00 

422,303.58 

1,044.8 

Monroe  Office  

24,692.85 

14,362.50 

10,330.35 

71.9 

North  Office  

22,113.00 

21,525.00 

588.00 

2.7 

Northern  Div.  Headquarters.  . 

25,798.50 

14,488.35 

11,310.15 

78.1 

Oakland  Office  

10,411.54 

10,500.00 

88.46f 

.8 

South  Chicago  Headquarters.  . 

7,383.29 

7,175.00 

208.29 

2.9 

Southern  Div.  Headquarters.  . 

12,511.04 

7,000.00 

5,511.04 

78.8 

Wabash  Office  

144,840.15 

96,026.17 

48,813.98 

50.8 

Wentworth  Office  

7,371.00 

5,610.00 

1,761.00 

31.4 

West  Office  

2,616.71 

4,090.00 

l,473.29f 

36.0 

West  Pullman  Office  

1,228.50 

1,000.00 

228.50 

22.8 

Western  Div.  Headquarters.  .  . 

17,291.01 

10.550.00 

6,741.01 

63.9 

Yard  Office  

6,093.36 

4,550.00 

1,543.36 

33.9 

Total $1.173,936.98  $531,656.61*  $642,280.37       119.4 

*  Given  in  the  appraisal  by  mistake  $4,700  less, 
f  Decreases. 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      817 

TABLE  11 
LAND  BASE  AND  OVERHEAD 

Percentage  Percentage 

Description  City          Overhead      City  and      Overhead 

to  Base       Suburban      to  Base 

Base  Figure $955,585.65     $1,083,958.15     

Reorganization,     Engineering, 

etc 47,779.28  5.00  64,197,091.00  5.00 

Total  of  Above 1,003,364.93  105.00  1,138,156.06  105.00 

Brokerage 170,572.05  17.85  193,486.54  17.85 

Total  Value 1,173,936.98  122.85  1,331,642.60  122.85 

Overhead  Included  in  Above..  218,351.33  22.85  247,684.45  22.85 

How  to  treat  the  increase  in  land  values,  in  a  rate  case  like  this, 
has  been  and  still  is  a  much  disputed  and  unsettled  question.  The 
tendency  of  the  courts  has  been  toward  the  recognition  of  this  in- 
creased value.  Such  has  also  been  the  practice  of  the  Wisconsin 
Railroad  Commission.  On  the  other  hand,  the  Massachusetts  Gas 
and  Electric  Light  Commission,  which  has,  by  far,  the  greatest  age 
and  prestige  of  any  of  our  commissions,  has  always  refused  to  recog- 
nize increase  in  the  regulation  of  rates.  It  is  held  that  only  on  the 
sale  of  such  land  can  the  company  divide  as  a  surplus  the  unearned 
increment,  and  it  is  not  certain  that  even  then  the  Massachusetts 
Commission  would  not  compel  the  use  of  the  proceeds  of  the  sale 
in  meeting  needed  extensions.  The  only  other  commission  of  any 
age  which  has  considered  this  question  very  fully  is  the  Public  Service 
Commission  of  the  First  District  of  New  York,  covering  the  City 
of  New  York. 

In  the  cases  of  the  Queens  Borough  Gas  and  Electric  Company, 
decided  June  23,  1911 ;  the  Brooklyn  Borough  Gas  Company,  decided 
August  18,  1911,  and  the  Kings  County  Lighting  Company,  decided 
October  20  and  November  17,  1911,  this  Commission  held  that  if 
the  company  were  entitled  to  capitalize  the  increased  value  of  its 
land,  then  the  annual  increase  of  such  value  should  form  part  of  the 
reasonable  rate  of  return  to  which  it  was  entitled  and  the  returns 
from  the  consumer  in  charges  should  be  proportionately  reduced. 

Commissioner  Lane  of  the  Interstate  Commerce  Commission,  in 
rendering  the  report  of  the  Commission,  relative  to  the  proposed 
advances  in  the  Western  Trunk  Line  Trans-Missouri  and  Illinois 
Freight  Committee  territories,  held  (20  I.  C.  C.  Rep.  page  344) : 

"Whatever  the  true  economic  or  legal  view  may  be  as  to  the  right  of  a 
carrier  to  consider  the  increase  in  value  of  its  land  as  a  part  of  the  value  upon 
which  it  is  entitled  to  a  reasonable  return,  such  increase  in  value  does  not  of 
itself  establish  the  right  of  a  carrier  to  increase  rates  upon  a  given  service. 
Certainly  if  the  Supreme  Court  may  decline  to  lay  down  the  absolute  rule  that 
'in  every  case  failure  to  produce  some  profit  to  those  who  have  invested  their 


818        MATEEIALS    OF    CORPOEATION    FINANCE 

money  in  the  building  of  a  road  conclusive  that  the  tariff  is  unjust  and  unrea- 
sonable.'    (Reagan  v.  Farmers'  Loan  &  Trust  Co.,  154  U.  S.  412.) 

"It  is  a  conservative  statement  of  the  law  to  hold  that  a  railroad  may  not 
increase  the  rates  upon  a  number  of  commodities  solely  because  its  real  estate 
has  risen  in  value." 

If  the  appraisal  be  correct,  the  value  of  the  land  has  increased 
from  $601,801.14  to  $1,331,642.60.  This  is  a  yearly  arithmetical 
increase  of  10.5%  on  its  original  cost.  The  method  by  which  this 
result  is  reached  is  as  follows:  The  cost  of  the  land  on  December  31, 
1887,  was  $40,420.  Now,  $40,420  used  for  24  years  to  the  close  of 
1911  is  equivalent  to  $1,018,080  used  for  one  year.  By  December 
31,  1892,  an  additional  amount  of  land  had  been  acquired  costing 
$182,634.  This  for  19  years  is  equivalent  to  $3,470,046  for  one 
year.  Eeckoned  in  this  way  the  land  is  equivalent  to  $6,995,621 
for  one  year.  The  total  increase  of  value  of  $729,841.46  is  10.43% 
of  this.  An  increase  of  10.43%  of  the  original  cost  ($601,801.14) 
owned  on  August  1,  1911,  the  date  of  the  appraisal,  is  $62,768  a 
year.  This  is  the  annual  amount  of  increase  of  land  values  which  on 
the  basis  of  its  past  history  the  Company  may  reasonably  expect  to 
receive  during  the  next  few  years.  It  represents  an  addition  to  its 
income  of  about  one-quarter  of  1%  on  its  stock,  and  is  taken  into 
consideration  by  the  New  York  Public  Service  Commission,  First 
District,  in  fixing  rates. 

PAVING 

The  appraisal  value  of  the  paving  over  the  conduits  in  the  city 
is  $2,198,916.  Of  all  the  conduits,  84%  are  under  the  paving,  but 
2/7  of  this  paving  was  put  down  after  the  laying  of  the  conduits, 
and  represents  no  investment  by  the  Telephone  Company.  The  ap- 
praisal of  this  portion  of  the  paving,  $628,262,  should  be  deducted. 
This  is  in  accordance  with  the  ruling  of  the  Wisconsin  Eailroad 
Commission,  the  New  York  Public  Service  Commission  of  the  First 
District,  the  Massachusetts  Gas  and  Electric  Light  Commission,  the 
Iowa  State  Supreme  Court,  recently  confirmed  by  the  United  States 
Court  in  the  Cedar  Eapids  gas  case,  and  by  Judge  McPherson  of  the 
United  States  District  Court  in  the  Des  Moines  gas  case. 

Commenting  on  the  matter  of  paving,  and  on  the  general  theory 
of  considering  only  the  cost  of  reproduction,  which  is  the  method 
used  by  Byllesby  and  Arnold,  Judge  McPherson  in  his  opinion, 
August  21,  1912,  says: 

"But  the  question  is  as  to  its  value  to-day  with  reference  to  income.  What 
it  may  have  cost  is  pertinent.  What  it  will  sell  for  is  to  be  considered.  And  if 
destroyed  by  any  agency,  such  as  rust,  crystalization,  or  other  forces,  what  must 
be  paid  to  reproduce  it  is  a  subject  of  inquiry.  All  of  these  may  be  con- 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      819 

sidered.  In  my  opinion  those  who  maintain  that  what  it  will  cost  to  repro- 
duce the  plant,  less  depreciation,  is  the  true  value,  in  many  instances, 
confound  the  real  question  with  one  of  many  evidences  of  the  real  value.  Re- 
producing cost  is  an  evidence  of  what  the  real  value  is  after  substracting 
the  depreciation.  But  what  is  to  be  done  with  the  value  of  stocks  and  bonds 
on  the  reproductive  theory  ?  And  what  becomes  of  the  original  cost  on  the 
reproduction  theory?  And  what  becomes  of  the  question  of  the  increase  01 
falling  off  in  numbers  of  consumers?  And  the  same  as  to  increased  or  dim- 
inished expenses? 

"The  theory  at  first  thought  in  all  cases  is  plausible  and  attractive,  but  in 
the  end  is  oftentimes  utterly  illogical  and  unreliable,  originally  adopted  as 
a  mere  time-saver  by  mere  theorists,  and  sought  to  be  enforced  as  against  sub- 
stantial unbending  facts.  If  the  plant  is  to  be  reproduced,  when  is  it  to  be 
done?  If  reproduced,  will  the  streets  then  be  paved,  and,  if  paved,  paved 
with  what  ?  Must  it  all  be  reproduced  at  once,  or  the  same  covered  by  a  num- 
ber of  years?  If  but  gradually  reproduced,  why  should  not  such  cost  go  into 
either  operating  or  maintenance  accounts?  No  one  can  state  when  it  must 
be  reproduced,  and  a  material  question  arises:  What,  then,  as  compared 
with  the  present,  will  be  the  price  of  labor,  material  and  freight?  But  finally 
and  to  my  mind  the  conclusive  reason  against  the  soundness  of  the  reproduc- 
tion under  paved  streets  theory  is,  that  to  allow  that  theory  to  prevail,  and 
to  increase  the  capitalization  now  to  the  extent  of  $140,000,  is  to  allow  such 
gas  rates  as  will  pay  a  dividend  on  such  sum  from  and  after  this  date.  But 
the  sum  of  $140,000  is  not  put  in  the  capital  or  value  account  until  the  plant 
is  reproduced. 

"As,  of  course,  streets  paved  or  unpaved  make  no  difference  in  the  earning 
power  of  the  gas  plant,  and  but  little,  if  anything,  goes  more  directly  and 
accurately  to  the  question  of  value  of  any  structure  or  plant  than  its  rental, 
earnings,  or  as  a  dividend  producer. 

"There  are  many  instances  in  which  the  reproduction  theory  is  the  best  of  all 
methods  for  getting  at  the  present  value,  and  in  other  instances  the  most  mis- 
leading. And  it  is  deceptive,  in  my  opinion,  to  now  add  the  cost  of  taking  up 
and  replacing  pipe  under  paved  streets  at  an  estimated  cost  of  $140,000  extra, 
and  does  not  warrant  an  increased  dividend  of  $8,400  or  some  greater  sum. 
Such  a  dividend  is  a  mere  paper  dividend,  and  is  arrived  at,  not  because  of 
increased  earnings,  not  because  of  increased  capital  or  investments,  not  because 
of  increased  operating  or  maintenance  expenses,  but  solely  by  reason  of  a 
supposed  necessity  of  at  some  time  replacing  the  same,  in  some  manner,  under 
a  then  some  kind  of  street,  on  a  mere  guess  of  what  labor  and  material  would 
then  cost.  Many  of  the  principles  with  relation  to  railway  rates  are  applicable 
to  gas  rates.  And  perhaps  the  latest  analysis  of  the  reproduction  theory  is 
found  in  the  recent  case  of  Louisville  R.  R.  v.  Railway  Commission,  196  Fed. 
Rep.  800,  in  an  opinion  of  Judge  Jones  of  the  Alabama  District.  He  shows 
the  value  of  this  theory,  but  likewise  shows  that  it  is  not  a  hard  and  fast  rule 
covering  all  phases.  Finally,  pipes  under  a  paved  street  are  of  very  long 
life;  many  times  longer  than  if  the  street  were  not  paved. 

"The  theory  applied  to  paved  streets  is  but  a  theory,  is  illogical  and. against 
facts,  and  was  properly  denied  by  the  Master." 

An  added  reason  of  great  importance  in  this  case  for  excluding 
paving  since  the  laying  of  the  conduit  is  in  the  ordinance  of  Novem- 
ber 6,  1907.  This  provided  that  if  the  city  should  purchase  the 


820         MATERIALS    OF   CORPORATION    FINANCE 

property  on  January  1,  1919,  or  1924,  or  after  the  expiration  of  the 
franchise  January  8,  1929,  should  transfer  to  any  other  company 
such  right,  the  rules  governing  the  valuation  to  appraisers  should 
be  as  follows: 

"The  appraisers  shall  determine  what  tangible  property,  real  and  personal, 
owned  by  the  said  Company,  and  used  for  the  purposes  of  this  grant,  is  reason- 
ably required  for  its  continued  operation,  taking  into  consideration  the  then 
condition  of  the  art,  and  in  determining  the  fair  cash  value  of  said  property 
they  shall  not  take  into  consideration  its  earning  power,  or  the  value  of  the 
rights  or  privileges  hereby  granted,  or  the  value  of  any  license  or  franchise, 
but  shall  allow  for  the  property  the  then  cost  of  duplication,  taking  into  con- 
sideration the  then  condition  of  the  art,  less  depreciation.  In  considering  the 
cost  of  duplication  of  underground  conduits,  wires,  cables,  electrical  con- 
ductors and  any  other  underground  construction  located  in  any  street,  alley 
or  other  public  way  which  was  or  were  placed  therein  at  a  time  when  such 
street,  alley  or  other  public  way  was  unpaved,  the  said  appraisers  shall  not 
take  into  consideration  the  cost  and  expense  of  removing  or  replacing  any 
paving,  or  part  thereof,  in  such  street,  alley  or  other  public  way.  An  award 
in  writing,  signed  by  a  majority  of  the  appraisers,  shall  be  valid  and  binding 
upon  the  parties." 

WORKING  CAPITAL 

The  appraisers  not  only  appraised  working  assets,  such  as  supplies, 
at  $921,596,  but  they  assume  that  the  Company  needs,  in  cash  or 
its  equivalent,  $1,050,000.  This  form  of  working  capital  they  divided 
between  the  city,  $887,250,  and  the  suburban  division,  $162,750. 
The  total  when  added  to  the  supplies  makes  a  total  working  capital 
of  $1,971,596.  Even  the  estimate  made  by  Mr.  Hall,  of  $1,750,000. 
seems  large. 

Expenses  for  one  and  one-half  months  would  be  one-eighth  of  the 
$8,836,827.49  of  total  expenses  in  1911.  In  other  words,  it  would 
amount  to  $1,104,603.44.  In  a  company  which  collects  its  revenue 
monthly  and  receives  some  of  it  in  advance,  a  working  capital  equal 
to  the  expenditures  for  one  and  one-half  months  would  appear  to  be 
ample,  especially  in  view  of  the  fact  that  it  can  obtain  at  least  30 
days'  credit  on  most  of  its  purchase  of  supplies.  Now,  one-eighth  of 
the  entire  payroll  for  the  year  1911,  of  $6,332,485,  is  only  $791,561. 
The  current  assets  of  cash  and  dividends,  bills  and  accounts  receivable, 
and  prepaid  expenses  at  the  close  of  1911,  exceeded  the  accounts 
payable  by  only  $475,212.17.  Such  a  sum  added  to  the  entire  ap- 
praised value  of  the  supplies,  of  $921,596,  would  be  only  $1,396,- 
808.17. 

In  view  of  all  this,  $1,500,000  would  appear  to  be  a  maximum 
amount  necessary  to  allow  for  all  forms  of  working  capital.  This 
is  $578,404  in  excess  of  supplies  on  hand.  However,  as  the  matter 


PHYSICAL  VALUATION  OF   CHICAGO  TEL.  COS.      821 

relatively  is  not  of  large  importance,  $1,750,000  may  be  used  for  the 
entire  working  capital,  or  $828,404  for  that  portion  of  the  same,  viz., 
cash  or  its  equivalent,  for  which  the  appraisers  allow  $1,050,000. 
A  reduction  from  the  appraisal  may  thus  be  made  of  $221,596. 

If  this  be  apportioned  between  the  city  and  suburban  territory,  in 
the  ratio  of  the  reproduction  value,  then  76.26%,  or  $168,989,  would 
be  taken  from  the  working  capital  allowed  by  the  appraisers  for 
the  City. 

COST  OF  PLANT  DEVELOPMENT 

After  reaching  a  reproduction  value  new  for  the  physical  property 
of  $44,898,104,  or  one-third  more  than  the  $33,000,000  of  stock,  bonds 
and  loans  from  the  banks,  the  appraisers  add  $747,988  for  changes 
that  may  be  made  in  the  plans  as  the  work  of  construction  during 
the  assumed  five-year  period  proceeds.  In  the  words  of  the  appraisers : 

"The  expenditures  cover  a  variety  of  items,  such  as  the  alteration  or  recon- 
struction of  buildings  to  provide  for  the  enlargement  of  the  plant,  and  recon- 
struction or  enlargement  of  equipment  incident  to  the  growth  of  the  business. 
For  example,  certain  exchange  offices  when  built  were  of  ample  capacity  to 
handle  the  needs  of  the  company  at  the  time  they  were  constructed.  They, 
however,  were  built  with  provision  for  extension  at  a  future  time,  and  at  a 
later  date  they  were  reconstructed  and  enlarged  as  necessary  to  handle  the 
needs  of  the  company.  As  a  result  the  total  expense  of  buildings  to  the  tele- 
phone company,  including  this  reconstruction,  is  greater  than  the  value  of  the 
property  as  determined  by  inventory  of  the  building  as  it  now  stands. 

"In  a  similar  way,  many  changes  in  telephone  equipment  have  been  made 
due  to  the  development  of  the  business,  which  have  entailed  expenditure  that 
would  not  be  included  in  any  value  arrived  at  by  the  inventory.  It  is  the  in- 
tention to  include  in  the  plant  development  expense  such  an  amount  as  would 
represent  the  normal  expenditure  that  would  be  made  in  case  the  property  is 
reproduced  within  the  assumed  construction  period  of  from  five  to  eight  years." 

The  allowance  for  this  purpose  is  2%  on  the  cost  of  buildings, 
central  office  equipment,  subscribers'  station  equipment  and  exchange 
and  toll  lines. 

It  may  be  a  logical  consequence  of  the  theory  of  reproduction  to 
allow  this  plant  development  cost,  but  to  one  who  holds  that  a  voucher 
is  better  than  an  estimate,  and  that  the  cost  of  recent  construction 
furnishes  better  unit  figures  for  reconstruction  than  does  the  judg- 
ment of  even  the  best  engineers,  it  does  not  appear  to  be  a  correct  view. 
Since  the  entire  construction  cost  that  has  gone  on  the  books  of  the 
Company  is  only  five-sixths  of  the  estimated  reproduction  cost  as 
estimated  by  Byllesby  and  Arnold,  a  further  addition  of  nearly  $750;- 
000  for  estimated  changes  of  plant  during  construction  seems  hardly 
warranted.  The  cost  of  such  changes  must  have  been  put  upon  the 
books  and  must  have  appeared  in  the  book  value  of  the  property,  or 


822         MATEEIALS    OF   CORPORATION   FINANCE 

must  have  been  charged  to  operating  expenses  and  thus  have  been 
paid  for  by  the  telephone  subscriber.  In  the  former  case,  the  Com- 
pany secures  the  equivalent  of  the  above  cost.  In  the  latter  case, 
it  does  not  appear  entitled  to  this  value,  if  secured  from  the  con- 
sumers under  the  guise  of  operating  expenses.  If  the  latter,  as  put 
upon  the  books,  had  been  less,  the  profits  would  have  appeared  to 
the  community  greater,  and  there  might  have  been  an  even  larger 
reduction  of  rates  in  the  November,  1907,  ordinance  than  was  made. 

COST  OF  DEVELOPING  THE  BUSINESS 

For  the  cost  of  developing  the  business  in  the  city,  the  appraisers 
have  added  $4,753,993,  and  in  the  entire  territory  $7,094,246.  The 
estimate  is  so  large  and  the  matter  so  important  that  the  argument 
of  the  appraisers  may  be  quoted : 

"It  is  needless  to  say  that  the  physical  plant  of  the  company  has  no  value 
other  than  second-hand  or  scrap  value,  unless  the  plant  is  utilized  for  the  pur- 
pose for  which  it  is  constructed,  and  the  plant  cannot  be  utilized  for  this  pur- 
pose unless  the  business  has  been  secured. 

"In  estimating  this  element  of  value,  the  following  method  has  been  pursued. 
It  has  been  assumed,  as  stated  before,  that  the  property  could  be  reproduced 
within  a  period  of  five  years.  A  construction  schedule  has  been  prepared,  in 
which  dates  are  assigned  for  the  construction  of  various  portions  of  the 
property  now  existing.  In  making  up  this  schedule  the  plant  has  been  repro- 
duced somewhat  as  follows: 

"It  has  been  assumed  that,  first,  certain  pieces  of  real  estate  for  downtown 
offices  will  be  purchased,  and,  next,  that  the  exchange  buildings  will  be  con- 
structed, building  space  to  be  of  the  present  capacity,  and  that  central  office 
equipment  or  a  fraction  of  the  present  capacity  will  be  installed  as  the  first 
installation ;  also  that  the  conduit  lines  in  the  given  section  will  be  built  com- 
plete, and  that  sufficient  cables  will  be  installed  with  the  first  installation  to 
serve  the  partial  equipment  installed  in  the  offices.  Furthermore,  it  is  as- 
sumed that  a  certain  number  of  subscribers  will  be  obtained  as  soon  as  this 
equipment  is  ready  for  service,  and  at  that  time  the  substation  equipment  will 
be  provided.  During  a  later  year  additional  offices  will  be  constructed  and 
additional  units  will  be  installed  in  the  offices  already  partially  equipped. 

"An  additional  item  of  expense,  which  is  part  of  the  cost  of  securing  busi- 
ness, is  included  in  this  schedule  at  this  point,  representing  the  cost  of  secur- 
ing subscribers  and  printing  the  first  issue  of  the  directory,  which  amounts,  as 
shown  by  study  of  the  present  operating  statistics,  to  slightly  over  $4.00  per 
subscriber,  and  the  total  obtained  by  multiplying  the  total  number  of  sub- 
scribers by  this  amount  is  included  in  the  proper  column  in  the  table. 

"The  schedule  thus  arranged  provides  for  the  completion  of  the  entire  prop- 
erty within  five  years.  The  amount  expended  during  this  time  is  the  amount 
shown  in  the  appraisal  exclusive  of  carrying  charge.  It  has  further  been  as- 
sumed that  that  company  has  a  right  to  earn  a  fair  return  on  the  amount  of 
money  invested,  and  during  any  given  period  in  the  schedule  after  the  first 
period  a  return  has  been  figured  on  the  investment  at  the  end  of  the  preceding 
period." 


PHYSICAL  VALUATION   OF   CHICAGO   TEL.  COS.      823 

The  appraisers  give  further  explanation  and  elaborate  compu- 
tations to  show  how,  if  a  company  started  a  new  plant  in  Chicago 
today,  with  a  field  clear  from  competition,  it  would  cost  $7,000,000 
to  develop  the  business  of  the  present  company.  In  other  words,  the 
appraisers  are  seeking  to  estimate  what  is  usually  considered  a  form 
of  "going  value"  based  on  a  10%  return  on  the  investment  in  the 
developing  plant.  Byllesby  and  Arnold  prefer  to  call  this  by  another 
name.  It  is  the  idea  rather  than  the  name  that  is  important. 

The  theory  assumes,  although  it  does  not  directly  state,  that  the 
people  of  Chicago  are  to  forget  their  knowledge  of  telephones  and 
must  be  solicited,  at  much  expense,  in  order  to  become  acquainted 
with  them.  To  imagine  such  a  condition  of  sudden  collapse  of  mem- 
ory in  this  or  any  other  city  might  be  natural  to  builders  of  air 
castles  or  to  the  well-nigh  extinct  type  of  pure  theorists  among 
college  professors  who  have  been  so  much  of  a  butt  of  ridicule  among 
"practical  men/'  but  it  seems  curious  when  coming  from  prominent 
engineers.  If  Chicago  were  suddenly  bereft  of  all  telephone  service 
by  a  San  Francisco  earthquake  or  some  other  catastrophe  the  present 
subscribers  would  need  no  soliciting  to  resume  the  service  at  the 
very  earliest  possible  moment  Indeed,  one  of  the  notable  features 
of  Chicago  telephone  history  has  been  the  almost  entire  absence  of 
expense  for  soliciting  of  new  business.  In  this  respect  it  more  closely 
resembles  the  street  railway  than  the  lighting  utilities. 

It  is  indeed  true  that  without  business  the  physical  plant  would 
only  have  a  scrap  value.  The  cost  of  construction  of  the  plant,  even 
if  it  be  $40,000,000,  would  not  give  value  without  a  demand  for  the 
service.  In  assuming  a  demand  sufficient  to  give  a  value  equivalent 
to  the  cost  of  the  physical  property  a  certain  type  of  going  value  is 
thereby  generally  conceded. 

If  the  courts  shall  insist  upon  allowing  public  utilities  a  further 
value  beyond  the  investment,  our  public  service  commissions  are 
likely  to  reduce  the  rate  of  return  correspondingly,  leaving  to  the 
companies  but  little  more  than  just  enough  to  escape  the  charge  of 
ordering  a  confiscatory  rate. 

The  United  States  Supreme  Court,  after  listening  to  able  arguments 
on  behalf  not  only  of  good  will  but  of  going  value  in  the  Consolidated 
Gas  case  of  New  York  in  1898-9,  and  in  the  Cedar  Rapids  gas  case 
in  1912,  entirely  ignored  the  claim,  while  in  the  Knoxville  water 
case,  decided  January,  1909,  the  court  allowed  it,  but  distinctly  stated 
that  it  was  not  to  be  considered  a  precedent. 

None  of  the  six  prominent  public  utility  commissions  of  Massa- 
chusetts, New  York,  Wisconsin,  New  Jersey  and  Maryland  have  so 
far  allowed  any  going  value,  except  in  Wisconsin,  and  there  only 


824         MATERIALS    OF   CORPORATION    FINANCE 

where,  in  the  long  run,  the  dividends  in  the  past  have  not  appeared 
to  the  commission  to  be  fair  and  reasonable.  No  such  claim  of  lack 
of  good  dividends  in  the  past  can  be  made  here. 

EARLY   PROFITS 

In  1881,  the  first  year  of  the  Company's  history,  no  dividends 
were  paid.  From  that  time  until  1908  the  dividends  were  never  less 
than  10%.  They  were  reduced  to  8%  in  1908  and  have  been  of  that 
amount  since  then;  but  the  reduction  from  10%  to  8%  was  accom- 
panied by  an  increase  of  stock  out  of  earnings  from  $22,500,000  to 
$27,000,000.  The  actual  dividend,  thus,  on  the  stock  representing  any 
cash  contribution  from  the  stockholders,  scarcely  declined  at  all. 

In  other  words,  the  dividends  now  paid  of  $2,160,000  on  $27,000,- 
000  of  stock  represent  9.6%  on  the  $22,500,000  worth  of  stock  out- 
standing at  the  close  of  1907,  before  the  capitalization  of  surplus 
earnings. 

It  is  interesting  to  observe  that  had  the  stockholders  been  content 
with  10%  on  their  actual  contributions  from  the  start,  and  had  they 
been  further  content  to  pay  off  the  stock  out  of  earnings  in  excess  of 
10%  on  their  outstanding  stock  when  there  were  such  earnings,  the 
stock  would  have  all  been  redeemed  and  all  the  extensions  would  have 
been  paid  for  out  of  earnings  on  January  1,  1912,  with  the  exception 
of  $5,000,000  of  bonded  debt. 

The  method  of  computing  this  may  be  illustrated  by  the  first  three 
years  of  the  Company.  In  1881,  when  no  dividends  were  paid  on 
the  $5,000,000  of  stock,  10%  allowance,  or  $50,000,  would  on  this 
theory  be  added,  making  the  claim  of  the  stockholders  $550,000  on 
January  1,  1882.  Ten  per  cent,  on  this,  or  $55,000,  that  year  would 
raise  the  claim  to  $605,000,  less  the  dividends  actually  paid  of  $148,- 
000.  This  leaves  the  net  claim  against  the  public  on  this  theory 
of  $457,000. 

In  1883  an  allowance  of  10%  on  this,  together  with  $100,000  of 
new  stock  for  money  put  into  the  plant,  makes  the  total  claim  $602,700 
less  $220,000  actually  paid  in  dividends,  or  a  net  claim  December  31, 
1911,  of  $382,700.  In  this  way  the  property  would  have  all  been 
paid  for  by  1887  and  no  stock  would  have  been  needed  again  until 
1901,  and  that  stock  would  have  finally  been  canceled  with  10% 
thereon  before  January  1,  1912. 

These  computations  are  not  given  here  for  anything  more  than 
an  illustration  of  the  profitableness  of  the  business.  It  is  only  under 
municipal  ownership,  when  well  managed,  that  profits  above  4% 
to  5%  interest  on  the  bonded  debt  are  devoted  to  retiring  the  debt 
and  thus  decapitalizing  the  business. 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      825 

The  total  dividends  paid  by  the  Chicago  Telephone  Company, 
from  1881  to  the  close  of  1907,  when  the  present  ordinance  went 
into  effect,  were  $16,951,765.  This  was  an  average  of  12.66%  of 
the  sum  of  the  average  outstanding  stock  of  the  several  years.  Had 
the  addition  of  $1,000,000  to  the  stock  in  1900,  without  any  direct 
payment  therefor  by  the  stockholders,  been  omitted  from  the  calcu- 
lation of  average  stock  outstanding,  the  dividends  would  have  averaged 
over  13%. 

TABLE  12 
APPRAISAL  OF  PHYSICAL  PROPERTY  AND  REJECTED  ITEMS 


Description 

City             City  and 
Suburban 

Rejected  working  capital  

$168,989         $221,596 

Rejected  paving  

628,262           628,262 

Rejected  overhead  •.  

1,268,696        1,757,684 

Total  rejected 02,065,947      $2,607,542 

Appraisal  new 34,325,894      44,898,103 

Value  new  less  rejected  items 32,259,947      42,290,561 

The  rejection  of  the  items  of  plant  development  and  the  cost  of 
developing  the  business  reduces  the  appraisal  of  the  physical  property 
new  to: 

City  and  suburban  property,  $42,290,562 

City  property  only,  32,259,947 

The  rejected  paving  item  of  $628,216,  laid  since  the  conduits  were 
put  in,  belongs  entirely  to  the  city  portion  of  the  plant.  The  rejected 
part  of  the  working  capital  has  been  apportioned  to  the  city  in  the 
same  percentage  of  the  whole  (76.26%)  as  is  the  proportion  of  the 
entire  city  property,  aside  from  cash  and  its  equivalent,  to  the  total. 

PRESENT  VALUE 

The  last  two  of  the  nine  large  volumes  of  the  appraisal  are  devoted 
to  the  determination  of  the  present  or  depreciated  value  of  the  physi- 
cal property.  No  depreciation  is  recognized  in  the  items  of  "plant 
development"  and  "cost  of  developing  the  business." 

Following  a  common  practice,  no  depreciation  is  found  in  land 
or  construction  in  process,  or  such  part  of  the  working  capital  as  is 
represented  by  cash  or  fluid  assets  readily  convertible  into  cash.  The 
other  90%  of  the  physical  property  is  depreciated  by  the  appraisers 
77.28%  in  the  city  and  76%  in  the  -itire  system.  The  method  taken 
may  be  briefly  examined. 


826 


MATERIALS    OF    CORPORATION    FINANCE 


LIFE 

The  appraisal  gives  two  columns  of  estimated  life.  In  one  column, 
known  as  b,  the  appraisers  take  an  estimated  life  for  each  portion  of 
the  property  based  on. its  probable  duration,  if  affected  only  by  wear 
and  not  at  all  by  obsolescence  or  inadequacy,  or  other  causes.  In 
the  second  column,  known  as  a,  they  take  a  shorter  estimated  life, 
based  on  conditions  of  obsolescence,  inadequacy,  etc.,  which  have 
been  observed  in  Chicago  and  similar  large  cities.  Column  b  is  called 
a  life  "due  to  age  and  wear  only,"  and  column  a  is  called  a  life  "due 
to  service."  In  the  table  following  three  columns  are  added  to  include 
the  estimates  of  the  Chicago  Telephone  Commission,  of  D.  C.  Jackson, 
Wm.  H.  Crumb  and  Geo.  W.  Wilder,  in  April,  1907;  the  estimates 
of  Westinghouse,  Church,  Kerr  &  Co.,  in  their  report  in  March,  1911, 
and  the  estimates  of  E.  L.  Cline,  in  Telephony,  July  2,  1910. 


TABLE  13 
LIFE 


Description 

Byllesby  and  Arnold 

«o  Chicago  Commis- 
sion 

09 

K<  Westinghouse, 
|  Church,  Kerr  & 
2  Co. 

i 

15  <N 

H 
>> 

A 

6* 

GO 
^13 

ftrH 
W 

Years 

b 

Due  to  age 
and  wear  and 
tear  only 

Years 

a 

Due  to  all 
forms  of  de- 
preciation 

Years 

Buildings  

60  to  100 
25 
15  to  20 
20 
Indefinite 

50 

35 
25 

18 

25 
20 

30  to  60 
162-3 
12  to  15 
15 
50 

18 

14 
12.5 
10  to  14 

15 
15 

40 
8 
8 
10 
50 

20 

15 
15 
10 

40 
30 

50 
15 
10 
10 

50 

20 

17.5 
15 

40 
20 

50 
10 
10 
10 
Unknown 

25 

20 
15 
10  to  19 

15 
15 

Central  office  equipment. 
Private  branch  boards  .  . 
Sub  station  apparatus.  .  . 
Clay  conduit  lines  

Underground  cable,  main 
and  toll  

Underground  cable  sub- 
sidiary   

Aerial  cable  

Poles  and  cross-arms  — 
Copper   wire,    long   dis- 
tance and  toll  lines  .  .  . 
Copper    wire    exchange 
lines.  .          

It  will  be  observed  that  Byllesby  and  Arnold  in  Column  a  assumed 
a  longer  life  for  central  office  and  sub-station  equipment  and  a  shorter 
life  for  conduits  and  cable  than  do  the  others. 


PHYSICAL  VALUATION  OF  CHICAGO  TEL.  COS.      827 


TABLE  14 
SALVAGE 


Description 

Byllesby  and  Arnold 

Chicago  Telephone 
Commission 

Westinghouse, 
Church,  Kerr  & 
Co. 

• 
| 

W 

b 
Age  and 
wear  only 

a 
All  forms  of 
depreciation 

Buildings  

0 

5 

0 
0 
0 
1  to  37 

0  to  39 
2  to  35 
0 
40 

0 
12 

10.5 
10.5 
0 
35.2 

10.4 
19.7 
0 
45 

0 
20 

20 
10 
0 
40 

40 
40 
0 
70 

0 
20 

15 
15 
0 
40 

40 
30 
0 
50 

0 
20 
20 

'6 
40 

40 
40 
Oto20 
70 

Central  office  equipment  .  \ 
Central  battery  / 

Private  branch  boards  

Substation  apparatus  

City  conduits  

Underground  cable  main  .  .  . 
Underground    cable    subsi- 
diary   

Aerial  cable  

Poles  and  cross-arms  

Copper  wire  

Byllesby  and  Arnold  estimated  less  net  salvage  (column  a)  than  do 

others.     The  net  salvage  allowed  on  some  parts  of  the  property  are 
here  given: 

Sub-station  equipment  10.46% 

Underground  cables,  mains,  35.67% 

Underground  cable,  subsidiary,  9.57% 

House  cable,  4.55% 

Aerial  cable,  19.54% 

Aerial  wire,  29.32% 

TABLE  15 

ANNUAL  DEPRECIATION 
Percentage  of  Cost 


Description 


Byllesby  and  Arnold     Chicago 

Telephone  Westing- 

b  a  Company     house 

Age  and    All  forms  of    Sinking      Church 
wear  only  depreciation      Fund     Kerr  &  Co. 


E.  L. 

Cline 


Buildings  1  to  2 

1.5  to  2 

1.33 

2.0              2 

Central  office  equipment.       3.8 
Private  branch  boards.  .  .       6.0 
Substation  apparatus  ....       5.0 
Clay  conduit  lines  0.0 

6.00 
6.67 
6.67 
2.00 

11.25 
11.25 
8.73 
.89 

5.3              8 
8 
8.5 
2.0              1 

Underground  cable  1  .26  to  1  .98 

5.50 

3.72 

3.0              2.4 

Underground    cable   sub- 
sidiary         2.  03  to  2.  85 

7.00 

5.38 

3 

Aerial  cable  2.  60  to  3.  92 

8.00 

5.38 

4.0              4 

Poles  and  cross  arms  4.  16  to  5.55 
Copper  wire  2.4 

ti.tit; 
6.50 

8.73 
5.38 

6.6  4.2  to  11.25 
2.5             2 

828         MATERIALS    OF   CORPORATION   FINANCE 

Byllesby  and  Arnold  estimate  (column  a)  less  depreciation  yearly 
on  central  and  sub-station  equipment  and  more  depreciation  on  under- 
ground and  aerial  construction  than  do  the  others. 

Applying  the  above  percentages  of  depreciation,  based  on  the  age> 
salvage  and  assumed  life  of  the  several  parts  of  the  telephone  property , 
the  appraisers  reached  the  following  results : 

TABLE  16 
DEPRECIATED  OR  PRESENT  VALUE 

City  and 
Description  City  Suburbs 

Total  reproduction  value  new,  including  land  and 

working  capital $34,325,894  $44,898,103 

Present  value  "  b  "  on  the  basis  of  age  and  wear  only    29,838,803  38,201,873 

Percentage  to  value  new 86.58%  84.73% 

Present  value  "  a  "  on  the  basis  of  obsolescence  and 

inadequacy  and  other  conditions  of  actual 

service  in  Chicago 27,312,425  35,073,692 

Percentage  to  value  new 79.03%  77.59% 

According  to  the  books  of  the  Company,  the  total  cost  of  the  property 
in  the  city  and  suburbs  on  August  1,  1911,  amounted  to  $36,852,- 
122.15,  or,  with  a  proper  allowance  for  cash  and  its  equivalent,  about 
$37,700,000.  From  this,  however,  $417,871.38  should  be  deducted 
for  property  that  was  scrapped  before  December  31,  1911,  or  more 
properly  the  $364,778.41  scrapped  before  August  1,  1911,  which,  by 
an  oversight,  was  not  noted  in  the  books  (Hall's  report,  page  14). 
This  would  leave  the  cost,  according  to  the  books,  about  $37,300,000. 
The  present  value  of  this  property  would  be  determined  by  deducting 
the  amount  of  the  credit  of  the  depreciation  reserve  August  1,  1911. 
The  addition  to  the  reserve  for  the  year  1911  was  slightly  over  $1,- 
200,000,  or  approximately  $700,000  for  the  seven  months.  This 
added  to  the  $3,700,000,  December  31,  1910,  gives  $4,400,000  con- 
tributed by  the  telephone  users  up  to  August  1,  1911.  The  present 
value,  according  to  the  books,  is  therefore  $32,900,000,  which  confirms 
the  value  found  below  from  the  appraisal,  viz.,  $32,813,246. 

If  we  apply  to  the  appraisal  new  less  the  items  rejected  in  the 
present  report,  the  same  percentages  of  depreciation  as  were  used  by 
Byllesby  and  Arnold  for  all  items,  namely  20.97%  for  the  city  and 
22.41%  for  city  and  suburbs,  the  present  value  of  the  conceded 
items  of  the  appraisal  new  of  $32,259,947  within  the  city  and  $42,- 
290,561  in  the  city  and  suburbs  will  be : 

Conceded  present  value  in  city,  $25,495,036 

Conceded  present  value  in  city  and  suburbs,          32,813,246 


PHYSICAL  VALUATION  OF  CHICAGO  TEL.  COS.     829 

It  thus  appears  that  the  corrected  present  value  for  the  entire 
property  to  August  1st,  of  $32,813,246,  is  nearly  equal  to  the  $33,- 
000,000  of  stocks,  bonds  and  loans  from  the  banks  on  December  31, 
1911.  By  that  date,  however,  the  addition  of  $2,095,270  to  the 
physical  property  during  the  last  five  months  of  1911,  brought  the 
value  of  the  physical  property  on  the  above  basis  to  $34,908,516,  or 
in  round  figures,  $35,000,000.  This  is  $2,000,000  more  than  the 
investment  by  the  stock  and  bondholders  and  the  banks  on  the 
date  in  question,  December  31,  1911,  and  is  substantially  equivalent 
to  the  non-interest  bearing  liabilities. 

Possibly  a  more  exhaustive  examination  of  the  appraisal  might 
make  such  further  reductions  as  to  bring  the  value  on  December 
31st  down  to  $33,000,000.  On  the  other  hand,  the  Company  might 
succeed  in  showing  that  too  much  has  been  rejected  in  the  above 
computations. 

The  important  point  in  this  particular  matter  is  that  through  the 
rise  of  land  values,  the  increase  in  the  cost  of  labor  iand  materials 
and  the  investment  of  reserves  of  $5,091,000  collected  from  the 
telephone  users,  the  plant  on  December  31,  1911,  was  worth  about 
$2,000,000  more  than  the  outstanding  stocks,  bonds  and  obligations 
to  the  banks.  These  three  items,  aggregating  $33,000,000,  repre- 
sent the  investment  of  capital  in  the  Company. 

Prior  to  1891  the  dividend  rate  was  always  30%  to  51%.  During 
that  time  $494,352  of  new  stock  was  subscribed  for  from  the  divi- 
dend, or  was  allotted  to  the  stockholder  simultaneously  with  the  pay- 
ment of  the  dividends.  Stock  dividends  of  $1,000,000  in  1900,  and 
of  $4,500,000  in  1908,  were  issued  to  represent  surplus  earnings  that 
have  gone  into  the  plant,  in  addition  to  the  regular  dividends  which, 
prior  to  1908,  had  never  been  under  10%.  Since  these  stock  divi- 
dends of  about  $6,000,000  out  of  the  existing  $27,000,000  of  stock 
represented  actual  investment  in  the  property,  even  though  paid 
for  by  the  telephone  user,  the  present  stock,  as  well  as  the  bonds, 
represents  actual  capital  rather  than  what  is  usually  meant  by 
"water." 

The  question  of  how  the  capital  was  secured  has  more  importance 
when  the  present  8%  dividend  rate  is  considered. 

In  addition  to  expenditures  for  maintenance  that  have  gradually 
declined  from  10%  to  7.4%  of  the  average  depreciable  investment, 
$5,000,000  appears  to  have  been  necessary  to  keep  the  investmnt 
intact  through  the  past  20  and  more  years.  This,  however,  is  far 
from  establishing  the  propriety  of  collecting  over  40%  of  this,  or 
$2,241,141,  during  1910  and  1911.  The  fact  appears  to  have  been 
that  substantially  all  the  surplus  earnings  above  8%  on  the  stock 


830         MATERIALS    OF   CORPORATION    FINANCE 

during  the  past  two  years  were  added  to  the  surplus.  It  was  legal, 
and  it  may  have  been  a  wise  and  proper  atonement  for  the  neglect 
to  do  this  in  the  past,  or  for  transferring  from  reserve  to  surplus  and 
distributing,  as  a  stock  dividend  in  1908,  $4,500,000  previously  accu- 
mulated to  meet  depreciation. 

The  actual  treatment  of  the  subject  on  the  books  of  the  Company 
was  not  sufficiently  scientific  to  be  a  guide  in  adjusting  rates  for  the 
next  five  years. 

DEPRECIATION   IN   NEW  AND   OLD  PLANTS 

In  a  new  plant  which  has  not  yet  reached  its  "gait"  of  renewals,  a 
depreciation  reserve  appears  desirable.  In  the  case  of  a  company  as 
old  as  the  Chicago  Telephone  Company,  the  time  may  soon  arrive 
when  renewals  will  take  sufficient  care  of  depreciation,  as  in  the  case 
of  our  older  gas  companies  and  railroads. 

A  depreciation  reserve  has  thus  far  been  needed  by  the  Chicago 
Telephone  Company. 

METHODS  OF  BUILDING  UP  A  DEPRECIATION  RESERVE 

Where,  as  is  usual  in  telephone  companies,  a  depreciation  reserve 
is  invested  in  the  plant  itself,  there  are  two  methods  of  determining 
the  amount  needed  from  year  to  year  to  reach  the  fixed  amount  at 
the  end  of  a  definite  period.  Both  methods  start  with  an  assumption 
of  the  probable  life  and  of  the  value  new  of  each  class  of  property 
that  is  subject  to  depreciation.  The  sinking  fund  method  shows  what 
percentage  new  must  be  put  into  a  fund  at  an  agreed  rate  of  interest, 
usually  4%,  in  order,  when  compounded,  to  reach  the  full  value  at 
the  end  of  the  estimated  life  of  the  property. 

Of  course,  the  only  loss  to  be  made  up  by  the  sinking  fund  is  the 
difference  between  the  cost  new  and  the  net  salvage.  By  net  salvage 
is  meant  the  value  of  the  property  when  scrapped,  less  the  cost  of  its 
removal  and  sale. 

Having  thus  determined  the  percentage  of  depreciation  to  be 
applied  in  any  given  year  to  each  class  of  property,  the  amount  of 
depreciation  in  dollars  is  computed.  Then  the  addition  of  these 
various  sums  required  for  the  sinking  fund  gives  the  total  amount  to 
be  apportioned  that  year  to  the  depreciation  reserve.  This  amount 
will  vary  from  year  to  year  and  is  a  complicated  method  to  apply  to 
the  bookkeeping  of  the  past.  It  is  of  easier  application  when  applied 
to  the  property  today  as  an  estimate  for  the  future.  In  the  case  of 
the  Chicago  Telephone  Company,  the  appraisal  just  made  shows  that 
the  actual  excess  of  depreciation  over  appreciation  in  the  past  thirty 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      831 

years  has  been  about  $5,000,000.  One  can  determine  what  uniform 
per  cent,  of  the  average  investment  of  all  the  depreciable  property 
would  have  been  necessary  within  the  last  21  years,  in  order  to  reach 
at  4%  compound  interest  this  $5,000,000. 

One  per  cent,  yearly  on  the  average  depreciable  investment  since 
1890  at  4%  would  have  yielded  $3,465,860.91  in  1911.  To  have 
secured  $4,000,000  by  this  method  would  have  required  1.151%;  to 
have  secured  the  actual  amount  accumulated,  of  $5,091,000,  would 
have  required  1.469%.  The  other  method  of  reckoning  the  deprecia- 
tion, one  apparently  in  universal  use  among  telephone  engineers,  is 
the  so-called  straight  line  method,  where  interest  and  the  compound- 
ing of  the  same  is  disregarded.  The  difference  between  the  cost  of 
the  property  and  the  net  salvage — in  other  words,  the  true  deprecia- 
tion, is  equally  divided  by  years  over  the  assumed  life  of  the  class  of 
property  in  question.  The  amount  yielded  in  this  way  by  1%  yearly 
of  the  average  depreciable  property  of  the  Chicago  Telephone  Com- 
pany since  1890  is  $2,731,977.  To  accumulate  $4,000,000  in  1911 
by  this  method  would,  therefore,  require  1.464%  a  year.  To  accumu- 
late $5,091,000  would  require  1.8635%.  A  yearly  addition  to  the 
reserve  of  1.5%  would  yield  $4,097,966.  A  yearly  addition  of  1.86% 
would  yield  $5,081,477.  If  the  first  method,  or  sinking  fund,  is 
applied  to  the  past  history  of  the  plant,  the  rate  of  return  must  be 
reckoned  upon  the  first  cost  new  of  the  property  in  use. 

If,  however,  the  second  or  straight  line  method  be  used,  the  rate 
of  return  but  not  the  depreciation  should  be  reckoned  from  year  to 
year  on  the  depreciated  value  of  the  property.  An  illustration  will 
make  this  latter  point  clear.  Suppose  the  property  cost  new  $100,000, 
and  that  7%  be  assumed  as  a  fair  return  on  the  investment,  but  let 
it  be  further  assumed  that  the  property  will  last  only  33^  years,  and 
therefore  will  require  3%,  or  $3,000  a  year,  without  interest,  to  make 
good  the  depreciation.  Besides  enough  for  operating  expenses,  the 
users  pay  $10,000  to  the  company  the  first  year.  Of  this  amount, 
$7,000  is  profit  and  $3,000  makes  good  the  depreciation.  If  the  com- 
pany is  a  growing  one,  it  will  need  even  more  than  $3,000  for  exten- 
sions, which  it  will  pay  for,  in  part,  with  the  above  $3,000  furnished 
by  its  customers,  and  in  part  through  further  stock  and  bond  issues. 
If  $4,000  were  needed  for  extensions  during  the  first  year  and  $3,000 
were  paid  in  by  the  customer,  the  real  capital  at  the  beginning  of 
the  second  year  would  be  $101,000.  If  no  addition  to  the  invest- 
ment were  required,  the  capital  would  be  $97,000,  and  the  company 
would  have  $3,000  to  put  into  similar  investments  elsewhere.  If  the 
company  could  not  get  7%  elsewhere,  that  would  indicate  that  the 


832         MATERIALS    OF   CORPORATION   FINANCE 

rate  of  return  to  the  company  in  question  had  been  put  too  high, 
since  the  rate  of  return  should  represent,  aa  nearly  as  possible,  what 
investors  demand  and  get  in  similar  investments  under  similar  con- 
ditions. The  objection  may  be  raised  that  if  the  property  were  a 
stagnant  one  the  rate  of  return  each  year,  say  7%,  would  be  on  a 
reduced  capital  and  therefore  the  rates  would  fall  as  compared  with  a 
new  investment  of  similar  character  elsewhere.  This  is  of  slight 
importance,  because  the  problem  is  the  determining  of  what  is  just 
in  each  community. 

Under  this  theory,  of  course,  if  a  stagnant  plant  begins  to  grow 
rapidly,  and  a  large  amount  of  new  capital  were  called  in,  or  if  the 
plan  were  entirely  rebuilt,  there  might  have  to  be  a  temporary  in- 
crease of  rates,  but  that,  under  a  system  of  public  regulations  and 
publicity  of  accounts,  could  be  allowed.  Such  suppositions,  however, 
of  stagnant  plants,  have  little  application  to  most  municipal  utilities 
and  no  application  to  the  Chicago  Telephone  Company. 

In  the  case  of  the  latter  company,  another  argument  is  raised.  This 
plant  for  the  present  may  be  assumed  to  have  cost  the  security 
holders — that  is  the  stock,  bond  and  note  holders — $33,000,000,  and 
to  have  cost  the  telephone  subscriber  $5,000,000  for  a  depreciation 
reserve 

The  Company  claims  that  it  has  had  the  burden  of  investing  and 
caring  for  this  $5,000,000  of  depreciation  reserve,  which  has  been 
put  into  extensions,  and  should  have  a  reward  for  the  same.  To  this 
it  should  be  replied,  first,  the  salaries  of  all  the  officials  and  managers 
that  supervised  these  extensions  have  been  paid  out  of  operating 
expenses  and  will  be  so  paid  in  the  future.  Second,  the  security  to 
the  stockholders  has  been  increased  by  this  depreciation  reserve  col- 
lected from  the  subscriber  and  put  into  extensions.  Third,  if  the 
depreciation  reserve  had  been  placed  in  an  outside  sinking  fund,  the 
owners  of  the  property  would  have  had  to  put  their  hands  into  their 
pockets  for  the  extensions  which  have  been  paid  for  by  the  sub- 
scribers, while  the  total  value  of  the  telephone  property  would  not 
have  been  changed  thereby,  and  the  investment  in  the  sinking  fund 
would  have  been  scarcely  more  secure  than  the  investment  actually 
made  in  extensions.  The  straight  line  method  will  be  followed  in  this 
report,  and  the  yearly  depreciation  will  be  taken  from  the  cost  new 
of  the  depreciable  investment. 

MAINTENANCE  AND  DEPRECIATION  IN  OTHER  BELL  COMPANIES 

The  experience  of  the  entire  group  of  Bell  companies  with  their 
4,474,171  stations  in  use  at  the  close  of  1911,  should  be  observed. 
The  percentage  of  station  removals,  maintenance  and  depreciation  to 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      833 

the  entire  investment  in  telephone  property  was  given  in  the  last 
report  of  the  A.  T.  &  T. : 

1895,  9.1% 

1900,  8.4% 

1905,  8.9% 

1910,  9.5% 

1911,  9.2% 

In  Chicago  and  suburbs  in  1911,  when  the  average  depreciable 
property  of  $33,277,902  was  89.47%  of  the  total  property  of  $37,- 
194,588,  9.2%  of  the  entire  property  would  be  10.28%  of  the  depreci- 
able property.  But  this  included  station  removals.  This  item  in 
Chicago  in  1911  was  $730,107.20,  or  2.194%  of  the  average  depreci- 
able property,  but  was  only  1.85%  in  1910,  and  apparently  will  be 
about  that  figure  in  1912.  A  reduction  of  1.85%  from  10.28% 
would  leave  8.43%  of  the  depreciable  investment  as  applicable  to 
maintenance  and  a  depreciation  reserve  in  Chicago,  outside  of  station 
removals,  if  the  average  of  all  the  Bell  companies,  save  the  long 
distance  lines,  were  to  prevail  here.  If  the  long  distance  lines  be 
included,  there  is  data  from  the  last  three  reports  of  the  A.  T.  &  T. 
for  a  more  detailed  comparison,  as  follows: 

The  last  report  of  the  American  Telephone  and  Telegraph  Com- 
pany gives  not  only  the  telephone  plant  in  use  on  December  31,  1911. 
of  $666,660,702  (p.  13)  for  the  entire  Bell  system  in  the  United 
States,  but  it  gives  the  plant  additions  for  each  of  the  previous  12 
years.  (Report,  p.  5.)  The  working  capital  is  omitted,  but  land  is 
included  in  addition  to  the  depreciable  property.  The  report  also 
states  (p.  6) : 

"During  the  year  $58,840,000  was  applied  out  of  revenue  to  maintenance 
and  reconstruction  purposes;  of  this,  over  $12,000,000  was  unexpended  for 
those  purposes. 

"The  total  provisions  for  maintenance  and  reconstruction  charged  against 
revenue  for  the  last  nine  years  was  over  $342,300,000." 


834         MATEEIALS    OF    CORPORATION    FINANCE 

From  this  data  the  following  computation  is  easily  made : 

TABLE  17 

MAINTENANCE  AND  DEPRECIATION  EXPENSES  AND  RESERVES 

OF  ALL  BELL  COMPANIES,  INCLUDING  LONG 

DISTANCE  LINES 

Description  1910  1911 

Average  plant  investment,  including  land,  but 

not  working  capital,  of  all  Bell  companies.$584,208,500 . 00  $638,830,314 . 00 

Ditto,  for  Chicago  Telephone  Company 30,451,278 . 00          33,883,648 . 00 

Other  Bell  companies 553,757,222.00        604,946,666.00 

Total  maintenance,  station  removals  and  de- 
preciation reserve 52,028,009 . 00  58,850,350 . 00 

Percentage  of  maintenance,  station  removals, 
and  depreciation  reserve  to  average  plant 
investment,  including  land  but  not  work- 
ing capital  in  all  Bell  companies 8.91%  9.21% 

Maintenance,  station  removals  and  deprecia- 
tion of  Chicago  Telephone  Company. . . .  3,888,533 . 00  4,228,221 . 00 

Percentage  of  maintenance,  station  removals 
and  depreciation  reserve  in  the  Chicago 
Company  to  its  average  plant  investment, 
including  land 12.76%  12.48% 

Maintenance,  station  removals  and  deprecia- 
tion in  other  Bell  companies  after  deduct- 
ing Chicago. 48,139,476.00  54,622,129.00 

Percentage  to  plant  investment  and  land  to 

these  other  companies 8.69%  9.03% 


In  the  above  computation,  the  investment  of  the  Chicago  Company, 
as  it  appears  on  the  books  of  the  company,  is  used.  If  the  property 
($417,871.38,  Hall,  page  14)  that  was  scrapped  before  the  close  of 
1911,  had  been  deducted  from  the  Chicago  investment,  the  contrast 
would  have  been  slightly  increased.  As  it  is,  however,  the  other  Bell 
companies  are  spending  only  about  9%  of  their  entire  investment 
outside  of  their  working  capital  for  both  maintenance,  station 
removals  and  yearly  additions  to  their  depreciation  reserves.  The 
Chicago  company,  on  the  other  hand,  is  spending  or  setting  aside 
about  12|%  for  the  same  purpose.  Some  allowance  may  be  made 
for  the  increased  cost  of  station  removals  here,  but  a  difference  of 
even  3%  when  applied  to  the  investment  of  the  Chicago  company  for 
both  city  and  suburbs  in  1911,  would  amount  to  about  $1,000,000 
and  to  the  city  alone  of  about  $750,000. 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      835 

TABLE  18 

MAINTENANCE,  RECONSTRUCTION  AND  PLANT  INVESTMENT  OF 
ALL  THE  BELL  COMPANIES,  1903-11,  INCLUSIVE 


Year 

Plant  Dec.  31 

Average 
Plant  for  Year 

Provisions  for 
Maintenance  and 
Reconstruction 

1902  

$250,205,302 

1903  

285,574,002 

$267,889,652 

* 

1904  

319,010,702 

302,342,352 

* 

1905  

369,791,602 

344,401,152 

* 

1906  

449,158,502 

409,475,052 

$  30,639,200 

1907  

502,079,902 

475,619,202 

34,665,700 

1908  

528,717,102 

515,398,502 

37,204,200 

1909  

557,417,202 

543,067,152 

44,838,953 

1910  

611,000,002 

584,208,600 

52,028,009 

1911  

666,660,702 

638,830,352 

58,840,354 

Total  

$4,081,232,016 

*$342,  300,000 

*  The  total  for  the  nine  years  is  given  in  the  recent  reports  of  the  A.  T.  &  T., 
but  the  separation  between  the  first  three  of  the  years  is  not  shown. 

The  report  for  1911  gives  the  provision  for  maintenance  and  recon- 
struction, and  the  total  for  the  nine  years,  1903-11,  but  reliance  is 
had  upon  the  previous  reports  for  the  amount  for  some  of  the  years 
covered  by  the  total.  The  entire  provision  for  maintenance  and  sta- 
tion removals  and  to  meet  depreciation  during  the  last  nine  years 
for  all  the  associated  Bell  companies  of  the  United  States,  has  been 
only  $342,300,000  or  8.387%  of  the  aggregate  of  the  average  invest- 
ments during  those  nine  years  of  $4,081,232,600. 

An  appraisal  of  all  these  Bell  plants  in  1907  gave  a  value  to  these 
properties  of  $35,000,000  in  excess  of  the  obligations  outstanding 
against  them.  If  a  maintenance,  station  removal  and  depreciation 
reserve  expense  of  8.39%  can  do  this  elsewhere,  it  might  seem 
sufficient  in  Chicago  with  its  large  proportion  of  long  lived  invest- 
ment. At  least  8.5%  would  appear  sufficient  for  maintenance  and 
depreciation  reserve,  if  station  removals  be  separately  allowed  in 
Chicago. 

Commenting  on  this  situation,  President  Vail,  in  his  report  for 
1908,  wrote: 

"The  result  of  the  appraisement  and  studies  on  depreciation,  given  below, 
establishes  the  fact  that  our  charges  against  revenue  for  maintenance  and  re- 
construction are  conservative  and  on  the  right  side.  *  *  * 

"There  exists  much  misunderstanding  as  to  the  permanent  value  of  a  modern 
telephone  plant.  Originally,  exchange  plants  were  open  wire  construction, 
largely  on  house-top  fixtures  and  to  a  certain  extent,  on  poles.  The  central 
offices  were  in  leased  buildings,  seldom  fireproof,  the  equipment  was  of  various 
types  and  standards,  due  to  the  rapid  improvement  or  development  then  tak- 
ing place. 


836        MATERIALS    OF   CORPORATION    FINANCE 

"Now  the  central  offices  in  all  the  principal  centers  and  in  many  of  the  lesa 
important  are  in  fireproof  buildings  built  for  the  purpose  and  owned  by  the 
companies. 

"From  these  offices  radiate  the  underground  conduits  connecting  the  central 
offices  with  each  other  and  the  various  districts  of  the  exchange  territory. 
Through  the  subways  the  wires  are  run  in  cables  of  copper  wire,  sheathed  with 
lead  covering.  The  extensions  of  these  lines  are  open  wire,  generally  copper, 
or  aerial  cables  strung  on  pole  lines  of  substantial  construction." 

Commenting  upon  this  matter  again  in  his  report  for  1910,  Presi- 
dent Vail  made  the  following  significant  statement: 

"The  present  policy  of  the  Bell  system  is  to  provide  against  every  probable 
contingency  and  to  base  the  amount  and  extent  of  such  provision  on  past  ex- 
perience— not  on  future  expectations.  It  is  conjectured  that  the  future  will 
show  a  decrease  in  the  depreciation  or  reconstruction  due  to  decay,  wear  and 
tear,  and  obsolescence.  Changes — improvements — are  going  on  as  rapidly  as 
in  the  past,  but  the  general  character  of  plant  and  methods  is  assuming  more 
permanency.  The  improvements  are  being  evolved  from,  and  are  being  grafted 
on  to,  the  old  system  and  methods.  The  disturbing  and  sometimes  seemingly 
destructive  conditions  following  the  rapid  development  of  high  pressure  power 
and  transmission  have  been  to  a  great  measure  overcome. 

"All  this  has  been  made  possible  through  the  unremitting  study  and  re- 
search of  the  staff  of  the  engineering  and  experimental  departments  of  the 
company,  who  by  close  attention,  observation  and  study,  anticipate  and  pro- 
vide for  all  such  contingencies  and  conditions  as  can  possibly  be  anticipated 
or  provided  for  in  advance. 

"Under  these  conditions  there  is  a  small  probability  that  any  such  causes 
as  those  which  forced  the  wholesale  reconstruction  or  rearrangement  of  plant 
in  the  past  will  again  occur ;  it  is,  however,  for  the  benefit  of  the  public  and  of 
the  corporation  to  have  an  ample  reserve  for  any  contingency  which  may 
happen." 

That  the  Chicago  Telephone  Company  has  pursued  the  same  con- 
servative policy  as  the  other  Bell  companies  is  indicated  in  the  report 
of  the  then  president  of  the  company,  John  M.  Clark,  in  his  annual 
report  for  1900.  He  then  said: 

"This  company  has  aimed  to  keep  fully  up  with  the  improvements  that  are 
continually  being  made  in  apparatus  and  in  methods  of  handling  the  business. 
In  fact,  some  of  the  most  important  of  these  have  been  made  by  electricians 
and  experts  in  the  employ  of  this  company. 

"The  expenditures  have  been  largely  increased  not  only  by  the  growing 
cost  of  operation,  but  also  through  the  necessity  of  replacing  old  switchboards 
and  apparatus  with  new  and  improved  equipment,  in  order  to  maintain  the 
quality  of  the  service  at  the  highest  modern  standard.  New  switchboards  and 
apparatus  were  installed  during  the  year,  costing  $282,160.38." 

It  is,  moreover,  interesting  to  note  that  such  well  established  inde- 
pendent telephone  companies  as  the  Tri-State  of  Minneapolis,  Key- 
stone of  Philadelphia,  Kinloch  of  St.  Louis,  Federal  of  Buffalo,  and 
the  Kansas  City  Home  Telephone  Company,  are  devoting  less  than 


PHYSICAL  VALUATION  OF  CHICAGO   TEL.  COS.      837 

8.5%  yearly  of  their  plant  investment  to  maintenance  and  deprecia- 
tion. 

That  the  entire  Bell  system  has  so  completely  taken  care  of  deprecia- 
tion with  a  total  expenditure  of  9%  of  the  plant  investment  for  main- 
tenance, including  renewals,  and  for  station  removals  and  for  addi- 
tions to  the  depreciation  reserve  investment  as  compared  with  over 
12%  here  during  the  last  two  years,  is  significant. 

The  fairness  of  the  above  comparison  is  strengthened  by  the  fact 
that  all  the  Bell  companies,  including  the  long  distance  lines  had  in 
permanent  underground  conduit  only  53%  of  their  entire  mileage 
of  wire  in  December,  1911,  and  outside  of  Chicago  only  51%,  while 
the  Chicago  Telephone  Company  had  81%  in  underground  conduits. 
This  would  naturally  mean  that  the  maintenance  expenses  would  be 
somewhat  larger  in  the  average  Bell  telephone  company  than  in 
Chicago. 

Real  estate  and  underground  conduits  and  cables,  which  constitute 
the  most  permanent  portion  of  the  telephone  plant,  were  given  in  the 
1908  annual  report  of  the  A.  T.  &  T.  Co.,  as  amounting  to  only  29% 
of  the  total  value  of  the  telephone  plants  owned  by  that  company; 
that  is,  the  entire  Bell  system. 

According  to  the  appraisal  of  Byllesby  and  Arnold,  this  portion  of 
the  plant  of  the  Chicago  company  constitutes  39.5%  of  its  entire 
investment. 

BATE  OF  RETURN 

Any  one  familiar  with  the  numerous  decisions  of  rate  commissions 
is  aware  of  how  uncertain  and  vague  are  most  of  their  expressions 
upon  the  proper  rate  of  return.  The  courts  have  been  inclined  to 
uphold  any  rate  which  yielded  from  4%  to  6%  return.  Their  theory 
has  appeared  to  be  that  if  the  rate  was  as  high  as  bonds  were  netting 
the  investor  in  the  locality,  which  was  usually  from  4%  to  5£%,  the 
rate  was  not  confiscatory.  State  commissions  have  held  to  a  higher 
rate. 

New  securities  in  the  lighting  business  in  Massachusetts,  how- 
ever, have  been  ordered  by  the  State  Gas  and  Electric  Light  Com- 
mission to  be  sold  at  such  premiums  as  to  net  the  investor  only  5% 
to  6%. 

In  the  case  of  a  large,  old  and  well  established  enterprise,  like  the 
Chicago  Telephone  Company,  the  proper  test  would  appear  to  be 
such  rate  of  return  as  would  render  possible  the  sale  of  additional 
stock  and  bonds  when  needed  from  time  to  time  for  extensions.  In 
other  words,  the  rate  should  be  such  as  to  keep  the  securities  at  par, 
or  slightly  above.  The  market  for  the  securities  of  a  well-known 


838         MATEEIALS   OF   CORPORATION   FINANCE 

company  is  highly  competitive.  If  investors  are  willing  to  buy  stock 
on  a  6%  basis,  and  the  company  insists  upon  paying  8%  dividends, 
the  investors  will  quickly  run  up  the  price  to  such  an  amount,  say 
133J,  as  will  net  the  investor  only  6%  on  what  he  pays  for  the  stock. 
We  may  argue  that  the  business  is  such  that  the  investor  ought  to 
have  8% ;  but  the  investor,  having  his  own  opinion  on  the  subject, 
insists  upon  buying  on  a  6%  basis,  or  whatever  may  be  the  actual 
market  quotation. 

Applying  these  observations  to  the  local  telephone  situation,  we 
find  that  during  1911  the  Company  had  outstanding  $5,000,000  of 
5%  bonds,  which  have  been  constantly  sold  above  par  since  their 
issue  in  1908.  Furthermore,  the  Company  during  the  present  year 
has  made  another  issue  of  $14,000,000  of  such  bonds,  which  are  also 
selling  above  par.  Its  $1,000,000  of  loans  from  the  banks  were 
obtained  at  4%  to  4J%  interest.  The  $27,000,000  of  8%  stock  sold 
at  120  to  130  during  most  of  the  three  years  prior  to  the  exchange 
of  nearly  all  of  that  which  was  owned  by  the  minority  stockholders 
in  1911,  for  the  8%  stock  of  the  A.  T.  &  T.  The  8%  stock  of  the 
latter  company  has  been  selling  for  some  time  at  140  to  144;  yet  this 
is  in  the  face  of  the  announcement  in  the  last  report  of  the  A.  T.  &  T. 
that  on  its  capital  and  that  of  the  associated  Bell  companies  it  will 
not  hereafter  expect  or  encourage  more  than  8%. 

Now  an  investor  in  an  8%  stock  at  140  nets  on  the  investment 
only  5.71%.  Even  at  130  he  only  nets  6.15%,  and  at  125  he  nets 
6.4%.  An  investor  content  with  6.5%  return  would  only  pay  123 
for  the  stock.  Since  the  stock  has  been  above  that  price  most  of  the 
time  during  the  last  three  years,  it  may  be  inferred  that  the  investor 
in  Chicago  Telephone  Company  stock  not  only  does  not  ask  a  return 
of  6.5%  on  his  actual  investment  in  order  to  buy  it,  but  that  in  the 
bidding  of  the  competitive  market  he  forces  up  the  price  so  that  he 
cannot  make  6.5% ;  in  fact,  by  forcing  the  price  above  133,  as  has 
been  the  case  recently,  the  investing  market  makes  it  impossible  to 
realize  even  6%. 

To  all  this  it  is  urged  that  the  stock,  at  least  of  the  local  company, 
is  more  precarious  than  the  stocks  of  the  local  gas  or  electric  light 
companies,  because  of  the  existence  of  competition  from  the  Illinois 
Tunnel  Company.  That  competition  has  not  been  serious  thus  far, 
and  the  investor,  judging  from  the  above  named  market  quotations, 
evidently  does  not  expect  it  to  be ;  neither  do  the  officers  of  the  Chicago 
Telephone  Company  express  any  fear  from  that  source. 

Of  more  force  is  the  claim  that  stockholders  may  pay  more  for 
stock  in  expectation  of  occasionally  having  a  chance  to  buy  new  stock 
issues  at  par. 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.   COS.      839 

In  view  of  all  these  facts,  it  would  seem  as  if  6|%  to  7%  were  as 
reasonable  a  rate  of  return  for  Chicago  telephone  stock  as  for  the 
Consolidated  Gas  Company  stock  of  New  York,  with  reference  to 
which  a  6%  return  was  considered  reasonable  by  the  United  States 
Supreme  Court  in  January,  1909. 

Again  it  is  urged  that  the  City  has  the  right  of  purchase  at  the 
appraised  value  at  the  end  of  the  grant,  or  at  5%  in  excess  of  the 
appraised  value  on  January  1,  1919,  and  1924,  and  the  City  may 
transfer  its  right  on  the  latter  date.  As  long,  however,  as  the  Com- 
pany gives  good  service  and  is  not  overcapitalized,  it  seems  to  have 
little  to  fear  in  this  direction.  Certainly  an  appraisal  on  the  basis  of 
that  of  Byllesby  and  Arnold  would  involve  a  payment  to  the  stock- 
holders of  a  large  premium  in  case  of  city  purchase. 

The  stock  outstanding  was  increased  in  1908  from  $22,500,000  to 
$27,000,000,  without  any  contribution  from  the  stockholders.  To  be 
sure,  the  dividends  were  reduced  at  the  same  time  from  10%  to  8%, 
the  total  annual  dividends  remaining  about  the  same.  The  increase 
of  stock  has  been  defended  by  the  Company  on  the  ground  that  the 
accumulations  from  the  subscribers  to  meet  depreciation  were  not 
found  to  be  needed  for  that  purpose,  but  represent  surplus  earnings, 
which  could  be  capitalized.  Whatever  be  said  of  that  procedure,  the 
fact  stands  out  that  a  stockholder  possessed  of  22£  shares  early  in 
1908,  became  a  possessor  a  little  later  of  27  shares. 

Now  a  dividend  of  6%  on  27  shares  is  equivalent  to  7.2%  on  22| 
shares.  Similarly,  a  dividend  of  6.5%  on  27  shares  is  equal  to  7.8% 
on  22£  shares,  and  7%  on  27  shares  is  equal  to  8.4%  on  22£  shares. 

Since,  however,  with  the  addition  of  the  $4,500,000  the  outstanding 
securities  of  the  Company  appear  to  be  no  greater  than  the  value  of 
the  physical  property,  a  return  on  the  stock  of  6.5%  to  7%  may  be 
reasonable. 

In  all  this  it  must  be  emphatically  asserted  that  a  return  of  6.5% 
to  7%  is  not  here  considered,  as  a  fair  return  in  the  early  days  of  the 
Telephone  Company,  when  the  risks  of  developing  a  new  art  were 
great.  As  is  elsewhere  shown,  the  returns  in  these  early  days  were 
fully  commensurate  with  the  risks  assumed. 

The  problem  before  us  now  is  not  so  much  an  ethical  problem  of 
what  a  company  ought  to  receive  as  it  is  what  return,  as  a  matter  of 
fact,  will  tempt  the  investor  to  furnish  the  money  needed  for  the 
growth  of  the  business.  If  the  lessons  of  the  stock  market  point  to 
5%  on  bonds,  and  to  6.5%  to  7%  on  stock,  as  sufficient  for  this 
purpose,  in  the  case  of  the  Chicago  Telephone  Company,  then  such 
a  rate  of  return  is  reasonable. 

On  December  31,  1911,  there  were  4,474,171   telephones  in  use 


840         MATEEIALS    OF   COEPOEATION   FINANCE 

among  the  Bell  companies  in  the  United  States.  Of  this  number, 
only  38%  were  managed  by  companies  paying  8%  dividends.  Out- 
side of  the  New  York  and  Chicago  companies  only  11%  of  all  the 
telephones  were  in  the  hands  of  the  companies  paying  8%.  No  com- 
panies paid  over  8%,  or,  so  far  as  can  be  learned,  any  amount  be- 
tween 7%  and  8%.  Three  companies  in  New  England  and  the 
Eockies  paid  7%.  About  half  of  all  the  telephones  in  the  country 
were  owned  by  companies  paying  over  6%,  but  only  23%  were  owned 
outside  of  the  New  York  and  Chicago  companies. 

The  companies  controlling  the  other  half  of  the  Bell  system  and 
located  largely,  like  the  Central  Union,  in  districts  especially  subject 
to  competition  from  the  independent  companies,  have  paid  no  divi- 
dends, or  not  to  exceed  6%. 

These  and  the  other  facts  at  hand  lead  to  the  conclusion  that  the 
8%  dividends  from  a  few  of  the  Bell  companies,  notably  New  York 
and  Chicago,  together  with  the  4^%  payment  on  gross  receipts  from 
all  the  companies,  and  the  profits  of  the  long  distance  business,  help 
the  A.  T.  &  T.  to  carry  some  of  the  companies  that  are  competing 
with  the  independent  companies,  or  are  having  other  difficulties. 
Whether  the  Chicago  company  should  thus  collect  from  the  subscribers 
here  to  support  the  parent  company,  which  has  always  owned  over 
half  of  its  stock  and  which  receives  all  of  the  4J%  payment  on  gross 
receipts  for  the  benefit  of  the  stockholders  of  the  National  Company, 
or  for  the  benefit  of  the  telephone  system  elsewhere,  need  not  here  be 
argued. 

POSSIBILITIES  OF  REDUCTION 

It  has  appeared  that  operating  expenses  should  not  include  more 
than  $1  per  telephone  for  payments  to  the  National  Company.  It 
has  also  been  shown  that  the  station  removals  are  very  high,  but  that 
in  1912  they  were  beginning  to  fall.  The  repairs,  which  averaged 
about  6.5%,  1904-7,  fell  to  about  5.5%  during  the  next  four  years; 
1908-11.  The  average,  however,  of  all  the  Bell  companies  last  year, 
was  under  4%  of  the  investment.  It  was  under  4%  also  in  the 
largest  cities  outside  of  Chicago.  Local  conditions  may  prevent  for 
awhile  a  further  reduction  here,  but  it  is  reasonable  to  suppose  that 
the  present  5.5%  will  approach  4.5%  and  the  station  removals,  which 
are  now  about  2%  in  the  city,  will  decline  to  1.5%. 

The  entire  expenditure  for  repairs,  renewals,  station  removals  and 
additions  to  the  depreciation  reserve  is  over  13%  of  the  average  in- 
vestment in  the  city,  as  compared  with  8.5%  to  9.5%  on  the  average 
elsewhere. 

Eepairs  and  renewals  have  been  steadily  falling  from  about  9.5% 
twenty  years  ago  to  7.39%  the  last  three  years,  ending  with  the  close 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.   COS.      841 

of  1912.  The  appraisal  has  shown  that  a  further  expenditure  of 
1.86%  annually  of  the  property  subject  to  depreciation  would  result 
in  the  accumulation  of  the  $5,091,000  actually  collected. 

Furthermore,  this  amount  still  leaves  the  investment  intact,  al- 
though about  $10,000,000  of  the  appraised  values  of  Byllesby  and 
Arnold  were  rejected.  If  this  $5,091,000  of  depreciation  in  the  prop- 
erty had  been  accumulated  by  setting  aside  yearly  a  percentage  that 
should  decline  with  the  decline  in  maintenance,  then  the  percentage 
would  have  started  during  the  seven  years,  1891-7,  with  2.77%,  would 
have  fallen  during  the  next  seven  years,  1898-1904,  to  2.06%,  and 
during  the  last  seven  years,  1905-11,  would  have  fallen  to  1.66%, 
with  every  prospect  of  a  further  decline  below  1.5%. 

From  this  point  of  view,  one  could  estimate  the  repairs  and 
renewals,  known  as  maintenance,  at  about  7.4%,  or  at  the  most  7.5%, 
during  the  next  two  years,  with  a  further  addition  to  the  reserve  fund 
of  1.5%,  making  a  total  of  9%  for  maintenance  and  depreciation. 
This  is  aside  from  the  expense  for  station  removals  and  changes, 
which  keep  the  installation  of  wires  and  fixtures  inside  the  sub- 
scriber's premises  intact,  and  practically  free  from  depreciation. 

The  matter  may  be  approached  from  another  point  of  view.  We 
may  assume  that  the  average  repairs  for  the  next  five  years  will  be 
5%  and  the  amount  necessary  for  the  depreciation  reserve  1.5%, 
making  a  total  for  these  two  items  of  6.5%,  with  a  possibility  of  7%. 
There  remains  the  problem  of  renewals.  From  figures  prepared  by 
the  Company  it  appears  that  with  an  average  life  gradually  increas- 
ing from  twelve  years  in  the  90s  to  nineteen  years  now,  and  with  a 
very  moderate  rate  of  growth,  giving  an  investment  of  $103,000,000 
in  1930,  the  renewals  for  the  next  five  years,  1913-17,  would  average 
1.78%  of  the  depreciable  property,  and  during  the  following  thirteen 
years,  2.88%.  The  addition  of  1.78%  for  renewals  to  the  6.5%  to 
7%  already  mentioned  for  repairs  and  depreciation  reserve  would 
give  8.28%  to  8.78%  for  repairs  and  renewals  and  for  an  addition 
of  1.5%  yearly  to  the  depreciation  reserve.  During  the  remaining 
thirteen  years  the  repair  item  might  be  estimated  at  4.5%,  which  is 
still  much  higher  than  in  other  companies.  This,  with  1.5%  for  the 
reserve,  and  2.88%  for  renewals,  would  be  8.88%. 

The  Telephone  Company  does  not  accept  as  long  a  life  today  as 
nineteen  years.  The  appraisal,  however,  used  estimates  of  life  which 
amount  to  a  composite  life  on  all  the  property  of  almost  exactly  nine- 
teen years,  viz.,  18.961  years.  It  seems  certain  that  the  whole  ten- 
dency in  the  Chicago  plant  is  toward  reaching  in  a  comparatively 
short  time  the  age  adopted  by  Byllesby  and  Arnold,  if  that  time  has 
not  yet  been  reached. 


842          MATERIALS    OF    CORPORATION    FINANCE 

Byllesby  and  Arnold  find  that  the  average  depreciation  allowance 
on  a  straight  line  basis  is  4.068%.  If,  however,  they  had  taken  the 
allowances  for  salvage  which  have  been  found  by  the  Chicago  com- 
pany to  be  applicable  to  its  condition  here,  the  salvage  would  have 
been  raised  from  22.862%  to  29.234%,  and  the  annual  depreciation 
and  renewal  allowance  on  a  straight  line  basis  on  all  the  plant  in 
service,  including  land,  but  not  including  working  capital,  construc- 
tion in  process,  tools,  teams,  furniture  and  fixtures,  would  have  been 
reduced  to  3.732%.  With  the  almost  certain  continuance  of  the 
increase  in  cost  of  labor  and  materials  and  of  other  increments  of 
value  that  are  often  allowed  in  appraisals,  the  rate  of  depreciation 
and  renewals  may  be  kept  down  to  between  3.5%  and  4%,  as  we  have- 
seen  has  been  the  experience  of  the  last  twenty  years.  Everything 
points  to  an  allowance  for  maintenance  and  depreciation  of  8.5%  to 
9.5%.  At  9%  the  Company  could  continue  to  pay  5.5%  for  repairs 
during  the  next  five  years,  meet  all  renewals  that  would  come  on  the 
assumption  of  a  nineteen-year  life,  such  as  was  used  by  Byllesby  and 
Arnold,  and  would  have  1.72%  for  a  depreciation  reserve  or.  other 
extraordinary  expenditures,  or  almost  as  large  an  amount  as  the  1.86% 
of  the  last  twenty  years.  As  already  observed,  this  percentage  might 
well  decline  with  the  decline  of  the  maintenance  account  and  be  taken 
at  1.66%  during  the  past  seven  years. 

With  tke  data  at  hand  and  the  conclusions  already  reached  above, 
the  operating  expenses  in  the  city  for  1911  might  be  thus  treated: 

TABLE  19 
REVISED  EXPENSES  AND  PROFITS  WITHIN  THE  CITY  IN  1911 

Description  With  Maximum      WithMinimum 

Expenses  Expenses 

Operating  expenses $7,584,289 . 80  $7,584,289 . 80 

Excess  payments  to  A.  T.  &  T.  Co 191,818.00 

Expenses  less  excessive  rentals 7,584,289 . 80  7,392,471 . 80 

Expenditures  for  repairs  and  renewals 1,836,506.60  1,836,506.60 

Expenditures  less  repairs  and  renewals 5,747,783.20  5,555,965.20 

Add  for  corrected  repairs,  renewals  and  depre- 
ciation   *2,395,976.35  t2,266,464. 12 

Revised  expenses 8,143,759.55  7,822,429.32 

Receipts 10,410,770.59  10,410,770.59 

Profits 2,266,011 .04  2,588,341 .27 

Conceded  profits , £1,765,995.00  «[1,513,710.00 

Remaining  profits -. 501,016.04  1,074,631 .27 

Contingencies  and  surplus 150,000.00  100,000.00 

Possible  reduction  in  rates  aside  from  consider- 
ation of  claims  for  extraordinary  depreciation.  351,016 . 04  974,631 . 27 

*At  9.25  per  cent,  of  average  depreciable  property  new  of  $25,902,447. 

fAt  8.75  per  cent,  of  average  depreciable  property  new  of  $25,902,447. 

{Taken  at  7  per  cent,  of  $25,228,500,  the  latter  bemg  equivalent  to  such  a  per 
cent,  of  the  $6,000,000  of  bonds  and  notes  and  $27,000,000  of  stock  as  the  total 
of  appraised  property  in  the  city,  new,  was  to  that  in  the  city  and  suburbs. 

^Estimated  at  6  per  cent,  on  $25,228,500,  the  city  portion  of  the  property. 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.   COS.      843 

The  above  figures  do  not  take  into  account  the  claims  for  extraor- 
dinary depreciation  brought  to  the  writer's  attention  during  October, 
in  which  month  the  report  was  being  put  into  final  shape.  Attention, 
will  be  given  to  it  in  the  pages  immediately  following.  Aside  from, 
that  item  the  conclusions  from  the  above  table  would  be  that  a  reduc- 
tion in  the  telephone  rates  of  about  $700,000  could  be  fairly  made. 

TOLL  EARNINGS  AND  EXPENSES 

All  the  expenses  of  the  toll  business  in  the  city  are  included  in  the 
operating  expenses  of  the  city  exchange.  The  toll  revenues  include  all 
the  money  apportioned  to  the  city  by  the  Company.  A  careful  investi- 
gation of  the  subject  by  Mr.  Hall  confirms  this  apportionment,  which 
is  like  that  made  by  Arthur  Young  &  Co.,  accountants,  to  the  Comp- 
troller of  the  City  of  Chicago,  Walter  H.  Wilson,  February  9,  1911 
(Hall,  pages  50-1). 

The  general  principle  guiding  the  apportionment  of  earnings  is  the 
assignment  to  the  city  of  the  usual  commission  to  the  office  originat- 
ing the  call,  together  with  the  apportionment  of  the  balance  of  the 
receipts  on  a  mileage  basis. 

MUNICIPAL  REQUIREMENTS 

An  important  source  of  extraordinary  expense  to  the  Telephone 
Company  in  the  past  has  been  municipal  requirements.  e First  came 
the  elevation  of  the  steam  railroads,  with  large  expenses  required  of 
the  Telephone  Company  in  the  relocation  of  its  wires.  Then  came 
various  city  ordinances,  requiring  the  removal  of  poles  from  the 
streets  in  all  but  the  outskirts  of  the  city.  The  expenses  for  these 
purposes  have  been  included  in  the  maintenance  account,  which  has 
shown  such  a  downward  trend  in  the  last  20  years.  The  relocation 
and  burial  of  the  wires  have  diminished  the  expenses  for  maintenance. 

Now  the  Company  claims  that  it  may  be  called  on  during  the  next 
five  years  to  change  all  of  its  conduits  in  the  streets  where  subways 
have  been  recommended.  These  streets  are  given  in  the  joint  report 
of  the  Harbor  and  Subway  Commission,  and  the  sub-committee  of  the 
City  Council  Committee  on  Local  Transportation,  September  10,  1912. 
Along  the  56  miles  of  subway  recommended  to  be  built  during  tho  next 
five  years  the  Company  claims  it  will  lose,  in  the  value  of  abandoned 
conduits  and  cables,  $1,840,000,  and  another  $250,000  in  temporary 
work  during  subway  construction. 

After  explaining  the  necessity  for  abandoning  not  only  conduit 
lines  in  the  streets  to  be  occupied  by  the  subways,  but  also  "certain 
subsidiary  intersecting  underground  conduit  nnd  cable  leads  that  now 
cross  the  proposed  subway,  the  Company  estimates  that  tho  loss  on  the 
underground  conduit  upon  which  there  will  be  no  salvage  will  be 


844         MATEEIALS    OF   CORPORATION    FINANCE 

$1,165,000,  and  the  loss  upon  the  cable  after  deducting  its  salvage 
value  will  be  $675,000.  Since  the  proposed  subways  will  practically 
cut  many  of  the  exchange  districts  in  halves,  the  maintenance  of  suffi- 
cient crossings  to  give  service  to  all  subscribers  is  estimated  to  cost 
$250,000.  These  estimates  are  based  on  the  present  telephone  plant." 

The  Company  asserts  that  on  account  of  the  installation  of  several 
large  sized  telephone  cables  each  year,  the  cost  above  mentioned  on 
account  of  subways  will  be  increased  $100,000  a  year  for  every  year 
of  postponement  of  subway  construction. 

While  personally  a  believer  in  subways  for  Chicago,  it  does  not 
appear  to  the  writer  likely  that  the  subway  program  will  be  suffi- 
ciently advanced  to  require,  within  five  years,  an  expenditure  by  the 
Telephone  Company  of  more  than  one-fourth  of  this  $2,090,000,  or 
say  $500,000.  Surely  no  more  than  this  will  be  required  during  the 
first  three  of  the  coming  five  years.  Any  excess  above  this,  if  there  be 
such,  during  the  last  year  or  two  of  the  period,  might  be  considered  so 
extraordinary  as  to  justify  its  temporary  capitalization. 

In  this  connection  it  may  be  noted  that  when  the  subway  plans  had 
not  been  developed  on  so  large  a  scale  as  shown  by  their  latest  report, 
the  chief  engineer  of  the  Chicago  Telephone  Company  wrote,  on 
March  27,  1912,  that  a  comprehensive  system  of  subways  would  in- 
volve a  loss  of  $2,300,000  to  the  Telephone  Company.  He  wrote : 

"We  find,  however,  that  the  plans  for  immediate  subway  construction  now 
being  considered  by  the  Subway  Commission  will  involve  only  our  plant  on 
Harrison  street*  between  Fifth  avenue  and  State  street,  on  State  street,  from 
Harrison  street  to  Randolph  street,  and  on  Randolph  street  from-  State  street 
to  Fifth  avenue,  and  a  few  crossings  at  other  locations.  The  value  of  tele- 
phone plant  which  will  be  destroyed  by  the  subway  work  involved  in  these 
plans  is  at  least  $200,000. 

"That  you  may  get  some  quantitative  idea  of  the  problem,  I  would  advise 
that  we  will  abandon  on  Harrison  street  thirty-two  manholes  and  two  conduit 
runs,  which  now  consist  of  from  twelve  to  twenty  ducts  each.  Also  we  will 
abandon  about  22,000  feet  of  cable. 

"In  State  street  we  will  abandon  fifteen  manholes  and  a  run  of.  conduit  be- 
tween Madison  and  Van  Buren,  with  a  cross-section  of  six  ducts.  We  will 
abandon  also  in  this  street  about  2,400  feet  of  cable. 

"We  will  also  have  fifteen  crossings  to  reroute  on  Harrison,  State  and  Ran- 
dolph streets.  It  is  planned  that  we  will  require  probably  seven  new  cross- 
ings." 

EXTRAORDINARY    DEPRECIATION 

Aside  from  the  startling  claim  of  the  Company  that  its  subscribers 
should  pay  to  it,  during  the  next  five  years,  $2,090,000  for  expenses  on 
account  of  the  proposed  subways  and  $100,000  a  year  for  every  year's 
postponement  of  such  construction,  another  $4,216,000  is  claimed 
on  account  of  extraordinary  depreciation.  The  magnitude  of  these 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      845 

claims  was  first  brought  to  the  writer's  attention  in  letters  from  the 
Company  October  1st  and  5th.  Previous  letters  and  conversations 
had  referred  only  to  an  expense  of  about  $200,000  on  account  of  sub- 
ways and  to  the  substitution  of  some  new  switchboards  and  the 
abandonment  of  two  or  three  central  exchanges.  The  present  claim 
of  the  Company,  as  put  in  final  shape  in  the  enclosed  letter  of  October 
10th,  has  necessitated  a  few  days'  further  examination.  The  letter 
from  the  Company's  chief  engineer  is  given  in  full : 

Oct  10,  1912.    . 
Prof.  E.  W.  Bemis, 

City  Hall,  Chicago. 


DEAR  SIR: 


EXTRAORDINARY  DEPRECIATION 


We  have  reviewed  carefully  our  figures  submitted  in  letters  to  you 
of  October  1st  and  5th  on  extraordinary  depreciation  and  would  like 
to  make  some  modifications  which  I  believe  will  more  clearly  represent 
the  true  costs  involved.  The  losses  involved  in  the  abandonment  of 
buildings  and  switchboards  because  of  inadequacy  or  improper  location 
are  as  follows: 

TABLE  A 


Original 
Cost 

Net 
Salvage 

Loss 

Main  building  

$398,000 

$398,000 

Main  &  Franklin  C.  O.  equipment  

396,000 

$100,000 

296,000 

Central-Randolph  building  

159,000 

100,000 

59,000 

Central  C  O  equipment. 

388,000 

98000 

290000 

Randolph  C  O.  equipment. 

304,000 

152000 

152000 

Harrison  C.  O.  equipment  

400,000 

100,000 

300,000 

Calumet  building  

42,000 

42,000 

Calumet  C.  O.  equipment  

123,000 

31,000 

92  000 

Irving  Park  building  

21,000 

10,000 

11,000 

Irving  Park  C.  O.  equipment  

65,000 

33,000 

32,000 

West  Pullman  building    .  .           ..           ... 

13,000 

6,000 

7,000 

West  Pullman  C.  O.  equipment  

41,000 

10,000 

31,000 

Rogers  Park  

50,000 

25,000 

25,000 

Morgan  Park,    Washington    Heights    and 
Longwood  

8,000 

2,000 

6,000 

Total     

$2,408,000 

$667,000 

$1,741,000 

Net  loss  on  conduit  abandoned  in  above.  .  . 

85,000 

Net  loss  on  U  G.  cable 

1"       90000 

Total  

.  $1,916,000 

The  introduction  of  the  semi-automatic  switchboard  which  you 
and  I  saw  in  New  York  last  spring  will  also  result  in  the  abandon- 
ment of  the  "B"  boards  and  the  reconstruction  of  the  "A"  boards  in 
all  other  offices  as  estimated  in  tbe  following  statement : 


846          MATERIALS    OF    CORPORATION    FINANCE 

TABLE  B 

Original  cost  of  Chicago  central  office  switchboards  not  included  in 

above  statement $3,000,000 

Salvage 700,000 

Loss  on  account  of  semi-automatic  switchboard $2,300,000 


The  following  table  will  show  in  detail  how  we  estimated  the  salvage 
of  $700,000  in  Table  B : 

TABLE  C 

Total  answering  jacks,  all  Chicago  exchanges 140,000 

Total  answering  jacks  in  offices  of  Table  A 40,000 

Total  answering  jacks  in  offices  of  Table  B 100,000 

Total  "A"  sections,  all  Chicago  offices 407 

Total  "  A  "  sections  in  Table  A . .  154 


Total  "A"  sections  in  offices  of  Table  B 253 

Salvage  on  100,000  answering  jacks  at  $7 $700,000 

Salvage  on  253  switchboard  frames  at  $250 63,000 

Gross  Salvage $763,000 

Coat  of  remodeling  253  "A"  sections  at  $200 50,000 

Net  salvage $713,000 

(Say  $700,000.) 

In  addition  to  the  above  noted  losses  on  buildings  and  central  office 
equipment  which  the  Company  must  face,  large  sums  will  be  involved 
in  the  loss  of  conduit  and  underground  cables  should  the  City  go 
ahead  with  the  subway  system  now  planned.  These  losses  will  aggre- 
gate $1,165,000  for  conduit  and  $675,000  for  underground  cable,  a 
total  of  $1,840,000. 

In  addition  to  the  above  amount,  which  covers  the  direct  loss  of 
plant  destroyed,  it  would  be  necessary  to  do  a  large  amount  of  tem- 
porary work  during  the  construction  of  .the  subways  in  maintaining 
crossings,  etc.,  over  the  obstructed  streets.  In  a  number  of  instances 
the  proposed  subways  will  practically  cut  our  exchange  districts  into 
halves,  and  it  will  be  necessary  of  course  at  all  times  to  maintain 
sufficient  crossings  to  enable  us  to  give  service  to  all  subscribers.  We 
estimate  that  this  item  will  amount  to  $250,000. 

These  two  items,  or  direct  loss  on  plant  destroyed  and  the  expense 
incident  to  maintaining  service  during  actual  subway  construction 
work,  together  amount  to  $2,090,000,  and  this  figure  would  represent 
the  estimated  total  loss  to  the  Telephone  Company  on  account  of  the 
construction  of  passenger  subways  in  these  streets. 

I  have  summarized  the  extraordinary  reconstruction  in  the  above 
tables  in  the  following  table: 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      847 

TABLE  D 

Buildings  and  switchboards  abandoned  on  account  of  inadequacy  of 
being  not  well  located $1,916,000 

Additional  central  office  switchboards  to  be  abandoned  on  account 

of  semi-automatic 2,300,000 

Underground  conduit  to  be  abandoned  on  account  of  subway  con- 
struction   1,165,000 

Net  loss  on  underground  cables  on  account  of  subway  construction. .        675,000 

Cost  of  maintaining  service  in  cables  during  construction 250,000 

Total $6,306,000 

All  of  the  above  estimates  have  been  made  on  the  basis  of  the  pres- 
ent telephone  plant.  As  this  plant  is  growing  rapidly,  delays  in  the 
subway  work  or  in  the  adoption  of  the  semi-mechanical  switchboard 
or  for  any  other  reason,  will  result  in  substantial  increases  in  invest- 
ment for  switchboards  in  the  offices  involved,  and  for  cables  in  the 
streets  involved  in  subway  construction,  and  corresponding  increases 
in  the  losses  which  must  be  met.  I  would  expect  these  to  increase 
at  not  less  than  $150,000  per  year.  Yours  truly, 

J.  G.  WHAT, 
Chief  Engineer." 

It  will  be  observed  that  this  estimates  an  extraordinary  expense 
during  the  next  five  years  of  $6,306,000.  Deducting  the  $2,090,000 
on  account  of  subways,  there  remains  $4,216,000  because  of  the  pro- 
posed abandonment  of  certain  buildings  and  central  office  equipment. 

This  matter  appeared  so  serious  that  the  writer  felt  justified  in 
delaying  the  report  until  he  could  visit  all  the  properties  which  it  was 
proposed  to  scrap.  We  will  here  consider  them  in  the  order  in  which 
the  chief  engineer  of  the  Company  believes  they  should  be  changed 
or  scrapped. 

The  scrapping  of  certain  buildings  with  their  equipment,  in  order 
to  put  up  better  buildings  or  change  the  location  of  the  exchanges,  will 
be  first  considered.  We  will  then  take  up  the  displacement  of  other 
central  office  equipment  to  make  room  for  the  semi-mechanical  or 
semi-automatic  switchboards. 

A.    DISPLACEMENT  OF  OFFICE  BUILDINGS  AND  EQUIPMENTS 

The  proposed  improvements  and  changes  will  be  considered  below 
in  the  order  which  the  chief  engineer  holds  will  be  followed  in  actual 
reconstruction : 

1.  Harrison  Central  Office  Equipment.  This  equipment  of  about 
17,389  'phones  will  soon  be  transferred  to  the  new  Wabasli  Exchange 
on  Federal  street.  The  Harrison  Exchange  is  in  a  rented  building 
and  some  of  the  switchboards  are  fourteen  years  old  and  somewhat 
worn.  After  allowing  $100,000  for  salvage,  the  net  cost  of  the  prop- 


848          MATERIALS    OF    CORPORATION    FINANCE 

erty  discarded  plus  the  cost  of  moving,  are  estimated  by  the  Company 
to  involve  a  net  loss  of  $300,000. 

2.  The  Central  Exchange.     This  is  a  rented  building  with  about 
14,000  'phones  and  is  to  be  transferred  within  two  or  three  years  to  the 
adjoining  building  known  as  the  Randolph  Exchange,  on  the  south 
side  of  Washington  between  Clark  and  Dearborn.     Some  of  these 
switchboards  were  installed  as  early  as  1898,  but  some  are  only  six  or 
seven  years  old,  with  the  latest  equipment.     The  net  cost  of  this  re- 
moval, from  Central  to  Randolph,  is  given  as  another  $300,000. 

3.  The  Morgan  Park,  Washington  Heights  and  Longwood  Ex- 
changes.    These  exchanges,  with  only  1,152  'phones  in  the  aggregate, 
occupy  the  second  floor  of  rented  buildings  in  the  southwestern  part  of 
the  city.     They  are  to  be  concentrated  in  a  single  exchange  at  a  net 
cost  of  $6,000. 

4.  The  Irving  Park  Exchange.     This  is  located  on  Irving  Park 
boulevard,  near  42d  avenue,  and  has  5,138  'phones.     It  is  said  to  be 
located  too  far  west  for  the  district,  whose  growth  is  eastward.     The 
loss  in  removal  from  this  well-equipped  station  and  good  building 
owned  by  the  Company  is  given  as  $31,000. 

The  cost  of  the  four  changes  above  described  is  estimated  by  the 
Company  at  a  total  of  $629,953,  but  they  also  claim  a  further  expense 
during  the  next  five  years  .of  $1,011,047,  as  follows: 

5.  The  Rogers  Park  Exchange.     This  supplies  2,846  telephone 
stations  and  is  located  near  Clark  street  and  Lunt  avenue,  on  the 
north  side.     The  Company  claims  that  it  is  too  far  north  and  that 
it  should  be  abandoned,  at  an  expense  of  $30,000. 

6.  The  Calumet  Exchange.     This  is  near  22d  street  and  Michigan 
boulevard  and  supplies  about  8,048  stations.    It  is  well  equipped,  but 
is  in  a  rear  brick  building  which  may  be  too  small  if,  as  is  expected, 
business  develops  more  rapidly  in  this  section  than  has  hitherto  been 
the  case.    Instead  of  the  rear  building,  the  Company  desires  to  tear 
down  the  row  of  residences  which  they  own  in  front  of  the  building 
now  occupied  by  the  exchange  and  put  up  a  large  new  building.    The 
prospect  of  doing  this  within  the  next  five  years  does  not  appeal  to 
the  writer  as  very  certain. 

7.  The   Central-Randolph  and  Randolph  Exchanges.     Still   less 
likely  of  immediate  accomplishment  appears  the  proposition  of  scrap- 
ping the  entire  Randolph  Exchange,  and  the  Central  Exchange,  which 
is  to  be  transferred  soon  to  the  Randolph,  the  idea  being  to  put  every- 
thing downtown  into  the  Wabash  and  Main  Exchanges,  at  a  cost  for 
scrapping  and  removal  of  $263,000.     The  building  is  comparatively 
new  and  is  owned  by  the  Company,  and  serves  about  13,000  stations. 

8.  Main  Office  Building.     Next  in  point  of  time  is  the  proposed 


PHYSICAL  VALUATION   OF   CHICAGO   TEL.  COS.      849 

replacement  of  the  main  office  building  on  Washington  street,  with  its 
16,653  telephones,  by  a  much  higher  building  that  will  provide  room 
for  growth,  and  be  in  other  ways  better  fitted  for  the  needs  of  the 
Company.  The  net  depreciation  on  the  present  building  and  its 
equipment  is  estimated  by  the  Company  at  $694,000.  The  decision  to 
make  this  change  within  the  next  five  years  has  not  been  reached  and 
does  not  appear  sufficiently  probable  to  justify  its  inclusion  in  the 
present  estimates. 

9.  The  West  Pullman  Exchange.  This  exchange,  with  about  3,093 
'phones,  is  well  housed  in  a  building  owned  by  the  Company,  but  a 
new  location  a  mile  farther  northwest  is  thought  desirable.  The  loss 
in  the  transfer  is  computed  at  $3,300,  but  the  Company  considers  that 
this  can  come  later  than  the  changes  in  the  main  building.  It  may 
be  omitted  from  any  consideration  at  present. 

If  all  the  nine  exchanges  were  to  be  removed  or  scrapped,  the  Com- 
pany estimates  a  net  loss  in  abandoned  conduit  and  cable  of  $175,000. 
This  added  to  the  $1,741,000  loss  on  buildings  and  equipments  means 
a  total  loss,  according  to  the  Company,  of  $1,916,000  from  the  pro- 
posed changes  in  the  above  central  stations.  The  Company,  however, 
has  made  a  mistake  of  much  importance  in  its  computations.  The 
Company  has  reached  its  estimate  of  losses  by  a  deduction  of  the  esti- 
mated salvage  from  what  it  calls  the  original  cost  in  each  case.  The 
figures  given,  however,  are  not  the  original  cost,  but  are  the  higher 
appraised  value  new  of  Byllesby  and  Arnold. 

But  a  larger  mistake  than  that  was  made.  Byllesby  and  Arnold 
depreciate  by  $901,964  the  buildings  and  office  equipments  which  it 
is  proposed  to  scrap.  Since  this  depreciation  was  made  up  by  the 
depreciation  reserve  already  discussed,  only  the  depreciated  value  less 
the  salvage  can  now  be  considered.  Making  this  correction  on  build- 
ings and  equipments  and  in  the  same  manner  about  20%  on  the  con- 
duits and  cables,  there  is  left  only  about  $800,000  of  net  loss  instead 
of  $1,916,000  in  case  all  these  exchanges  are  abandoned  within  the 
next  five  years,  as  suggested.  If  only  the  first  six  of  the  exchanges 
named  are  thus  abandoned,  which  appear  to  be  the  only  ones  definitely 
determined  upon,  the  loss  after  deducting  the  accumulated  deprecia- 
tion reserve  on  the  particular  property  in  question  will  not  exceed 
$350,000,  while  if  Rogers  Park  and  Calumet  are  undisturbed  the  loss 
will  not  exceed  $250,000. 

The  Company  does  not  claim  that  in  most  cases  they  are  under  the 
necessity  of  removing  these  exchanges  except  to  secure  greater  econo- 
mies in  future  construction  and  operation.  It  may  safely  be  assumed 
that  any  expense  incurred  beyond  the  $350,000  will  come  back  to  the 
Company  and  the  subscriber  in  economies  of  one  kind  or  another. 


850         MATEEIALS    OF    COEPOEATION    FINANCE 

In  taking  this  position,  no  reflection  is  intended  upon  the  sincerity 
or  wisdom  of  the  Company  in  looking  forward  to  all  these  changes  as 
desirable.  Probably  most  of  them  will  come  in  time.  The  only 
question  is  as  to  how  soon. 

B.       SEMI-MECHANICAL     SWITCHBOARDS 

The  A.  T.  &  T.  has  been  making  successful  use  in  its  laboratory 
building  in  New  York  of  a  new  switchboard  sometimes  called  the  semi- 
mechanical,  sometimes  the  semi-automatic,  which  will  render  possible, 
it  is  claimed,  not  only  cheaper  operation,  but  better  service.  A  cen- 
tral station  is  soon  to  be  equipped  in  the  East  with  a  new  board.  If  it 
continues  to  work  successfully  the  chief  engineer  of  the  Chicago  Tele- 
phone Company  expects  that  some  boards  can  be  secured  in  a  year  and 
a  half  or  two  years  for  Chicago. 

This  is  the  basis  for  the  estimate  of  the  Company  that  they  will  dis- 
place $3,000,000  worth  of  central  office  switchboards,  at  a  net  loss  of 
$2,300,000,  during  the  next  five  years,  or  practically  in  the  last  three 
years  of  the  five-year  period,  and  thus  make  room  for  the  new  board. 
The  writer  does  not  see  his  way  to  adding  anything  to  the  operating 
expenses  of  the  Company  on  this  account.  The  practicability  of  the 
new  switchboard  is  as  yet  to  be  determined.  So  far  as  the  new 
board  may  be  introduced  it  is  likely  to  reduce  the  operating  expenses 
enough  to  cover,  in  a  reasonable  time,  the  depreciation  charged. 

About  25%  of  the  operators  are  at  the  so-called  B  boards,  which 
would  be  no  longer  needed  with  the  new  switchboards.  Operators' 
wages  average  $6.76  per  year  per  station.  One-fourth  of  this,  or  $1.69 
would  be  saved,  if  the  Company's  claims  for  the  new  switchboard 
prove  true.  The  saving  on  the  400,000  telephones  which  will  be  in 
use  in  the  city  by  the  Company  by  1915  would  be  $676,000  a  year. 
It  would,  therefore,  seem  proper  for  the  savings  from  the  new  board 
to  pay  for  its  introduction,  which  at  this  rate,  it  would  speedily  ac- 
complish, rather  than  to  treat  the  possibility  of  introducing  this  board 
as  a  factor  in  the  fixing  of  rates  to-day.  The  new  switchboard  may 
cost  more  than  the  old,  but  any  increased  interest  thereon  would  leave 
intact  much  of  the  above  saving  of  over  $600,000  a  year. 

Furthermore,  the  appraisers  have  written  off  from  the  present 
switchboards  under  discussion  over  $800,000  which  is  already  pro- 
vided for  in  the  depreciation  reserve.  This  will  reduce  the  amount 
that  would  have  to  be  raised  from  other  funds  to  about  $790,000. 

CONCLUSIONS  ON  EXTRAORDINARY  DEPRECIATION 

If  subways  should  entail  a  $500,000  cost  upon  the  Company,  and  if 
a  further  loss  of  $250,000  in  comparison  with  the  present  appraised 
value  is  incurred  in  the  abandonment  or  removal  of  many  of  its  cen- 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      851 

tral  exchanges,  or  a  total  of  perhaps  $750,000,  this  might  mean  a 
further  burden  upon  the  subscriber  of  $150,000  a  year  for  the  next 
five  years.  It  is  quite  possible,  however,  that  the  subway  cost,  when 
it  comes,  could  be  wisely  capitalized.  With  the  growth,  moreover,  in 
revenues  and  the  larger  growth  that  might  come  from  a  reduction  in 
charges,  the  above  mentioned  burden  would  not  necessarily  be  fol- 
lowed by  such  a  reduction  in  the  earnings  of  the  Company  as  might  at 
first  thought  be  expected.  It  is,  indeed,  possible  that  these  anticipated 
burdens  will  not  materialize  to  any  more  serious  degree  than  those 
which  the  Company  has  met  in  the  past  without  any  considerable  in- 
crease in  expenses  or  reduction  in  its  depreciation  reserve. 

RESULTS  OF  THE  ORDINANCE  OF  1907 

In  1906  and  1907  large  reductions  were  made  in  telephone  rates. 
No  attempt  has  been  made  to  go  back  of  1900,  but  since  January  1  of 
that  year  the  chief  changes  have  been  as  follows : 

Flat  rate  business  phones  were  charged  $175  a  year  in  parts  of  the 
city  outside  of  the  business  center,  until  1906,  when  a  court  decision 
led  to  the  reduction  of  this  rate  to  $125.  At  the  same  time,  in  1906, 
the  charge  of  $175  for  a  copper  metallic  circuit,  or  two-wire  system, 
was  reduced  to  $125,  and  the  grounded  one-wire  circuit  disappeared. 

The  above  changes  meant  a  reduction  of  $50  to  all  flat  rate  users 
having  return  metallic  circuit  and  a  reduction  of  $50  to  every  flat 
rate  business  user  outside  of  the  center  of  the  city. 

On  December  1, 1907,  the  flat  rate  single  line  residence  'phones  were 
reduced  from  $100  to  $72,  while  the  two-party  line  was  reduced  from 
$75  to  $56  and  the  four-party  line  at  $60  was  abolished.  The  four- 
party  line  users  could  secure  a  two-party  line  at  $4  less  than  the  four- 
party  line  had  cost. 

Message  rate  were  reduced  from  1,000  messages  for  $95  in  1906  to 
$80  in  1907  for  the  same  number  of  messages,  and  $60  thereafter. 
The  charge  for  3,000  messages  similarly  fell  from  $162  in  1906  to  $150 
in  1907,  and  $114  in  1908,  while  for  5,000  messages  it  fell  from  $222 
in  1906  to  $210  in  1907,  and  $160  in  1908. 

Extension  phones  which  had  been  $12  to  $30  in  1905,  were  reduced 
to  $6  in  December,  1907. 

On  nickel  'phones  great  reductions  were  made  in  1907.  Instead  of 
guaranteeing  10  cents  a  day  and  securing  two  messages  on  a  ten-party 
line,  a  business  man  now,  for  12J/2  cents,  can  have  two  messages  a  day 
on  a  two-party  line  and  extra  messages  at  5  cents  each.  On  a  two- 
party  nickel  line  a  business  man  formerly  must  guarantee  20  cents 
securing  thus  four  messages.  He  is  now  charged  the  same  amount  on 
a  single  party  nickel  line. 


852         MATERIALS    OF    CORPORATION    FINANCE 

In  case  of  residences,  a  person  now  guaranteeing  a  nickel  a  day  has 
the  use  of  a  four-party  line,  while  before  December,  1907,  he  had  only 
the  use  of  a  ten-party  line  for  the  same  charge. 

A  subscriber  to  a  neighborhood  exchange  formerly  paid  IT)  cents  toll 
for  telephoning  to  anybody  outside  of  his  exchange,  while  a  person  out- 
side telephoning  him  must  also  pay  10  cents;  but  since  December  1, 
1907,  the  charge  to  the  neighborhood  exchange  subscriber  was  reduced 
to  5  cents  and  no  charge  was  made  to  any  other  subscriber  within  the 
city  limits  for  telephoning  messages  to  the  neighborhood  exchange  sub- 
scriber. 

The  total  reduction  in  earnings  per  telephone  was  from  $49.74  in 
1906  to  $39.72  in  1908.  This  total  fall  of  $10.02,  if  multiplied  into 
the  number  of  telephones  in  use  at  the  close  of  1908  of  231,180,  would 
mean  a  reduction  of  over  $2,300,000  that  took  place  in  the  city  and 
suburbs — mostly  in  the  city — during  those  two  years.  This  decline 
in  revenue  per  telephone,  together  with  the  cost  of  transforming  the 
10-party  to  4-party  lines,  made  a  considerable  reduction  in  the  ratio 
of  net  earnings  to  investment. 

The  net  return,  before  making  any  allowance  for  additions  to  the 
depreciation  reserve,  fell  from  13.82%  in  1906  to  7.10%  in  1908. 
The  dividends,  however,  were  not  affected,  but  during  1908  and  1909 
nothing  was  added  to  the  depreciation  reserve.  The  growth  of  busi- 
ness and  earnings  was  so  great  in  1910  and  1911  that  over  $1,000,000 
a  year  in  the  city  and  suburbs  was  put  into  the  depreciation  reserve  in 
addition  to  the  regular  8%  dividend. 

The  earnings  before  deductions  for  depreciation  reserve  bore  the 
following  relation  to  the  average  investment  as  shown  by  the  books 
during  the  year  in  question.  The  number  of  telephones  at  the  end  of 
each  year  is  also  given  for  city  and  suburbs : 

TABLE  20 
EARNINGS  AND  TELEPHONES  SINCE  1904 


Year 

Ratio  of 
Earnings  to 
Investment 
(Per  Cent.) 

Number  of 
Telephones 

1905                    

14  60 

143,223 

1906  

13  .  82 

170,834 

1907                

8  12 

202,681 

1908  .                    .... 

7  10 

231,180 

1909  

8.25 

262,359 

1910                        

9  89 

300,618 

1911.. 

9.89 

335.652 

PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      853 

IMPROVEMENT  IN  THE  SERVICE 

The  public  have  a  right  to  be,  and  are,  as  much  interested  in  good 
service  as  in  low  rates.  Poor  service,  with  resulting  dissatisfaction, 
even  though  accompanied  with  a  saving  in  operating  expenses,  is  no 
benefit  in  the  long  run  to  a  company. 

Widely  diverse  opinions  prevail  in  the  city  as  to  the  success  of  the 
Company  in  trying  to  give  good  service.  No  system  of  regulation, 
however,  which  stops  short — as  all  regulation  everywhere  has  done — 
of  allowing  the  public  regulating  body  to  appoint  both  the  manager 
and  a  majority  of  the  board  of  directors,  would  promise  any  complete 
solution.  Such  a  solution  might  easily  involve  other  difficulties  as 
great  as  those  removed  by  it,  and  anyway  need  not  be  considered  as 
needed  or  practicable  in  Chicago. 

Something,  however,  could  and  should  be  done.  Some  means  should 
be  devised  for  better  protection  to  the  public  against  possible  careless- 
ness and  give  it  greater  confidence  that  its  just  complaints  are  being 
properly  met. 

CITY   TELEPHONE    BUREAU 

It  would  be  to  the  advantage  alike  of  the  Company  and  of  the  public 
if  the  city  maintained  a  properly  equipped  bureau  for  receiving  and 
investigating  all  complaints  of  service.  Telephone  users  often  believe 
that  they  cannot  secure  proper  consideration  of  their  grievances,  and 
so  do  not  attempt  to  present  them,  but  disseminate  somewhat  widely 
among  their  friends  their  opinion  of  the  company. 

If  such  a  bureau  were  open  for  all  complaints  and  took  them  up 
promptly  with  the  Company,  the  latter  would  soon  be  spurred  on  by 
public  opinion  to  approve  any  conditions  that  could  easily  be  improved 
If  this  could  be  done,  the  bureau's  reports  to  the  Council  would  doubt- 
less be  followed  by  efficient  action.  Provided,  as  the  evidence  seems  to 
show,  that  the  Company  really  desires  to  give  good  service,  such  a 
bureau  would  be  a  great  help  also  to  the  Telephone  Company.  The 
latter  would,  in  some  cases,  learn,  and  thus  more  speedily  improve,  the 
weak  points  in  the  system,  and  in  other  cases  it  would  doubtless  con- 
vince the  bureau,  and  through  the  latter  the  public,  that  some  of  the 
complaints  were  not  well  founded. 

There  is  ample  precedent  for  such  a  course  by  the  city  in  the  offices 
which  are  now  being  maintained  for  the  inspection  of  gas  and  electric- 
ity and  traction  service.  If  desired,  the  scope  of  the  bureau  could  in- 
clude the  systematic  gathering  of  information  so  that  councilmanic 
action  may  be  easier  when  it  next  becomes  necessary,  five  years  hence, 
to  fix  the  rates.  Such  investigations  are  constantly  being  made  for 
the  Massachusetts  Highway  Commission,  which  controls  the  New  Eng- 
land Telephone  and  Telegraph  Company. 


854         MATERIALS    OF   CORPORATION    FINANCE 

The  present  telephone  ordinance  (Sec.  2)  lodges  some  of  the  work 
here  proposed  with  the  City  Comptroller,  but  it  does  not  go  far 
enough.  It  gives  him  the  right  to  examine  the  accounts  and  records 
of  the  Company,  but  does  not  appear  to  create  any  complaint  depart- 
ment or  intermediary  between  the  public  and  Company,  such  as  is 
now  proposed.  Whether  the  power  of  the  Comptroller  should  be  in- 
creased to  cover  the  whole  subject,  or  whether  the  work  should  be  given 
to  the  City  Electrician,  to  the  Secretary  of  the  Gas,  Oil  and  Electric 
Light  Committee,  or  some  one  else,  is  a  question  both  of  law  and  pol- 
icy upon  which  no  opinion  is  now  expressed. 

MEASURED    SERVICE   FOR  RESIDENCES 

While  the  present  report  does  not  take  up  specified  changes  in  rates, 
but  only  the  question  of  whether  the  rates  as  a  whole  can  be 
changed  and  how  much,  it  is  nevertheless  important,  and  in  accordance 
with  the  desire  of  the  Committee,  that  a  reference  be  made  to  three 
other  subjects,  nickel  'phones,  subscribers'  meters  and  the  character  of 
the  service. 

The  nickel  coin  box  is  popular  and  needed  in  drug  stores  and  many 
other  public  places.  In  many  residences  it  is  also  desired.  This  is 
especially  true  where  there  is  danger  of  abuse  by  neighbors  impos- 
ing on  the  good  nature  of  the  telephone  subscriber,  or  where  it  is 
desired  to  pay  5  cents  per  call  rather  than  to  pay  a  month's  use  at 
one  time. 

On  the  other  hand,  some  are  much  opposed  to  the  nickel  'phones, 
and  a  considerable  portion  of  the  subscribers  to  the  2-party  and  4-party 
nickel  'phones  in  residences  apparently  would  be  better  pleased  to  pay 
for  their  calls  by  the  month  without  any  use  of  nickels  or  slugs.  Such 
a  service  is  offered  in  some  other  large  cities  in  the  form  of  a  measured 
residence  service  for  either  1-party,  2-party  or  4-party  lines.  It  is 
believed  that  a  rate  can  be  adopted  sufficiently  attractive  to  enable  those 
who  are  dissatisfied  with  the  nickel  'phones  to  take  the  new  service.  A 
certain  payment  per  month  would  be  guaranteed,  and  all  calls  in  excess 
of  what  that  amount  calls  for  at,  say,  5  cents,  would  be  paid  for  at  the 
end  of  the  month  as  in  the  case  of  the  nickel  'phones ;  or,  a  readiness  to 
serve  charge  per  month  could  be  made,  and  a  lower  calling  rate  than  5 
cents  could  be  adopted. 

METERS 

The  Company  has  already  equipped  a  large  portion  of  its  present 
measured  service  lines,  which  are  chiefly  on  business  places,  with  meters 
at  the  central  offices,  known  as  Central  Office  Message  Registers,  and 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      855 

expects  to  finish  the  entire  installation  within  four  months.  A  meter 
for  the  use  of  subscribers,  whether  business  or  residence,  who  have  a 
single-party  measured  line,  has  been  developed  by  the  A.  T.  &  T.  aud 
sufficiently  tested  on  about  200  business  premises  in  Chicago  to  show 
that  it  is  practicable. 

When  the  Maryland  Public  Service  Commission  issued  on  order, 
some  months  ago,  for  abolishing  all  flat  rate  business  lines — an  order 
whose  execution  has  been  postponed  pending  further  investigation — it 
was  provided  that  any  parties  who  desired  one  of  these  meters  could 
have  it  on  payment  of  25  cents  a  month,  or  $3  a  year.  The  Commis- 
sion investigated  the  meters  on  the  market  and  considered  the  one 
offered  by  the  A.  T.  &  T.  to  be  the  best  and  most  reliable.  The  cost 
of  $3  a  year  was  considered  by  the  Commission  to  be  only  a  fair  pay- 
ment for  the  investment  and  for  the  care  and  depreciation  of  the  same. 
Not  one  per  cent,  of  those  who  were  expecting  to  come  immediately 
under  the  metered  service  ever  applied  for  a  meter. 

Very  few  using  the  meters  in  this  city  think  there  is  sufficient  evi- 
dence of  mistakes  in  the  bills  of  the  Company  to  warrant  their  bother- 
ing to  have  the  device,  even  if  free.  Very  few,  indeed,  express  any 
belief  that  it  is  useful  enough  to  warrant  their  paying  even  the  small 
rental  for  it. 

Under  these  circumstances  it  would  seem  a  mistake  to  burden  the 
rates  of  all  the  subscribers  with  a  device  which  few  appear  to  want,  yet 
it  would  be  well  to  provide  that  any  one  might  have  this  meter  if  he 
desires  to  pay  $3  per  year  for  it. 

There  appears  to  be  no  meter  on  the  market  to-day  for  2-party  and 
4-party  measured  lines.  Where  such  service  is  given,  as  in  Boston  and 
Baltimore,  a  record  is  kept  on  paper  slips  by  the  operators,  as  has 
been  the  case  until  recently,  and  still  is  to  some  extent  with  meas- 
ured business  lines  here. 

A  recording  device  that  will  show  to  the  subscriber  the  number  of 
coins  or  slugs  that  have  gone  into  the  coin  box  would  be  popular  with 
the  subscriber  and  would  also  be  a  check  for  the  telephone  company 
upon  its  collectors.  But  there  seems  to  be  no  such  device  at  present  in 
use  by  any  telephone  company,  whether  Bell  or  independent.  If  the 
suggestion  for  measured  service  is  adopted  for  residences  there  would 
be  less  need  for  such  registers,  since  many  of  those  who  are  dissatisfied 
with  this  and  other  features  of  the  coin  box  would  doubtless  change 
to  measured  service. 

CONCLUSIONS 

In  the  light  of  all  the  above,  a  reduction  of  $700,000  in  the  charges 
of  the  Chicago  Telephone  Company  within  the  city  limits  appears  rea- 
sonable. Such  a  reduction  can  be  met  by  the  Company  in  several  ways.  • 


856         MATERIALS    OF   COEPORATION   FINANCE 

JL.  Instead  of  putting  about  $975,000  into  the  depreciable  reserve, 
as  in  the  city  exchange  in  1911,  $500,000  may  be  set  aside  for  that 
purpose  until  repairs  and  the  cost  of  station  removals,  now  amounting 
to  about  7.5%  of  the  plant  investment,  shall  decline  further,  as  they 
are  likely  to  do.  Even  the  $500,000  left  in  the  reserve  on  this  suppo- 
sition, together  with  the  actual  repairs  and  removals  of  1911,  would 
bring  the  total  maintenance  and  depreciation  expense  only  to  9%. 
This  item,  like  the  Chicago  expense  for  station  removals,  is  higher  than 
the  average  for  the  Bell  companies,  either  as  a  whole  or  in  the  larger 
cities. 

If  $475,000  of  the  proposed  reduction  of  $700,000  be  taken  from 
the  depreciation  reserve,  the  remaining  $225,000  may  be  secured  by 
a  reduction  of  the  dividend  on  the  company  as  a  whole  from  8%  to 
7.1%,  or  on  the  city  portion  thereof  to  6^4%.  Since  the  American 
Telephone  and  Telegraph  Company,  which  owns  nearly  all  of  the  stock, 
collects  in  rentals  within  £he  city  about  $200,000  more  than  the  service 
appears  to  cost,  or  about  1  %  on  the  stock,  a  reduction  in  the  dividend 
rate  to  6|%  or  7%  seems  not  unreasonable. 

2.  For  maintenance  and  depreciation  9J/>%  might  be  allowed.     On 
this  basis  the  reduction  in  last  year's  additions  to  the  reserve  would  be 
about  $350,000.     The  remaining  reduction  of  $350,000  could  be  se- 
cured by  a  reduction  of  the  dividend  on  the  city  part  of  the  stock  to 
6*4%.     Since  the  A.  T.  &  T.  would,  on  this  hypothesis,  continue  to 
receive  the  excess  rental,  that  would  virtually  mean  a  three-fourths  per 
cent,  further  dividend. 

3.  Another  solution,  in  lieu  of  part  of  the  reduction  of  dividends, 
suggested  above,  would  be  the  reduction  of  the  rental.     This  is  about 
1«H%  on  all  the  property  and  about  2*4%  on  the  stock,  or  about  $1.75 
per  'phone.     Of  the  $445,550.72  paid  in  1911  and  of  the  $475,000  or 
more  that  will  be  paid  in  1912,  $200,000  could  apparently  be  deducted 
by  the  local  company,  and  still  leave  the  A.  T.  &  T.  a  reasonable 
return. 

4.  Still  another  treatment  of  the  matter  would  be  a  smaller  reduc- 
tion in  the  dividend  and  the  utilization  of  the  1  %  profit  obtaining  by 
loaning  to  the  Central  Union  at  6%  the  proceeds  of  over  $10,000,000 
of  the  $14,000,000,  of  5%  bonds  lately  sold  by  the  Chicago  Telephone 
Company.     As  this  money  is  gradually  withdrawn  from  the  Central 
Union  to  meet  the  construction  needs  of  the  Chicago  Company,  the 
maintenance  of  a  7%  or  8%  dividend  rate  will  represent  a  smaller  per- 
centage of  the  total  investment  than  now.     Taking  the  city  and  subur- 
ban divisions  together,  the  case  stands  thus : 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.   COS.      857 

TABLE  No.  21 
DECLINING  RATE  OF  RETURN 


Amount                               Return 

Per  Cent,  of 
Return  on 
Total 
Securities 

1911                1916              1911              1916 
Dividends  at  8% 

1911     1916 

Stock $27,000,000    $27,000,000    $2,160,000    $2,160,000 

Interest  at  5% 
Bonds  and  notes     6,000,000      20,000,000         300,000      1,000,000 

Total $33,000,000    $47,000,000    $2,460,000    $3,160,000    7.45    6.72 

Without  any  reduction  in  the  rate  of  return  on  the  stock  and  bonds 
the  larger  proportion  of  bonds  now  assured  will  reduce  the  average  rate 
of  return  on  all  these  securities  from  7.45%  to  6.72%.  It  may  be 
remarked  that  all  of  the  new  5%  bond  issue  of  $14,000,000  has  netted 
the  Company  about  par  or  a  trifle  above. 

5.  Outside  of  the  expense  that  may  be  entailed  by  subway  con- 
struction in  1915-17,  or  the  last  three  years  of  the  coming  five-year 
period,  there  seems  little  in  the  claim  for  a  special  allowance  for  ex- 
traordinary depreciation. 

It  is  assumed  that  little  if  any  expense  will  be  incurred  on  account 
of  subway  construction  in  1913,  and  that  the  expense  to  the  Chicago 
Telephone  Company  will  not  exceed  $125,000  a  year  thereafter,  or 
that  the  excess  should  be  capitalized.  When  the  rates  are  again  ad- 
justed, five  years  hence,  this  matter  can  be  more  intelligently  treated. 

It  is  believed  that  a  reduction  of  $700,000  in  telephone  rates  will 
stimulate  the  growth  of  the  company,  and  leave  enough  in  the  mainte- 
nance and  in  the  depreciation  reserve  to  meet  the  needs  of  the  next  five 
years,  and  with  such  extraordinary  needs  as  are  likely  to  develop  from 
the  change  of  central  stations,  displacement  of  switchboards  or  sub- 
way construction.  It  will  also  leave  a  fair  return  to  the  owners  of 
the  property.  If,  however,  the  new  ordinance  should  provide,  as 
it  well  may,  for  a  measured  service  to  take  the  place  of  the  nickel  serv- 
ice for  those  who  desire  to  make  the  change,  the  cost  to  the  company  of 
this  change,  divided  over  the  five-year  period,  should  be  deducted  from 
the  above  $700,000  a  year. 

Moreover,  the  ability  of  the  company  to  stand  this  reduction  in 
revenue  will  be  affected  by  how  it  is  done.  The  importance  of  a  wise 
readjustment  of  the  rates  among  over  twenty  classes  of  service  can 
hardly  be  exaggerated. 


858         MATERIALS    OF   CORPORATION   FINANCE 

If  the  Company  were  not  confronted  with  the  expenses  and  loss 
of  business  that  to  some  extent  may  attend  the  competition  of  the  rival 
company — the  Illinois  Tunnel  Company — with  its  automatic  tele- 
phones, a  lower  rate  of  return  on  capital  might  be  demanded.  If  this 
competition,  however,  should  become  at  all  serious,  the  Chicago  Tele- 
phone Company  might  be  expected  to  reduce  rates  voluntarily  as  much 
as  is  here  advised. 

While  operating  expenses  per  telephone  are  increasing,  the  invest- 
ment per  telephone  is  decreasing  and  the  business  is  rapidly  growing. 
The  number  of  telephones  in  the  city,  aside  from  the  25,000  or  more 
of  the  rival  company,  grew  from  268,383  on  December  31,  1911,  to 
298,380  on  Octiber  28,  1912,  an  increase  in  the  ten  months  of  about 
30,000,  as  compared  with  an  increase  of  only  29,300  in  the  previous 
twelve  months. 

This  situation,  joined  to  the  ability  of  the  Company  to  finance  its 
extensions  for  three  or  four  years  out  of  the  $14,000,000  of  5%  bonds 
just  floated,  may  permit  the  Company  to  make  the  suggested  reduction 
in  rates  without  any  cut  whatever  in  its  8%  dividend  or  in  its  rental 
to  the  A.  T.  &  T. 

In  no  investigation  hitherto  conducted  by  the  writer  has  a  company 
pursued  as  open  a  policy  with  respect  to  its  books  and  methods  as  has 
the  Chicago  Telephone  Company,  and  in  turn  the  writer  has  endeav- 
ored to  give  due  weight  to  all  considerations  affecting  both  the  welfare 
of  the  Company  and  the  just  demands  of  the  public. 

EDWARD  W.  BEMIS. 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.   COS.        859 

APPENDIX  1 
CONDENSED  BALANCE  SHEETS,  1881  TO  1911,  INCLUSIVE* 


Assets 
Invested  in  plant  

1881 
$490,928.99 

1882 
$561,038  19 

1SS3 
$621,606  72 

Invested  in  real  estate  

2,537.00 

2,537  00 

2,000  00 

Other  investments  

Material  on  hand  

8,657  38 

5,068  42 

6,309  60 

Furniture,  fixtures,  tools  and  teams. 
Bonds  (sundry)  

30,000.00 

50,000.00 

Bills  and  accounts  receivable  

99,432.13 

21,614.52 

37,224.16 

Balance  of  bills  and  accounts  

Payable  and  receivable  

Cash  

50,089  92 

39,006  16 

34,332  09 

Total  assets  

$651,645.42 

$659,264  29 

$751,472.57 

Liabilities 
Capital  stock  

1881 
$500,000.00 

1882 
$500,000.00 

1883 
$600,000.00 

Bonded  debt  

Reserve  for  deferred  maintenance.  .  . 
Reserve  for  taxes  

Reserve  for  insurance  fund  

Reserve  for  depreciation  on  buildings 
Bills  and  accounts  payable  

46,284.32 

25,883.71 

21,931.05 

Balance  of  bills  and  accounts  pay- 
able and  receivable  

Miscellaneous  reserves  

34,000.00 

50,000.00 

58,500.00 

Surplus  

71,361.10 

83,380.* 

71,041.52 

Total  liabilities  

$651,645.42 

$659,264.29 

$751,472.57 

*Mr.  Hagenah's  Report,  pages  7-10,  for  1881-1900,  and  Hall's  Report,  Ex- 
hibit M.,  for  1901-11. 


Assets  1884 

Invested  in  plant $653,743.16 

1,000.00 


Invested  in  real  estate. 

Other  investments 

Material  on  hand 

Furniture,  fixtures,  tools  and  teams. 

Bouds  (sundry) 

Bills  and  Accounts  receivable 

Balance  of  bills  and  accounts  pay- 
able and  receivable 

Cash 45,236.55 


1885  1886 

$732,388.05       $805,318.72 
500.00 


7,773.25         11,470.71          10,770.33 


50,000.00 
34,050.18 


50,000.00 
115,022.74 


54,899.32 


50,000.00 
117,445.54 


62,903.30 


Total  assets $791,803.14     $964,280.82    $1,046,437.89 


Liabilities 1884 

Capital  stock $693,000.00 

Bonded  debt 

Reserve  for  deferred  maintenance . . . 

Reserve  for  taxes 

Reserve  for  insurance  fund 

Reserve  for  depreciation  on  buildings 

Bills  and  accounts  payable 27,131 .53 

Balance  of  bills  and  accounts  pay- 
able and  receivable 

Miscellaneous  reserves 65,500.00 

Surplus 6,171.61 


1885  issc, 

$762,300.00       $838,600.00 


127,440.71          118,656.15 


74,500.00 
40.11 


82,500.00 
6,681.74 


Total  liabilities. ...'. $791 ,803 . 14     $964,280 . 82    $1 ,046,437 . 89 


860         MATERIALS    OF  CORPORATION    FINANCE 

APPENDIX  1 — Continued 

Assets  1887                  1888                    1889 

Invested  in  plant $884,313.15    $1,131,342.03    $1,302,625.49 

Invested  in  real  estate 92,722 . 32 

Other  investments 

Material  on  hand 8,970 . 38           13,016 . 38           15,956 . 13 

Furniture,  fixtures,  tools  and 
teams 

Bonds  (sundry) 25,000.00 

Bills  and  accounts  receivable 175,998.12         171,107.75         220,938.23 

Balance  of  bills  and  accounts  pay- 
able and  receivable 

Cash 49,064.31           20,719.26           35,200.56 


Total  assets $1,236,068.28    $1,336,185.42    $1,574,720.41 

Liabilities  1887  1888  1889 

Capital  stock $964,400 . 00    $1,089,800 . 00    $1,253,300 . 00 

Bonded  Debt 

Reserve  for  deferred  maintenance 

Reserve  for  taxes 

Reserve  for  insurance  fund 

Reserve  for  depreciation  on  build- 
ings   

Bills  and  accounts  payable 175,908 . 01         144,339 . 29         145,091 . 04 

Balance  of  bills  and  accounts  pay- 
able and  receivable 

Miscellaneous  rescues 92,500.00  94,000.00         109,000.00 

Surplus 3,260.27  8,046.13  67,329.37 


Total  liabilities $1,236,068.28    $1,336,185.42    $1,574,720.41 

Assets  1890  1891  1892 

Invested  in  plant . .             $1,734,212 . 73    $2,160,392 . 41    $3,082,262 . 20 

Invested  in  real  estate 150, 127 . 25         332,761 . 17 

Other  investments 

Material  on  hand 34,098.51           52,606.81           74,760.30 

Furniture,  fixtures,  tools  and 
teams 

Bonds  (sundry) 

Bills  and  accounts  receivable 596,698 . 49           99,784 . 02         142,191 . 17 

Balance  of  bills  and  accounts  pay- 
able and  receivable 

Cash 30,159.66           58,473.54         193,482.89 


Total  assets $2,395,169.39    $2,521,384.03    $3,825,457.73 

Liabilities  1890  1891  1892 

Capital  stock $1,754,700.00    $2,000,000.00    $3,280,200.00 

Bonded  debt 

Reserve  for  deferred  maintenance 

Reserve  for  taxes 35,308 . 02  16,628 . 67 

Reserve  for  insurance  fund 

Reserve  for  depreciation  on  build- 
ings  

Bills  and  accounts  payable 397,056.85         242,493.13         260,228.66 

Balance  of  bills  and  accounts  pay- 
able and  receivable 

Miscellaneous  reserves 125,700.00         133,462.97         158,306.07 

Surplus 117,712.54         110,119.91         110,094.33 

Total  liabilities. ..  $2,395,169.39    $2,521,384.03    $3,825,457.73 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.       861 
APPENDIX  1 — Continued 

Assets  1893  1894  1895 

Invested  in  plant $3,668,190.38  $3,821,356.76  $4,169,686.09 

Invested  in  real  estate 332,849.17  338,632.62  351,753.20 

Material  on  hand 118,078.67  59,800.00  54,234.84 

Bills  and  accounts  receivable....  156,772.67  151,399.39  165,309.74 

Cash 90,806.38  139,906.08  83,417.31 

Total  assets $4,366,697.27  $4,511,094.85  $4,824,401.18 

Liabilities  1893  1894  1895 

Capital  stock $3,796,200 . 00  $3,796,200 . 00  $3,796,200 . 00 

Reserve  for  deferred  maintenance     120,000 . 00  200,889 . 40 

Reserve  for  taxes 57,358 . 06  43,702 . 36  77,065 . 26 

Bills  and  accounts  payable 197,122.39  220,375.64  329,656.24 

Miscellaneous  reserves 187,092 . 77  189,960 . 81  156,364 . 61 

Surplus 128,924.05  140,856.04  264,225.67 

Total  liabilities $4,366,697.27  $4,511,094.85  $4,824,401 . 18 

Assets  1896  1897  1898 

Invested  in  plant $4,255,047 . 92  $4,192,868 . 40  $4,814,774 . 55 

Invested  in  real  estate 352,861 . 42  352,861 . 42  359,973 . 92 

Material  on  hand 73,199.00  70,407.99  102,726.45 

Bills  and  accounts  receivable....  93,223.87  87,882.07  229,566.53 

Cash 315,647.18  453,454.69  181,902.02 

Total  assets $5,094,979.39  $5,157,474.57  $5,688,943.47 

Liabilities  1896  1897  1898 

Capital  stock $4,336,500 . 00  $4,336,500 . 00  $4,336,500 . 00 

Reserve  for  deferred  maintenance  200,889.40  100,000.00  474,782.22 

Reserve  for  taxes 81,428.31  90,747.85  60,536.97 

Bills  and  accounts  payable 143,311.56  188,165.58  257,549.72 

Miscellaneous  reserves 17,643 . 47  22,541 . 02  26,482 . 16 

Surplus 315,206.65  419,520.12  533,092.40 

Total  liabilities $5,094,979.39  $5,157,474.57  $5,688,943.47 

APPENDIX  1 — Continued 


Assets 

Invested  in  plant 

Invested  in  real  estate 

Material  on  hand 

Bonds  (sundry) 

Bills  and  accounts  receivable. 
Cash.. 


1899  1900 

$5,993,364.55    $7,190,012.19 
622,558.09         932,040.42 
178,401.94         221,338.67 
15,000.00 

10,039.35 
Total  assets $7,070,683.82    $8,368,430.63 


202,762.11 
73,597.13 


Liabilities  1899  1900 

Capital  stock $5,000,000.00  $7,000,000.00 

Reserve  for  deferred  maintenance 903.934 . 14  463,578 . 49 

Reserve  for  taxes 99,569.71  73,222.74 

Bills  and  accounts  payable 387,686.24     

Balance  of  bills  ana  accounts  payable  and  receiv- 
able   637,500.62 

Miscellaneous  reserves 29,391.35  17,897.14 

Surplus 650,102.38  176,231.64 

Total  liabilities $7,070,683.82  $8,368,430.63 


862 

APPENDIX  1 — Continued 


Assets  1901  1902  1903 

Investment  in  real  estate,  plant, 
etc 

Real  estate $1,045,658.77  $1,111,644.96  $1,273,735.59 

Plant,  equipment,  etc 8,882,483.67  10,543,174.81  12,635,532.79 

Construction  in  process 5,338 . 03  679,034 .43     


Total  investment  in  real  estate, 
plant,  etc $9,933,480 . 47  $12,333,854 . 20  $13,909,268 . 38 


Current  and  working  assets — 

Supplies $355,215 . 77  $312,242 . 90  $366,103 . 78 

Total  working  assets 355,215.77  312,242.90  366,103.78 

Cash  and  deposits 353,703.80  434,541.52  547,640.00 

Bills  receivable 3,410.06  3,396.93  1,569.31 

Accounts  receivable 329,141 . 12  549,431 . 16  719,758 . 30 

Prepaid  expenses 11,893.29  15,006.62  26,223.40 

Total  current  assets 698,148.27  1,002,376.23  1,295,191.01 

Total  current  and  working  assets.  $1,053,364.04  $1,314,619.13  $1,661,294.79 


Stocks  and  bonds 15,000.00  14,500.00   _     125,036.75 

Total $11,001,844.51  $13,662,973.33  $15,695,599.92 


Liabilities  1901                    1902                    1903 

Capital  liabilities — 

Capital  stock $9,315,900.00  $11,993,400.00  $14,000,000.00 

Loans  by  banks 100,000.00     

Total  capital  liabilities $9,415,900 . 00  $1 1,993,400 . 00  $14,000,000 . 00 


Current  liabilities — 

Accounts  payable $837,436.01  $371,381.91  $277,497.06 

Accrued  liabilities  not  due 140,611 . 28  183,419 . 61  238,972 . 29 

Unearned  revenue 5,484 . 71  36,591 . 38  46,336 . 56 


Total  current  liabilities $983,532 . 00       $591,392 . 90       $562,805 . 91 


Depreciation  and  other  reserves — 

Depreciation  of  plant $296,432.87       $346,551.32       $646,551.32 

Other  reserves 5,875 . 74         304,246 . 44  21,475 . 49 

Total  depreciation  and  other  re- 
serves  :....        $302,308.61       $650,797.76       $668,026.81 


Surplus $300,103.90       $427,382.67 

Total..  ,.  $11,001,844.51  $13,662,973.33  $15,695,599.92 


PHYSICAL  VALUATION  OF  CHICAGO  TEL.  COS.     863 
APPENDIX  1 — Continued 

Assets                                1904  1905  1906 

Investment  in  real  estate,  plant, 
etc. — 

Real  estate $1,346,560.20  $1,509,895.25  $1,764,281.40 

Plant,  equipment,  etc 13,208,689 . 17  14,317,138. 17  16,706,425.90 

Construction  in  process 88.87  *336.28 

Total  investment  in  real  estate, 

plant,  etc $14,555,249.37  $15,827,122.29  $18,470,371.02 

Current  and  working  assets: 

Office  furniture  and  fixtures...          $10,137.29  $19,745.56  $44,958.70 

Tools  and  vehicles 27,799 .50  83,885 . 85  169,056 . 85 

Supplies 173,156.42  125,424.67  411,445.63 

Total  working  assets 211,093.21  229,056.08  625,461 . 18 

Cash  and  deposits 511,312.69  251,321 .36  19,084.94 

Bills  receivable 501,709 . 09  852,581 . 59  12,547 . 21 

Accounts  receivable 762,384. 17  489,946.91  674,646.28 

Prepaid  expenses 13,124.91  3,667.33  1,833.33 

Total  current  assets $1,788,530.86  $1,597,517.19  $708,111.76 


Total  current  and  working  assets.    $1,999,624.07    $1,826,573.27    $1,333,572.94 


Stocks  and  bonds $114,650.07       $104,263.39         $93,876.74 


Total $16,669,523.51  $17,757,958.95  $19,897,820.70 


Liabilities  1904  1905  1906 

Capital  liabilities — 

Capital  stock $14,000,000.00  $14,000,000.00  $14,000,000.00 

Loans  by  banks 250,000.00 

Total  capital  liabilities $14,000,000.00  $14,000,000.00  $14,250,000.00 

Current  liabilities — 

Bills  payable  (Western  Elec- 
tric Company) $500,000.00 

Accounts  payable $187,361 . 85       $272,577 . 1 1  1, 188,901 . 94 

Accrued  liabilities  not  due 311,120.30         275,641 .34  370,708.04 

Unearned  revenue 39,891 .13           38, 122 . 08  34,242 . 31 

Total  current  liabilities $538,373 . 28       $586,340 . 53    $2,093,852 . 29 


Depreciation  and  other  reserves — 

Depreciation  of  plant $913,825.83  $1,295,155.61  $1,692,066.24 

Insurance  fund 150,000.00  175,000.00 

Other  reserves 588,941.12  871,268.52  613,563.50 


Total  depreciation  and  other  re- 
serves      $1,502,766.95    $2,316,424.13    $2,480,629.74 

Surplus $628,383.28       $855,194.29    $1,073,388.67 

Total $16,699,523.51  $17,757,958.95  $19,897,820.70 

*  Decrease. 


864         MATERIALS    OF   CORPORATION   FINANCE 
APPENDIX  1 — Continued 

Assets  1907  1908  1909 

Investment  in  real  estate,  plant, 
etc. — 

Real  estate $2,320,934.53    $2,551,487.92    $2,749,985.66 

Plant,  equipment,  etc 24,151,045.70    25,206,641 .39    26,787,282.71 

Construction  in  process 173,066.33         909,225.82      1,053,058.65 

Total  investment  in  real  estate, 
plant,  etc $26,644,146 . 56  $28,667,355 . 13  $30,590,327 . 02 


Current  and  working  assets — 

Office  furniture  and  fixtures...  $104,776.34  $145,692.99  $167,158.95 

Tools  and  vehicles 263,296.53  288,570.48  261,530.67 

Supplies 399,997.23  458,221.16  521,111.25 

Total  working  assets 768,070 . 10  892,484 . 63  949,800 . 87 

Cash  and  deposits 157,837 . 03  455,364 . 17  3,758,692 . 10 

Bills  receivable 12,356 . 20  12,429 . 61  828 . 79 

Accounts  receivable 864,668 . 69  771,079 . 24  727,823 . 80 

Prepaid  expenses 30,745.79  5,951.23  57,110.22 

Total  current  assets 1,065,607 . 71  1,244,824 . 25  4,544,454 . 91 

Total  current  and  working  assets.  $1,833,677.81  $2,137,308.88  $5,494,255.78 


Stocks  and  bonds $92,819 . 93         $82,933 . 27         $72,588 . 00 


Total $28,570,644.30  $30,887,597.28  $36,157,170.80 


Liabilities  1907  1908  1909 

Capital  liabilities: 

Capital  stock $17,564,81 1 . 78  $27,000,000 . 00  $27,000,000 . 00 

First  mortgage  5%  bonds 5,000,000.00 

Loans  by  banks 1,385,000.00     


Total  capital  liabilities $18,949,811.78  $27,000,000.00  $32,000,000.00 

Current  liabilities — 

Bills  payable   (Western  Elec- 
tric Company) $300,000.00     

Accounts  payable 1,371,687.26       $397,580.48       $430,066.31 

Accrued  liabilities  not  due 290,093 . 33         295,679 . 92         618,226 . 99 


Total  current  liabilities $1,961,780 . 59  $693,260 . 40  $1,048,293.30 

Depreciation  and  other  reserves — 

Depreciation  of  plant $1,899,613 . 46  $1,901,739 . 25  $1,901,739 . 25 

Insurance  fund 200,000.00  211,809.10  278,298.22 

Other  reserves 449,495 . 78  396,110 . 50  183,454 . 44 

Total  depreciation  and  other  re- 
serves   $2,549,109.24  $2,509,658.85  $2,363,491 . 91 


Surplus $5,109,942.69       $684,678.03       $745,385.59 

Total $8,570,644.320  $30,887,597.28  $36,157,170.80 


PHYSICAL  VALUATION  OF  CHICAGO  TEL.  COS.      865 
APPENDIX  1 — Continued 


Assets 


1910 


1911 


Investment  in  real  estate,  plant,  etc. — 

Real  estate $2,868,606.51  $3,204,445.31 

Plant,  equipment,  etc 29,229,242 . 13  33,250,656 . 82 

Construction  in  process 1,261,689 . 21  1,258,076 . 27 

Total  investment  in  real  estate,  plant,  etc $33,359,537 . 85  $37,713, 178 . 40 

Current  and  working  assets — 

Office  furniture  and  fixtures $126,869 . 53  $178,635 . 70 

Tools  and  vehicles 284,467.69  304,100.40 

Supplies 703,414.63  831,629.65 

Total  working  assets 1,114,751 .85  1,314,365.75 

Cash  and  deposits 1,820,503.51  874,947.62 

Bills  receivable 289,757.84  636.14 

Accounts  receivable 592,857 . 04  686,973 . 76 

Prepaid  expenses 68,379.31  127,509.90 

Total  current  assets 2,771,497.70  1,690,067.42 

Total  current  and  working  assets $3,886,249 . 55  $3,004,433 . 17 

Stocks  and  bonds $642,966.24  $10,393.90 

Total $37,888,753.64  $40,728,005.47 

Liabilitiea  1910  1911 

Capital  liabilities — 

Capitalstock $27,000,000.00  $27,000,000.00 

First  mortgage  5%  bonds 5,000,000.00  5,000,000.00 

Loans  by  banks 1,000,000.00 

Total  capital  liabilities $32,000,000.00  $33,000,000.00 

Current  liabilities — 

Accounts  payable $950,872 . 61  $1,214,855 . 25 

Accrued  liabilities  not  due 585,795.18  671,430.09 

Unearned  revenue 1,950. 91     

Total  current  liabilities $1,538,618.70  $1,886,285.34 

Depreciation  and  other  reserves — 

Depreciation  of  plant $3,695,160.95  $4,971,823. 19 

Insurance  fund 291,400.65  307,548  21 

Other  reserves 268,500.41  364,735.49 

Total  depreciation  and  other  reserves $4,255,062 . 01  $5,644, 106 . 89 

Surplus $95,072.93  $197,613.24 


Total $37,888,753.64    $40,728,005.47 


866 


MATERIALS    OF    CORPORATION    FINANCE 


APPENDIX  2 
CHICAGO  &  SUBURBAN  APPRAISAL 

VALUES  AS  OF  AUGUST  1,  1911 
APPRAISAL  BY  THE  BYLLESBY  AND  ARNOLD  COMPANIES 


August  28, 1912. 


Reproduc- 

Present 

Present 

Account 

Book 

tion  Value 

Value 

Value 

Value 

(a) 

(b) 

103 


10    Buildings $2,570,280.15    $2,962,903.27    $2,526,717.00    $2,714,719.91 

,20    Land 601,801.14      1,331,642.60      1,331,642.60      1,331,642.60 


[  17    Central  Office  Operating  Equipment. 

105-07 1  27    Exchange  Furniture  and  Fixtures . . . 

[  37    School  Equipment 


5,192,417.01      5,588,700.62      3,853,700.50      4,318,912.77 
87,897.14          97,963.47  78,062.90          7J-.062.90 

13,203.18          21,306.93  13,238.56          13,238.56 


Total  105-07 $5,293,517.33    $5,707,971.02    $3,945,001.96    $4,410,214.23 


il  8  Station  Apparatus 

28  Installation 

38  Drop  Wires 

105-08 1  48  Interior  Block  Wires 

58  Private  Branch  Exchange. . . 

[68  Booths  and  Special  Fittings. 


107 


2,644,586.81 

2,784,445.03 

927.433.64 

19,388.51 
1,240,991.34 

73,378.76 


1,890,208.52 

2,640,594.82 

683,605.23 

14,139.52 

970,689.48 

48,819.18 


1,959,554.62 

2,371,106.82 

727,518.33 

15,212.50 
1,040,037.55 

55,034.06 


Total  105-08 $7,252,801.53    $7,690,224.09    $6,248,056.75    $6,168,463.88 


01  Exchange  Pole  Line 

02  Exchange  Aerial  Cable 

03  Exchange  Aerial  Wire 

04  f  14    Underground  Conduit  Main 

Total 

[  24    Underground  Conduit  Subsidiary 

05  f  15    Underground  Cable  Main 

Total 

25    Underground  Cable  Subsidiary. 
,  35    House  Cables 

06  Exchange  Submarine  Cable 

09  Exchange  Right  of  Way 


$2,988,561.50  $3,963,423.00  i $2,270,076. 00  1  $2,541,981. 00 
1,571,150.43  1,840,029.00  1,325,487.00  1,587,544.00- 
2,280,366.76  1,186,770.00  948,861.00  980,181.00 

3,984,762.14      5,866,070.00      4,516,703.00      5,406,696.00 


5,565,063.00      6,406,707.00 
157,726.00        185,738.00 
106,084.00        118,327.00 
Total  107. ...  . .  $16,464,608.37  $20,134,679.00  $14,890,000.00  $17,227,174.00 


5,554,569.62 

53,874.99 

993.43 

30,329.50 


6.944,364.00 
215,036.00 
118,987.00 


APPENDIX  2 — Continued 
CHICAGO  &  SUBURBAN— Continued 


Account  

Book 
V  lue 

Reproduc- 
tion Value 

Present 
Vahie 
(a) 

Present 
Value 

(b) 

109 

110 
111 

112 

113 
120 

01           Toll  Pole  Lines 

$548,701.70 

$787,369.00 
57,371.00 
1,041,391.00 
399,486.00 
585,513.00 

'$465,939.00 
44.088.00 
828.677.00 
321,210.00 
480,443.00 

i$509,186.00 
50.528.00 
884,602.00 
371,110.00 
542,316.00 

02           Toll  Aerial  Cable  

34.504.44 

03            Toll  Aerial  Wire 

578,798  33 

04            Toll  Underground  Conduit  
05            Toll  Underground  Cable 

393,748.16 
410,221  46 

06            Toll  Submarine  Cable 

09           Toll  Right  of  Way  

27.44 

Total  109       

.     $1,966,001.53 

$2,871,130.00 
$1,589,201.00 
266107.79 

154,660.14 
159,349.45 
58,638.82 

$2,140,357.00 
$1,589,201.00 
214,027.06 

92,796.15 
118,943.50 
44,077.05 

$2,357,742.00 
$1,589,201.00 
214,027.06 

92,796.15 
118,943.50 
44,077.05 

.    $1,513,525  00 

Office  Furniture  and  Fixtures.  . 
[01           Tools  

157,600.76 
105,814.82 

02           Teams 

132,142  63 

03           Motor  Vehicles  

42,551.47 

Total  

$280,508.92 

$372,648.41       $255,816.70       $255,816.70 
921,596.00        882,871.15        882,871.15 

$43,848,103.18  $34,023,691.22  $37,151,872.53 
1,500,000.00      1,050,000.00      1,050,000.00 

751,477  42 

TOTAL       .               .     . 

$36,852,122  15 

Working  Capital    

GRAND  TOTAL  

$44,898,103.18  $35,073,692.00  $38,201,873.00 

NOTE — i  Present  value  sub-divisions  of  the  107  and  109  accounts  are  based  on  appraisal  figures  but  we  have 
pro-rated  the  overhead  costs  against  the  various  classes  of  plant. 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      867 


APPENDIX  3 
CHICAGO  EXCHANGE  APPRAISAL 

VALUES  AS  OF  AUGUST  1,  1911 
APPRAISAL  BY  THE  BYLLESBY  AND  ARNOLD  COMPANY 


August  28.  1912. 


Account 

Present              Present 
Book             Reproduc-            Value                Value 
Value            tion  Value              (a)                   (b) 

103    r 

105-07  1 
105-08 

107 

10    Buildings  

$2,328,433.31    $2.642,405  59    (2,253,975.80    $2,418,266.91 
526,956.61      1,173,936.98      1,173,936.98      1,173,936.98 

4,564,693.90     4,857,496.48     3,357,483.16      3,758,548.30 
73,997.58          81,869.41          64,769.68          64,769.68 
13,203.18          21,306.93          13,238.56          13,238.56 

20    Land          

17    Central  Office  Operating  Equipment. 
27    Exchange  Furniture  ana  Fixtures..  . 
37    School  Equipment  

Total  105-07  

$4,651.894.66    $4,960,672.82    $3,435,497.40    $3,836,556.54 

2,180,563.31      1,593,092.64      1,647,973.41 
2,296.822.34      2.178,225.90      1.962,953.13 
673,885.74        495,203.94        527.704.48 
17,385.95          12,756.98          13,602.43 
1,180,171.05        923,423.28        988,258.92 
60,322.27          40,214.85          45,241.70 

28    Installation  

38    Drop  Wires  

48    Interior  Block  Wires  

58    Private  Branch  Exchanges  

68    Booths  and  Special  Fittings  

Total  105-08  

$6,115,389.57    $6,409,150.66    $5,242,917.59    $5,185,734.07 

$1,146,320.74    $1,600,289.00     »  $983,638.  00  i$l,  108.722.  00 
1,116,775.78      1,263,470.00         889,936.00      1,081,989.00 
1,673,757.58         374,359.00         303,544.00         316,239.00 

3,532.936.35     5,062,428.00     3,875.283.00     4,672,668.00 

4.848,264.39      6,168,669.00     4,927,359.00      5,687,207.00 

52,685  31        211,744.00        155,018.00         182,799.00 
993.43 
17,626.77          65,424.00          58,219.00          65,099.00 

01           Exchange  Poles    

02           Exchange  Aerial  Cable  

03           Exchange  Aerial  Wire. 

14    Underground  Conduit,  Main.  .  .  ' 
(M              Total  I 

24    Underground  Conduit, 
Subsidiary 
15    Underground  Cable  Main  

Total 

05    25    Underground  Cable  Subsidiary. 
35    House  Cables    '.  .  .  .  .  

M           Exchange  Submarine  Cable  
09           Exchange  Right  of  Way. 

Total  107  

$12.389.360.35  $14.746,383.00  $11,192,997.00  $13,114.723.00 

APPENDIX  3  —  Continued 
CHICAGO  EXCHANGE—  Continued 

Account 

Present             Present 
Book             Reproduc-            Value                Value 
Value            tion  Value              (a)                   (b) 

109 

110 
111 

112 

113 
130 

01           Toll  Pole  Lines... 

1,663.07         97,381.00    *    60,031.00    *     67,564.00 
22,651.28          17,254.00           12,239.00           14,727.00 
32,122.84         159,409.00         129,369.00         132,987.00 
321,124.44        253,503.00         197,376.00         233,973.00 
383.989.60        406.822.00        328.952.00        375.202.00 

02           Toll  Aerial  Cable.  .  . 

03           Toll  Aerial  Wire  

04           Toll  Underground  Conduit  
05           Toll  Underground  Cable  

Total  109  

$761,551.23       $934,369.00      $727,967.00      $824,453.00 
$1,326,534.32    $1,392.861.00    $1,392.861.00    $1.392,861.00 
126,479.17        245,150.59         196,983.03         196,983.03 

72.492.69        104.810.19          62.886.12          62,88612 
105.066.16         125.773.61           92.957.87          92.95787 
28.89635          42.842.41          30,631.79          30,631.79 

Construction  Process  

Office  Furniture  and  Fixtures  

01    Took  ... 

02    Teams.... 

03    Motor  Vehicles  

Total  112  

$206,455.20      $273,426.21       $186,475.78      $186,475.78 
$513.721.00      $660,287.65      $621,562.80      $621,562.80 

$28,946,775  42  $33,438.643  50  $26,425.174.38  $28,951.553.21 
887.25000        887.25000        887.250.00 

Tnt»l  Supplies          .....1  ,  ... 

Grand  Total  

Working  Capital      

$34.325,894  00  $27.312,425  00  $29.838.803.00 

Norm— >  Present  value  sub-divisions  of  the  107  and  109  accounts  are  based  on  appraisal  figures  but  we  bar* 
prorated  the  overhead  costs  against  ths  various  classes  of  plant. 


868          MATERIALS    OF    CORPORATION    FINANCE 

APPENDIX  4 

COST  OF  THE  PROPERTY  NEW 
CHICAGO  AND  SUBURBAN 

The  following  table  is  the  cost  as  of  December  31st,  as  shown  by  the  books, 
or  each  year  since  1890: 


Depreciable 

All  Physical 

Working 

Year 

Property* 

Property! 

Capital! 

Total 

1891  .  . 

.  $2,144,570.28 

$2,184,990.28 

$100,000 

$2,284,990.28 

1892  

3,015,987.28 

3,239,041.20 

150,000 

3,389,041.20 

1893  

3,629,678.99 

3,852,820.91 

175,000 

4,027,820.91 

1894  

3,830,964.42 

4,058,606.34 

175,000 

4,233,606.34 

1895  

4,189,900.08 

4,417,542.00 

200,000 

4,617,542.00 

1896  

4,537,146.16 

4,764,788.08 

225,000 

4,989,788.08 

1897  

4,870,554.46 

5,098,196.38 

250,000 

5,348,196.38 

1898  

5,484,892.92 

5,719,647.34 

300,000 

6,019,647.34 

1899  

6,857,940.65 

7,153,580.07 

350,000 

7,503,580.07 

1900  

8,446,058.27 

8,790,688.27 

400,000 

9,190,688.27 

1901  

....  10,675,635.65 

11,051,328.15 

500,000 

11,551,328.15 

1902  

13,287,222.57 

13,667,353.42 

650,000 

14,317,353.42 

1903  

15,337,752.64 

15,723,177.09 

700,000 

16,423,177.09 

1904  

....  16,480,349.91 

16,907,094.87 

750,000 

17,657,094.87 

1905  

18,128,924.28 

18,644,573.54 

850,000 

19,494,573.54 

1906  

21,442,125.73 

22,097,577.82 

1,000,000 

23,097,577.82 

1907  

25,656,956.43 

26,654,433.57 

1,200,000 

27,854,433.57 

1908  

....  26,929,904.49 

28,737,322.99 

1,300,000 

30,037,322.99 

1909  

28,578,619.03 

30,634,737.09 

1,400,000 

32,034,737.09 

1910  

....  31,130,347.86 

33,371,331.79 

1,550,000 

34,921,331.79 

1911  

....  35,425,456.16 

37,717,844.09 

1,750,000 

39,467,844.09 

*HaU,  Schedule  2. 
fHall,  Schedule  3. 

JHere  it  is  not  actual  cost  as  shown  by  the  books,  but  what  Mr.  Hall  con- 
siders reasonable  as  per  Schedule  3. 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      869 

APPENDIX  5 
GROWTH  OF  CHICAGO  TELEPHONE  COMPANY'S  PLANT* 


s 

8 

fH 

fNumber 
exchanges 

Number  of  ex- 
change phones 

£ 
T3 

i  a 

I8 

!* 

°§ 

CD  H 

£  S> 

2 

t£ 

i-3 
-1 

°0 

jg& 
§ 

Miles  Wire 
underground 

• 

3 

0>  3 

li 

03  S3 

4>  03 

i 

• 

V  01 

1! 

CO  - 

J§  O 

1 

i| 

a* 
3o 

i 

1881. 

4 

1 

• 

1882.   .. 

8 

I 

i 

1883.   .. 

10 

3,479 

4 

3,517 

1884.   .  . 

10 

3,927 

4,250 

4,250 

1885.  •  •  . 

10 

4,455 

760 

4,000 

4760 

1886. 

10 

4,867 

2,000 

4,300 

5762 

1887  •• 

10 

5,382 

3,127 

4,392 

6392 

1888  .. 

10 

5427 

1,462 

5,932 

9073 

1889  

10 

6,394 

3,272 

6,691 

9,963 

1890  

10 

7,456 

6,456 

8,199 

15,593 

1891. 

13 

9,024 

7,319 

10,191 

17,505 

1892  

12 

10,431 

14,093 

15,188 

29,281 

1893  

12 

10,376 

18,654 

15,614 

34,268 

1894...  . 

15 

12,049 

49 

160 

18,820 

5,802 

11,900 

36,522 

1895.  .  . 

22 

13,869 

52 

171 

19,050 

6,991 

12,127 

38,168 

1896  

31 

15,384 

54 

185 

20,548 

7,189 

12,713 

40,450 

1897  

42 

16,909 

58 

234 

24,324 

7,864 

13,932 

46,120 

1898...  .. 

58 

21,188 

61 

267 

30,259 

11,225 

15,629 

57,113 

1899...  . 

70 

27,663 

104 

527 

41,757 

14,445 

18,692 

74,894 

1900  

..   84 

36,414 

121 

874 

68,593 

19,194 

22,818 

110,605 

1901  

..   95 

53,511 

156 

1,019 

87,685 

25,976 

32,124 

145,785 

1902  

..  112 

79,043 

197 

1,192 

123,708 

32,570 

38,742 

195,020 

1903  

..  114 

101,187 

235 

1,372 

149,234 

40,480 

41,484 

231,198 

1904  .  .  . 

.  1111 

117,893 

254 

1,468 

161,202 

46,697 

45,189 

253,088 

1905  . 

..  156 

143,223 

335 

1,755 

187,231 

51,711 

52,213 

291,155 

1906  . 

..  162 

170,834 

389 

1,964 

248,939 

53,031 

57,016 

;if>s,»)sr> 

1907 

.  163 

•2(  )'_',(  IS  1 

431 

2,309 

352,098 

56,492 

62,578 

471,168 

1908  

..  163 

231,180 

598 

2,579 

423,082 

64,013 

63,350 

550,445 

1909  

262,359 

614 

2,685 

493,787 

69,666 

62,985 

626,438 

1910  

138 

300,618 

647 

2,775 

536,137 

71,984 

60,612 

668,733 

1911 

.  140 

325,652 

703 

3,110 

653,989 

90,575 

63,006 

807,571 

*From  Mr.  Hagenah'e i  report,  save  for  1910-11. 

t'l'hc  exchanges  in  Chicago  exchange  system  are  counted  as  one. 

t  Decrease  from  combination. 

T(  No  record. 


870 


MATERIALS    OF    CORPORATION    FINANCE 


APPENDIX  6 

PLANT  AND  COST  STATISTICS* 
City  and  Suburban 
As  per  Hall 
TABLE  No.  A 

INVESTMENT  IN  UNDERGROUND  CONDUIT  AND 
TOTAL  DUCT  MILES  OF  CONDUIT 


Years 


Investment  in 

Underground 

Conduit 


Duct  Miles 

of 
Conduit 


Investment 

per 
Duct  Foot 


$346,866 

545,584 

599,009 

607,536 

620,593 

639,847 

711,709 

755,987 

984,525 

1,149,222 

1,329,107 

1,567,620 

1,762,600 

1,865,402 

2,140,409 

2,352,168 

3,337,393f 

3,456,704 

3,610,802 

3,844,636 

4,083,836 


109 

154 

160 

160 

171 

185 

234 

267 

527 

874 
1,019 
1,192 
1,372 
1,468 
1,755 
1,964 

2,100  estimate 
2,252  estimate 
2,403 
2,493 
2,794 


60c 
67c 
71c 
72c 
69c 
65c 
58c 
54c 
35c 
25c 
25c 
25c 
24c 
24c 
23c 
23c 
30c 
29c 
28c 
29c 
28c 


1  These  figures  are  illustrated  by  charts  in  Hall's  Report  and  are  taken  from 
the  records  of  the  company.  Aerial  wire  and  poles  are  omitted  because  the 
appraisal  showed  the  books  on  these  matters  were  incorrect. 

fin  1907  ducts  above  ground  connecting  cable  with  tunnel  were  charged  to 
underground  construction. 


PHYSICAL  VALUATION  OF  CHICAGO  TEL.  COS.      871 

APPENDIX  6 — Continued 
TABLE  No.  B 

INVESTMENT  IN  UNDERGROUND  CABLE  AND 
TOTAL  MILES  OF  UNDERGROUND  WIRE 


Years 

Investment  in 
Underground 
Cable 

Miles  of 
Underground 
Wire 

Investment 
per  Mile 
of  Wire 

1891  .  . 

$273,137 

8,291 

$32.94 

1892  

447,379 

14,183 

31.54 

1893  

598,774 

17,143 

34.93 

1894  

600,373 

18,820 

31.90 

1895  

624,696 

19,050 

32.79 

1896  

654,826 

20,548 

31  87 

1897  

702,931 

24,324 

28.90 

1898  

795,654 

30,259 

26.29 

1899  

944,823 

41,757 

22.63 

1900  

1,323,526 

68,593 

19.30 

1901  

1,721,724 

87,685 

19.64 

1902  

2,113,272 

123,708 

17.08 

1903  

2,313,802 

149,234 

15.50 

1904  

2,409,112 

161,202 

14.94 

1905  

2,649,825 

187,231 

14.15 

1906  

3,555,264 

248,939 

14.28 

1907  

4,127,627 

343,069 

12.03 

1908  

4,331,566 

398,177 

10.88 

1909  

4,889,326 

466,796 

10.47 

1910  

5,290,114 

509,143 

10.39 

1911  

6,240,478 

626,935 

9.95 

TABLE  No.  C 

INVESTMENT  IN  UNDERGROUND  CONDUIT  AND  CABLE  AND 
TOTAL  MILES  OF  WIRE 


Tears 

Investment  in 
Underground 
Conduit  and 
Cable 

Miles  of 
Underground 
Wire 

Investment 
Per  Mile 
Underground 
Wire 

1891  .  . 

$620,004 

8,291 

$74.78 

1892  

992,963 

14,183 

70.01 

1893  

1,197,783 

17,143 

69  88 

1894  

1,207,910 

18,820 

64  18 

1895  

1,245,289 

19,050 

65  37 

1896  

.    ...     1,294,674 

20,548 

63  01 

1897  

1,414,640 

24,324 

68  16 

1898. 

1,551,642 

30,259 

51  28 

1899  

1,929,348 

41,757 

46.20 

1900. 

2,472,749 

68,593 

36  05 

1901  

3,050,831 

87,685 

34.79 

1902  

3,680,893 

123,708 

29.76 

1903  

4,076,403 

149,234 

27.32 

1904  

.  .  .     4,274,515 

161,202 

26  52 

1905  

4,790,234 

187,231 

25.58 

1906  

5,907,433 

248,939 

23.73 

1907  

7,465,021 

343,069 

21.76 

1908  

7,788,271 

398,177 

19.56 

1909  

8,500,130 

466,796 

18.21 

1910  

9,134,761 

509,143 

17.94 

1911  

10,324,315 

626,935 

16.47 

872         MATERIALS    OF    CORPORATION    FINANCE 

TABLE  No.  D 

INVESTMENT  IN  CENTRAL  OFFICE  AND  SUBSCRIBERS' 
STATION  EQUIPMENT 


Investment  in 

Number  of 

Investment 

Equipment 

Stations 

per  Station 

1891  

$418,762 

9,043 

$46.31 

1892  

579,657 

10,431 

55.57 

1893  

720,431 

11,408 

63.15 

1894  

796,107 

12,222 

65.14 

1896  

905,497 

13,542 

66.87 

1896  

1,020,870 

15,024 

67.95 

1897  

1,086,093 

16,462 

65.98 

1898  .  .  .  

1,257,165 

20,512 

61.29 

1899  

1,627,179 

26,825 

60.66 

1900  

1,952,983 

35,347 

55.25 

1901  

2,757,502 

53,511 

51.53 

1902  

3,744,330 

79,043 

47.37 

1903  

4,674,471 

101,187 

46.20 

1904  

5,066,024 

117,893 

42.97 

1905  

5,626,443 

143,223 

39.28 

1906  

6,614,655 

170,834 

38.72 

1907  

8,226,293 

202,681 

40.59 

1908  

8,848,913 

231,180 

38.28 

1909  

9,621,100 

262,359 

36.67 

1910  

11,151,334 

300,618 

37.09 

1911  

13,193,538 

335,652 

39.31 

TABLE  No.  E 

TOTAL  INVESTMENT  IN  EQUIPMENT  AND  CONSTRUCTION 
AND  TOTAL  NUMBER  OF  STATIONS 


Years 

Total 
Investment  in 
Equipment  and 
Construction 

Number  of 
Stations 

Total 
Investment 
per  Station 

1891  

$1,898,123 

9,043 

$209.89 

1892  , 

2,751,220 

10,431 

263.75 

1893  

3,357,532 

11,408 

294.31 

1894  

3,514,478 

12,222 

287.55 

1895  

3,822,279 

13,542 

282.25 

1896  

4,128,672 

15,024 

274.81 

1897  

4,429,409 

16,462 

269.07 

1898  

4,987,350 

20,512 

243.14 

1899  

6,058,601 

26,825 

225.86- 

1900  

7,300,608 

35,347 

206.54 

1901  

9,331,901 

53,511 

174.39 

1902  

11,832,393 

79,043 

149.69 

1903  

13,670,011 

101,187 

135.10 

1904  

14,672,769 

117,893 

124.46 

1905  

16,081,671 

143,223 

112.28 

1906  

18,810,055 

170,834 

110.11 

1907  

21,750,059 

202,681 

107.31 

1908  

22,805,655 

231,180 

98.65 

1909  

24,526,207 

262,359 

93.48 

1910  ... 

.    .  .     26,904,189 

300,618 

89.50 

1911  .  . 

30,629,452 

335,652 

91.25 

PHYSICAL  VALUATION  OF  CHICAGO  TEL.  COS.    873 

TABLE  No.  F 
MAINTENANCE  AS  A  PERCENTAGE  OF  AVERAGE  INVESTMENT 


Years 

Maintenance, 
Per  Cent. 

Years 

Maintenance, 
Per  Cent. 

1891   

10.53 

1901  

8  54 

1892  

9.88 

1902  

8.56 

1893   

8.33 

1903  

8.89 

1894   

9.44 

1904  

6.93 

1895  

10.86 

1905  

9  01 

1896   

9.49 

1906  

7.26 

1897  

7.55 

1907 

.  .    .                9  81 

1898  

8.74 

1908 

8  64 

1899  

8.35 

1909 

8  42 

1900  

11.55 

1910 

7  78 

1911   

6.95 

TABLE  No.  G 
EXTENSION  OF  CONDUIT  AND  UNDERGROUND  WIRE 


Miles  of 

Years 

Miles  of 
Underground 
Wire 

Duct  Miles 
of  Conduit 

Underground 
Wire  per 
Miles  of 

Conduit 

1884  . 

1885  ; 

760 

• 

1886  

1,462 

1887  

2,000 

..... 

1888  

3,141 

1889  

3,272 

..... 

1890  . 

6,456 

1891  

8,291 

io9 

76.06 

1892  

14,183 

154 

92.09 

1893  

17,143 

160 

107.14 

1894  

18,820 

160 

117.62 

1895  

19,050 

171 

111.40 

1896  

20,548 

185 

111.07 

1897  

24,324 

234 

103.95 

1898  .  .  . 

30,259 

267 

113.33 

1899  .  .  . 

41,757 

527 

79.23 

1900  

68,593 

874 

78.48 

1901  

87,685 

1,019 

86.05 

1902  

123,708 

1,192 

103.78 

1903  

149,234 

1,372 

108.77 

1904  

161,202 

1,468 

109.81 

1905  

187,231 

1,755 

106.68 

1906  

248,939 

1,964 

126.76 

1907  

343,069 

2,100 

163.32 

1908  

398,177 

2,252 

176.81 

1909  

466,796 

2,403 

194.25 

1910  

509,143 

2,493 

204.22 

1911  

626,935 

2,794 

224.39 

874 


MATERIALS    OF    CORPORATION    FINANCE 


TABLE  No.  H 

MILES  OF  EXCHANGE  WIRE  AND  NUMBER  OF  STATIONS 
EXCLUDING  EXTENSION  STATIONS 


Years 


Total  Miles 
of  Wire 


Total  No. 
of  Stations 


Miles  of  Wire 
Per  Station 


1884 4,250  3,927 

1885 4,760  4,455 

1886 5,762  4,867 

1887 6,392  5,382 

1888 9,073  5,427 

1889 9,963  6,394 

1890 13,426  7,772 

1891 18,206  9,043 

1892 25,883  10,431 

1893 31,920  11,408 

1894 33,934  12,222 

1895 35,148  13,542 

1896 36,731  15,024 

1897 41,760  16,462 

1898 51,566  20,274 

1899 67,607  26,075 

1900 101,430  34,351 

1901 135,234  50,984 

1902 183,270  75,755 

1903 • 218,101  96,823 

1904 238,277  112,560 

1905 274,944  136,500 

1906 341,108  162,795 

T907 444,010  190,061 

1908 508,329  213,964 

1909 .- 582,818  241,570 

1910 625,237  276,908 

1911 763,390  309,349 


.08 
.07 
.18 
.19 
.67 
.56 
.73 
2.01 
2.48 
2.80 
2.78 
2.59 
2.44 
2.54 
2.54 
2.55 
2.95 
2.65 
2.42 
2.25 
2.12 
2.01 
2.10 
2.34 
2.37 
2.41 
2.26 
2.47 


APPENDIX  7 

BASE  FIGURES  OF  APPRAISAL  VS.  BOOK  VALUE 

COMPARISON  OF  APPRAISAL  BASE  FIGURES  AND  BOOK  VALUE 

(Chicago  and  Suburban) 

As  at  August  1,  1911 

Appraisal  Increase 

Book  Value     Base  Figures        Decrease 


Real  Estate: 

Land $  601,801.14  $1,083,958.15     482,157.01 

Buildings 2,568,777.87    2,260,033.01      308,744-86* 

Total  Real  Estate. $3,170,579 . 01    3,343,991 . 16     173,412 . 15 

Central  Office  Equipment: 

Operating  Equipment 4,386,011 . 81 

Furniture  and  Fixtures 84,816 . 87 

School  Equipment 16,837.07 


Total  Central  Office  Equipm't .     4,986,077.83    4,487,665.75     498,412.08* 


Subscribers  Station  Equipment $6,985,798 . 56  $6,906,778 . 32       75,020 . 24* 


NOTE — Figures  in  italic  with  asterisk  denote  decrease. 


PHYSICAL  VALUATION  OF  CHICAGO  TEL.  COS,    875 

Aerial  Construction: 

Pole  lines $3,525,809.63  $3,873,436.00  $347,626.37 

Cable 1,605,654.87  1,546,937.00  68,717.87* 

Wire 3,065,865.09  1,816,676.00  1,249,189.09* 


Total  Aerial  Construction....  $8,197,329.59    $7,237,049.00     1960,280.69* 


Underground,  etc.: 

Conduit $4,371,715.30  $5,475,288.00  $1,103,572.70 

Cable 5,932,910.74  6,135,690.00       202,779.26 

Submarine  Cable 993.43  993.43* 

House  Cable 53,874.99  175,326.00       121,451.01 


Total  Underground,  etc $10,359,494.46  $11,786,304.00  $1,426,809.54 


Right  of  Way 

Toll  Line  Adjustment. 


30,356.94 


97,905.00 
3,406.00 


67,548.06 
3,406.00 


Total  Plant  in  Operation $33,729,636 . 39  $33,863,099 . 23  $133,462 . 84 

Construction  in  Process 1,513,525 . 13      1,589,201 . 39  75,676 . 26 

Office  Furniture  and  Fixtures 133,092 . 79         230,396 . 41  97,303 . 62 

Tools  and  Teams 246,320. 14         322,639.75  76,319.61 

Working  Capital  (Estimated)..  ..     1,750,000.00      1,851,465.51  101,465.51 


Total $37,372,574 . 45  $37,856,802 . 29     $484,227 . 84 


COMPARISON  OF  APPRAISAL  BASE  FIGURES  AND  BOOK  VALUE 

(Chicago  only) 
As  at  August  1,  1911 


Book  Value 
Adjusted 


Appraisal 


Increase* 
Decrease 


Real  Estate: 

Land $526,956.61       $955,585.65     $428,629.04 

Buildings 2,326,931.03      2,015,564.87       311,366.16* 


Total  Real  Estate $2,853,887 . 64    $2,971,150 . 52     $1 17,262 . 88 


Central  Office  Equipment: 

Operating  Equipment  .........  $  4,257,254.40  $  3,806,604.21  $460,650.19* 

Furniture  and  Fixtures  ........         73,997.58  70,882.61  3,114-97* 

School  Equipment  ............          13,203  .  18  16,837  .  07  3,633  .  89 

Total  Central  Office  Equipm't  $4,344,455  .  16    $3,894,323.89  $460,131  .27* 


Subscribers  Station  Equipment...  $5,848,386.60  $5,756,119.87       192,266.78* 

Aerial  Construction: 

PoleLines  ..................  $1,136,530.24  $1,384,151.00     $247,620.76 

Cable  ...................     1,139,427.06  1,044,205.00         95,222.06* 

Wire  ........................     1,912,580.42  435,194.00    1,477,886.42* 

Total  Aerial  Construction..  .  .  $4,188,537.72  $2,863,550.00  11,824,487.72* 

Underground  Construction: 

Conduit                                 ....  $3,847,265.79  $4,665,298.00    $818,032.21 

Cable                  .............     5,200,373  .  65  5,357,491  .  00       157,1  17  .  35 

Submarine  Cable  .............  993.43 

House  Cable  .................          52,685.31  172,640.00        119,954.69 

Total  Underground  Construc- 
tion ......    .  .............  $9,101,318.  18  $10,195,429.00  $1,094,110.82 

NOTE  —  Figures  in  italic  with  asterisk  denote  decrease. 
29 


876 


MATERIALS    OF   CORPORATION    FINANCE 
Adjusted  Appraisal 


Decrease* 


Right  of  Way 17,626.77           54,229.00  36,602.23 

Toll  Line  Adjustment 3,406 . 00  3,406 . 00 

Total  Plant  in  Operation ....  26,354,212 . 07  $25,738,208 . 28  $616,003 . 79* 

Construction  in  Process 1,326,534.32    $1,392,861 .04  66,326.72 

Office  Furniture  and  Fixtures ....        106,281 . 34         212,251 . 59  105,97 . 25 

Tools  and  Teams 181,056.75         236,732.65  55,675.90 

Working  Capital  (Estimated) 1,500,000 . 00      1,462,282 . 17  37,717. 83* 

Total $29,468,084 . 48  $29,042,335 . 73  $426,748 . 75* 

COMPARISON  OF  APPRAISAL  BASE  FIGURES  AND  BOOK  VALUE 

(Suburban  Only) 
As  at  July  31,  1911 

Book  Value        Appraisal 

Real  Estate:  • 

Land $       74,844.53$      128,372.50  $53,527.97 

Buildings 241,846.84         244,468.14  2,621.30 

Total  Real  Estate 316,691.37         372,840.64  56,149.27 

Central  Office  Equipment: 

Operating  Equipment 579,407 . 60 

Furniture  and  Fixtures '  13,934 . 26 

School  Equipment 

Total  Central  Office  Equipm't     $641,622.67       $593,341.86  $48,280.81 

Subscribers  Station  Equipment...  $1,137,411.96  $1,150,658.45  $13,246.49 

Aerial  Construction: 

Pole  Lines $2,389,279 . 39    $2,489,285 . 00  $100,005 . 61 

Cable 466,227.81         502,732.00  36,504.19 

Wire 1,153,284.67      1,381,482.00  228,197.33 

Total  Aerial  Construction. . . .    4,008,791 . 87    $4,373,490 . 00  $364,707 . 13 

Underground,  etc.: 

Conduit $524,449 . 51       $809,990 . 00  $285,540 . 49 

Cable 732,537.09         778,199.00  45,661 .91 

Submarine  Cable 

House  Cable 1,189.68             2,686.00  1,496.32 

Total  Underground,  etc $1,258,176.28    $1,590,875.00  $332,698.72 

Right  of  Way 12,730.17          43,676.00  30,945.83 

Total  Plant  in  Operation ....  $7,375,424 . 32    $8, 124,890 . 95  $749,466 . 63 

Construction  in  Process 186,990 . 81         196,340 . 35  9,349 . 54 

Office  Furniture  and  Fixtures ....          26,811 . 45            18,144 . 82  8,666 . 63* 

Tools  and  Teams 65,263.39           85,907.10  20,643.71 

Working  Capital  (Estimated) 250,000 . 00         389,183 . 34  139,183 . 34 

Total..                                    .  $7,904,489.97    $8,814,466.56  $909,976.59 


NOTE — Figures  in  italic  with  asterisk  denote  decrease. 


PHYSICAL  VALUATION  OF  CHICAGO  TEL.  COS.      877 


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880         MATERIALS    OF   CORPORATION    FINANCE 

APPENDIX  9 
BUILDINGS 

APPRAISAL  COMPARED  WITH  BOOK  VALUE 


Appraisal       Book  Value 


Increase  on  Per  cent 
Book  Value  Increase 


Austin  Office  

$32,962.92 

$26,004.71 

$6,958.21 

26.8 

Calumet  Office  

49,247.56 

24,412.15 

23,835.41 

93.8 

Canal  Office  

27,313.29 

19,884.71 

7,428.58 

37.4 

Central  Office  

159,214.01 

136,136.78 

23,077.23 

17.0 

Central  Div.  Headquarters  .  . 

119,685.19 

104,635.37 

15,049.82 

14.4 

Douglas  Office  

45,796.14 

31,385.34 

14,410.80 

45.9 

Edgewater  Office  

62,660.56 

52,884.21 

9,776.35 

18.5 

Harrison  Street  Lot  

325.89  . 

325.89 

Humboldt  Office  

42,230.51 

30,136.26 

12,094.25 

40.1 

Hyde  Park  Office  

30,354.29 

25,927.09 

4,427.20 

17.1 

Irving  Park  Office  

15,298.80 

14,031.51 

1,267.29 

9.0 

Kedzie  Office  

57,814.62 

49,822.51 

7,992.11 

16.0 

Lake  View  Office  

54,060.15 

44,638.42 

9,421.73 

21.1 

Lawndale  Office  

59,102.70 

46,176.36 

12,926.34 

28.0 

Lincoln  Office  

93,885.52 

74,686.47 

19,199.05 

25.7 

Main  Office  

398,704.76 

385,895.12 

12,809.64 

3.3 

Monroe  Office  

78,871.34 

75,953.19 

2,918.15 

3.8 

North  Office  

65,405.01 

53,653.52 

11,751.49 

21.9 

Northern  Div.  Headquarters. 

36,061.56 

33,544.00 

2,517.56 

7.5 

Oakland  Office  

71,843.79 

66,958.61 

4,885.18 

7.3 

Pole  Yard,  70th  St.  &  Monroe 

211.24  . 

211.24 

South  Chicago  Office  

13,586.23 

8,331.37 

5,254.86 

63.1 

Southern  Div.  Headquarters. 

45,082.41 

39,781.77 

5,300.64 

13.3 

Toll  and  Long  Distance  Bldg. 

523,623.16 

490,615.84 

33,007.32 

6.7 

Wabash  Office  

345,443.69 

299,056.17 

46,387.52 

15.5 

Wentworth  Office  

91,010.01 

'97,480.08 

6,470.07 

6.6 

West  Office  

52,108.08 

47,610.77 

4,497.31 

9.4 

West  Pullman  Office  

11,492.30 

10,505.36 

986.94 

9.4 

Western  Div.  Headquarters  .  . 

131.16  . 

131.16 

Yard  Office  

58,878.70 

60,580.42 

1,701.72 

2.8 

Total $2,642,405.59  $2,351,728.11  $290,677.48      12.4 

APPENDIX  10 

CHICAGO  TELEPHONE  COMPANY 
DEFENSE  OF  BUILDING  APPRAISAL 


Oct.  8,  1912. 


Prof.  E.  W.  Bemis, 
City  Hall, 

Chicago,  III. 

DEAR  PROF.  BEMIS  : 


BUILDING   COSTS 


I  return  herewith  typewritten  table  showing  analysis  of  building 
costs,  as  shown  by  the  Chicago  Appraisal  and  also  the  Chicago  Tele- 
phone Company's  books. 


PHYSICAL  VALUATION  OF  CHICAGO  TEL.  COS.      881 

As  you  know,  the  costs  of  material  and  labor  entering  into  the  con- 
struction of  buildings  are  considerably  higher  now  than  in  former 
years.  The  low  building  costs  of  the  earlier  years  of  this  Company's 
history  are  reflected  in  the  higher  reproduction  new  figures  shown  in 
the  appraisal,  except  in  those  instances  where  one  or  more  additions 
have  been  made  to  the  building,  involving  construction  costs  that  the 
appraisers  did  not  make  allowance  for  in  estimating  the  reproduction 
new  cost  of  the  property. 

Land  values  in  Chicago  also  have,  in  general,  increased,  and  such  an 
increase  is  reflected  in  the  higher  present  values  shown  in  the  ap- 
praisal in  practically  all  cases,  except  where  the  price  paid  for  the  land 
included  building  since  destroyed,  and,  of  course,  not  appearing  in  the 
appraisal.  In  such  cases  the  appraisal  of  the  land  shows  little  or  no 
increase,  or  even  a  decrease,  although  land  values  in  the  vicinity  have 
gone  up  since  the  purchase  of  our  property. 

I  will  point  out  some  specific  instances  illustrating  the  above  state- 
ments : 

Austin: 

The  appraisal  shows  an  increase  of  27%  in  land  value,  consistent 
with  the  increase  in  land  values  in  this  vicinity.  This  lot  was  pur- 
chased about  ten  years  ago.  The  building  shows  an  increase  of  26.8%, 
which  I  think  fairly  represents  the  added  cost  of  buildings  to-day  over 
the  cost  of  1904,  when  this  building  was  erected. 

Calumet: 

The  land  for  Calumet  was  purchased,  part  about  1891,  and  part  in 
1901,  and  has  appreciated  very  much,  principally  in  recent  years  since 
the  automobile  industry  has  brought  business  down  into  the  district. 
The  appreciation  shown  by  the  appraisal  is  83.3%,  and  I  believe  it  is 
very  fair. 

The  appraisal  shows  an  appreciation  in  the  reproduction  new  cost 
of  buildings  of  93.8%.  This  is  brought  about  by  the  fact  that  five 
old  houses  and  a  barn  were  bought  with  the  land,  and  were  entered 
in  our  books  at  the  estimated  then  value.  Naturally,  the  appraisal 
and  value  of  reproduction  new  would  be  materially  higher,  and  I 
think  that  this,  with  the  higher  present  cost  of  construction  readily 
accounts  for  the  appreciation. 

Canal: 

The  22.8%  increase  in  land  value  is  readily  accounted  for  by  the 
increase  in  values  in  the  district.  The  37.4%  increase  in  building 
value  can  be  accounted  for  by  the  increase  in  building  costs.  This 
building  was  erected  in  1003,  when  building  costs  were  low. 


882         MATERIALS    OF    CORPORATION    FINANCE 

Central: 

The  Central  Building  was  erected  in  1905,  when  buildiug  costs  were 
lower  than  now,  and  under  a  favorable  contract.  The  appreciation  of 
17.4%  I  believe  to  be  reasonable. 

Central  Division  Headquarters: 

The  Central  Division  Headquarters  and  Cortlandt  St.  lots  were  both 
purchased  on  very  favorable  terms,  and  land  has  since  increased  rap- 
idly in  value. 

Douglas: 

This  building  was  erected  in  1903,  when  building  costs  were  much 
lower  than  at  present,  and  the  appreciation  of  45.9%  I  believe  is  rea- 
sonable. Land  values  in  this  district  are  practically  at  a  standstill. 

Edgewater: 

The  53.6%  increase  in  land  reflects  the  rise  in  land  values  in  this 
district.  Our  lot  was  bought  at  a  favorable  price. 

Harrison  Street  Lot: 

This  lot,  located  at  Harrison  Street  and  Pacific  Ave.,  just  at  the  edge 
of  the  business  district,  has  increased  very  much  in  value  due  to  the 
expansion  of  the  business  district. 

Humboldt: 

This  building  was  erected  in  1905,  when  building  costs  were  low. 
It  was  constructed  under  a  very  favorable  contract.  Land  prices  have 
also  increased. 

Lincoln: 

I  am  advised  that  the  original  price  of  the  land  included  an  old 
building  that  was  afterwards  destroyed.  This  explains  the  apparent 
decrease  in  land  value.  Other  land  in  the  vicinity  shows  some  increase. 

Main: 

The  land  purchased  for  the  original  Main  also  included  an  old 
building,  which  was  torn  down.  The  land  value  in  this  instance 
would  have  shown  a  slightly  greater  appreciation,  were  it  not  for  this 
fact.  The  main  building  shows  only  a  small  increase  in  reproduction 
cost  because  of  the  fact  that  additions  have  been  made,  and  the  extra 
cost  of  such  additions  is  not  included  in  the  appraisal.  The  original 
building  was  erected  in  1887,  when  building  costs  were  low. 

Monroe : 

The  Monroe  land  shows  a  substantial  increase  in  value,  consistent 
with  the  other  land  values  in  the  vicinity.  The  Monroe  building 
shows  a  very  small  increase  in  value.  Here  again,  several  additions 


PHYSICAL  VALUATION  OF  CHICAGO  TEL.  COS.     883 

have  been  made  since  the  erection  of  the  original  building  in  1899. 
The  appraisal  figure  does  not  take  into  account  the  extra  costs  in- 
volved; hence,  little  appreciation  is  shown,  notwithstanding  the  fact 
that  the  original  building  and  soine  of  the  additions  were  made  when 
building  costs  were  much  lower  than  at  present. 

North: 

This  building  was  erected  in  1900,  when  building  costs  were  low. 
There  have  been  no  additions.  The  land  shows  a  small  increase  in 
value,  and  I  learn  that  land  values  in  this  district  have  been  nearly 
stationary.  It  is  possible  that  an  old  building  may  have  been  included 
in  the  original  price  paid  for  the  land. 

Oakland: 

The  appraisal  figure  for  Oakland  Building  is  but  little  over  the  book 
value.  Several  additions  were  made  to  the  Oakland  Building,  and 
the  extra  cost  of  these,  of  course,  was  not  taken  into  account  in  the 
appraisal.  The  estimated  cost  to  reproduce  new,  the  old  fiat  build- 
ings purchased,  fails  to  much  more  than  make  up  for  this  deficiency. 
Land  values  in  this  territory  have  been  practically  stationary. 

South  Chicago: 

The  appraisal  shows  a  very  small  increase,  only  2.9%,  for  South 
Chicago  land,  notwithstanding  the  general  increase  of  values  in  the 
district.  This  is  accounted  for  in  the  fact  that  the  book  figures  for 
land  include  also  the  cost  of  two  houses  and  a  barn.  One  of  the  houses 
was  destroyed  before  the  present  Central  office  building  was  erected. 
The  substantial  increase  in  building  values  of  63.1%  is  accounted  for 
in  the  fact  that  the  original  South  Chicago  Building  was  erected  in 
1902,  when  the  construction  costs  were  low,  and  further  in  the  fact 
that  the  reproduction  new  estimate  includes  the  cost  of  reproducing 
a  house  and  barn  now  on  the  property,  the  original  cost  of  which  is 
included  in  the  land  value. 

South  Division  Headquarters: 

The  land  values  in  this  district  have  increased  very  much.  The 
property  is  on  the  55th  Street  Boulevard. 

Toll  and  Long  Distance  Building: 

Although  this  building  was  erected  in  1908,  when  building  prices 
were  somewhat  lower  than  now,  the  contract  was  not  a  favorable  one; 
it  was  cost  plus  10%.  As  a  result,  the  appraisal  figure  is  but  6.7% 
in  excess  of  the  books. 


884         MATERIALS    OF    CORPORATION    FINANCE 

W abash : 

The  land  values  in  this  district  have  greatly  increased  in  the  last 
three  or  four  years  due  to  the  expansion  in  the  business  district.  This 
accounts  for  the  increase  in  value  of  50.8%. 

Wentworth  : 

The  original  Wentworth  Building  was  erected  in  1900,  when  build- 
ing  costs  were  low.  Several  additions  have  since  been  made,  however, 
and  the  appraisal  fails  to  take  into  account  the  extra  costs  involved. 
Because  of  this,  it  shows  a  decrease  of  6.6%. 

The  land  value  increase  of  31.4%  is  consistent  with  similar  values 
in  the  vicinity. 

West: 

This  building  was  erected  in  1900,  when  construction  costs  were 
low.  The  small  increase  of  9.4%  is  because  the  appraisal  figures  fail 
to  take  into  account  the  extra  cost  of  two  building  additions  made  since 
then.  The  land  shows  a  decrease  of  36%.  While  values  in  this  dis- 
trict seem  to  have  remained  about  stationary,  or  may  have  decreased 
a  little,  the  large  decrease  in  value  can  probably  be  accounted  for  in 
the  fact  that  an  old  building  was  purchased  with  the  lot,  and  since 
destroyed,  and  is  included  in  the  book  value  of  the  land.  I  am  unable, 
however,  to  verify  this. 

West  Pullman: 

This  building  was  erected  in  1901,  when  construction  costs  were  low. 
The  small  increase  of  9.4%  as  shown  by  the  appraisal  is  accounted  for 
in  the  fact  that  the  figures  do  not  take  into  account  the  extra  cost  of 
an  addition  to  the  building. 

Western  Division  Headquarters: 

The  land  for  these  headquarters  was  bought  on  very  favorable  terms, 
and  land  values  in  the  vicinity  have  gone  up  to  a  marked  extent. 

Yards : 

The  Yards  Building  was  erected  in  1900,  when  building  costs  were 
low.  The  decrease  of  2.8%  shown  in  the  appraisal  is  due  to  the  fact  that 
the  appraisal  figures  fail  to  take  into  accounts  the  extra  costs  of  mak- 
ing additions  since  the  erection  of  the  original  building.  Land  values 
in  this  vicinity  have  gone  up  consistent  with  the  appraisal  figures, 
showing  increase  of  33.9%.  Yours  truly, 

(Signed)     .T.  G.  WRAY,  Chief  Engineer. 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      885 

APPENDIX  11 

EFFECT  OF  SUBWAY  CONSTRUCTION 

Oct.  9,   1912. 
Professor  E.  W.  Bemis, 
City  Hall, 

Chicago,  Illinois. 

DEAR  SIR: 
TELEPHONE  PLANT  DISTURBED  BY  PROPOSED  PASSENGER  SUBWAY 

Referring  to  the  system  of  passenger  subways,  construction  of  which 
is  proposed  by  the  Chicago  Harbor  and  Subway  Commission  in  their 
report  of  September  10th,  1912,  I  wish  to  discuss  the  plant  of  the 
Chicago  Telephone  Company,  which  will  be  destroyed  or  will  have 
to  be  abandoned  on  account  of  the  construction  of  this  subway 
system. 

The  Harbor  and  Subway  Commission  proposes  to  construct  passen- 
ger subways  in  the  following  streets — 

In  Evanston  Avenue  from  Lawrence  Avenue  to  Halsted  Street. 

In  Lincoln  Avenue  from  Lawrence  Avenue  to  Clark  Street. 

In  Elston  Avenue  from  Kedzie  Avenue  to  California  Avenue. 

In  California  Avenue  from  Elston  Avenue  to  Milwaukee  Avenue, 

In  Armitage  Avenue  from  40th  Avenue  to  Milwaukee  Avenue. 

In  Milwaukee  Avenue  from  California  Avenue  to  Canal  Street. 

In  Halsted  Street  from  Evanston  Avenue  to  79th  Street. 

In  Clark  Street  from  Lincoln  Avenue  to  Polk  Street. 

In  Washington  Street  from  Canal  Street  to  State  Street. 

In  Madison  Street  from  40th  Avenue  to  Clark  Street. 

In  Harrison  Street  from  Halsted  Street  to  State  Street. 

In  State  Street  from  the  Chicago  River  to  55th  Street. 

In  Blue  Island  Avenue  from  Ashland  Avenue  to  Halsted  Street. 

In  22nd  Street  from  Marshall  Boulevard  to  Ashland  Avenue. 

In  26th  Street  from  40th  Avenue  to  Marshall  Boulevard. 

In  55th  Street  from  Western  Avenue  to  Cottage  Grove  Avenue. 

In  Cottage  Grove  Avenue  from  55th  Street  to  79th  Street. 

There  will  also  be  several  short  connecting  lines  which  I  have  not 
enumerated. 

The  construction  of  these  passenger  subways  will  necessitate  the 
abandonment  and  removal  of  a  rather  large  amount  of  telephone  un- 
derground conduit  and  underground  cable, 'and  I  will  enumerate  below 
the  general  locations  and  amounts  of  underground  plant  which  will 
be  involved. 


886         MATERIALS    OF    CORPORATION    FINANCE 

In  Evanston  Avenue: 

From  Berteau  Avenue  to  Halsted  Street  2  ducts  of  conduit  and  1 
cable. 

In  Lincoln  Avenue: 

From  Cullom  Avenue  to  Belle  Plaine  Avenue  4  ducts  of  conduit  and 
1  cable. 

In  Elston  Avenue: 

From  Kedzie  Avenue  to  California  Avenue  6  ducts  of  conduit  and  2 
cables. 

In  Milwaukee  Avenue: 

From  California  Avenue  to  Western  Avenue  an  average  of  9  ducts 
of  conduit  and  5  cables. 

From  Western  Avenue  to  Robey  Street  an  average  of  6  ducts  of 
conduit  and  1  cable. 

From  Noble  Street  to  Chicago  Avenue  16  ducts  of  conduit  and  4 
cables. 

From  Chicago  Avenue  to  Halsted  Street  28  ducts  of  conduit  and  3 
cables. 

From  Halsted  Street  to  Canal  Street  an  average  of  10  ducts  of 
conduit  and  2  cables. 

In  Halsted  Street: 

From  Grace  Street  to  Addison  Street  2  ducts  of  conduit  and  1  cable. 

From  Wrightwood  Avenue  to  Belden  Avenue  an  average  of  6  ducts 
of  conduit  and  2  cables. 

From  Shades  Place  to  Blackhawk  Street  4  ducts  of  conduit  and  1 
cable. 

From  Rees  Court  to  Division  Street  1  duct  of  conduit  and  1  cable. 

From  Chicago  Avenue  to  Madison  Street  an  average  of  5  ducts  of 
conduit  and  3  cables. 

From  Madison  Street  to  Harrison  Street  18  ducts  of  conduits  and 
5  cables. 

From  Harrison  Street  to  12th  Street  18  ducts  of  conduit  and  2 
cables. 

From  12th  Street  to  the  south  branch  of  the  Chicago  River  an  aver- 
age of  16  ducts  of  conduit  and  2  cables. 

From  the  south  branch  of  the  Chicago  River  to  26th  Street  12  ducts 
of  conduit  and  2  cables. 

In  California  Avenue: 

From  Wrightwood  Avenue  to  Milwaukee  Avenue  3  ducts  of  conduit 
and  1  cable. 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      887 

In  Clark  Street: 

From  Lincoln  Avenue  to  Division  Street  an  average  of  17  ducts  of 
conduit  and  11  cables. 

From  Division  Street  to  Chicago  Avenue  an  average  of  27  ducts  of 
conduit  and  11  cables. 

From  Chicago  Avenue  to  Illinois  Street  an  average  of  24  ducts  of 
conduit  and  12  cables. 

From  Illinois  Street  to  Kinzie  Street  18  ducts  of  conduit  and  15 
cables. 

From  South  "Water  Street  to  Washington  Street  an  average  of  10 
ducts  of  conduit  and  1  cable. 

From  Washington  Street  to  Van  Buren  Street  an  average  of  15  ducts 
of  conduit  and  4  cables. 
In  Madison  Street: 

From  40th  Avenue  to  Central  Park  Avenue  an  average  of  7  ducts 
of  conduit  and  6  cables. 

From  Central  Park  Avenue  to  Sacramento  Avenue  an  average  of  10 
ducts  of  conduit  and  6  cables. 

From  Ashland  Avenue  to  Canal  Street  an  average  of  30  ducts  of 
conduit  and  17  cables. 
In  Harrison  Street: 

From  Halsted  Street  to  Clinton  Street  12  ducts  of  conduit  and 
3  cables. 

From  Clinton  Street  to  5th  Avenue  an  average  of  14  ducts  of  con- 
duit and  7  cables. 

From  5th  Avenue  to  Sherman  Street  18  ducts  of  conduit  and  12 
cables. 

From  Sherman  Street  to  Clark  Street  48  ducts  of  conduit  and  13 
cables. 

From  Clark  Street  to  State  Street  an  average  of  25  ducts  of  conduit 
and  16  cables. 
In  Blue  Island  Avenue: 

From  Harrison  Street  to  12th  Street  8  ducts  of  conduit  and  2  cables. 

From  12th  Street  to  14th  Street  8  ducts  of  conduit  and  3  cables. 

From  14th  to  19th  Street  10  ducts  of  conduit  and  4  cables. 

From  19th  to  22nd  Street  6  ducts  of  conduit. 
In  26th  Street: 

From  Whipple  Street  to  Springfield  Avenue  an  average  of  3  ducts 
of  conduit  and  1  cable. 
In  State  Street: 

From  Madison  Street  to  Van  Buren  Street  6  ducts  of  conduit  and 
2  cables. 

From  26th  Street  to  27th  Street  4  ducts  of  conduit  and  1  cable. 

From  Root  Street  to  43d  Street  7  ducts  of  conduit  and  1  cable. 


888         MATERIALS   OF   CORPORATION   FINANCE 

In  Cottage  Grove  Avenue: 

From  55th  Street  to  63d  Street  an  average  of  8  ducts  of  conduit 
and  1  cable. 

From  63d  Street  to  69th  Street  8  ducts  of  conduit  and  2  cables. 

From  69th  Street  to  71st  Street  8  ducts  of  conduit  and  3  cables. 

From  71st  Street  to  75th  Street  3  ducts  of  conduit  and  2  cables. 

From  75th  Street  to  79th  Street  7  ducts  of  conduit  and  1  cable. 

The  passenger  subway  as  proposed  at  numerous  locations  will  oc- 
cupy the  same  streets  occupied  now  by  the  Telephone  Company  with 
its  main  conduit  and  underground  cable  leads ;  and  incident  to  the  de- 
struction of  these  main  telephone  underground  leads,  it  will  be  neces- 
sary to  abandon  certain  subsidiary  intersecting  underground  conduit 
and  cable  leads  that  now  cross  the  proposed  subway. 

We  estimate  that  the  loss  to  the  Telephone  Company  due  to  the  de- 
struction of  its  underground  plant  in  those  streets  which  the  proposed 
passenger  subway  will  occupy,  and  the  necessary  abandonment  of  sub- 
sidiary underground  conduits  and  cables,  will  amount  to  approxi- 
mately $1,840,000.00.  This  amount  is  made  up  of  two  items ;  namely, 

Underground  Conduit $1,165,000.00 

Underground  Cable 675,000.00 

In  considering  the  estimate  for  the  loss  of  underground  cable,  ac- 
count has  been  taken  of  the  net  salvage  return,  that  is,  gross  salvage 
value  less  the  cost  of  removing  the  cables,  which  could  be  obtained 
upon  the  cables  involved. 

"With  underground  conduit  there  would  not  be  any  salvage  value 
and  it  is  further  assumed  that  it  would  be  unnecessary  for  the  Tele- 
phone Company  to  remove  it  from  the  streets. 

In  addition  to  the  above  amount,  which  covers  the  direct  loss  of 
plant  destroyed,  it  would  be  necessary  to  do  a  large  amount  of  tempor- 
ary work  during  the  construction  of  the  subways  in  maintaining  our 
service  in  various  crossings  over  the  obstructed  streets.  In  a  number 
of  instances  the  proposed  subways  will  practically  cut  our  exchange 
districts  in  halves  and  it  will  be  necessary  of  course  at  all  times  to 
maintain  sufficient  crossings  to  enable  us  to  give  service  to  all  subscrib- 
ers. We  estimate  that  this  item  will  amount  to  $250,000.00 

These  two  items,  of  direct  loss  on  plant  destroyed,  and  the  expense 
incident  to  maintaining  service  during  actual  subway  construction 
work,  together  amount  to  $2,090,000.00  and  this  figure  would  repre- 
sent the  estimated  total  loss  to  the  Telephone  Company  on  account  of 
the  construction  of  passenger  subways  in  these  streets. 

All  the  above  estimates  have  been  made  on  the  basis  of  present  tele- 
phone plant.  In  a  great  many  instances,  especially  where  main  tele- 
phone routes  are  involved,  the  provision  of  required  telephone  facilities 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      889 


will  necessitate  the  installation  of  several  large  sized  telephone  cables 
in  each  year  and  any  delay  in  the  construction  of  the  subways  will  re- 
sult in  substantial  increases  in  the  losses  incident  to  the  abandonment 
and  destruction  of  the  telephone  plant  involved. 

I  would  estimate  that  the  loses  which  will  be  involved  in  subway 
construction  as  above  outlined,  will  increase  at  the  rate  of  at  least 
$100,000.00  per  year.  Yours  truly, 

(Signed)     J.  G.  WRAY, 

CB:RT  Chief  Engineer. 

APPENDIX  12 

THE  PLANT  AND  HOW  PAID  FOR* 


Year 


Investment 
Dec.  31st 


Capital 

Stock 


Bonds 


Reserve  for 
Depreciation 


Total 
Liabilities 


1881  $493,465.99  $500,000       $500,000.00 

1882  563,575. 19  500,000       500,000. 00 

1883  623,606.72  600,000       600.000.00 

ISM  654,743.16  693,000       693,000.00 

1885  732,888.05  762,300       762,300.00 

1886  805,318.72  838,600       838,600.00 

1887  977,035.47  964,400       964,400.00 

1888  1,131,342.03  1,089,800       1,089,800.00 

1889  1,302,625.49  1,253,300       1,253,300.00 

1890  1,734,212.73  1,754,700       1,754,700.00 

1891  2,310,519.66  2,000,000       2,000,000.00 

1892  3,415,023.37  3,280,200       3,280,200.00 

1893  4,001,039.55  3,796,200       3,796,200.00 

1894  4,159,989.38  3,796,200       $120,000.00  3,916,200.00 

1895  4,521,439.29  3,796,200       200,889.40  3,997,089.40 

1896  4,607,909.34  4,336,500       200,889.40  4,537,389.40 

1897  4,545,729.82  4,336,500       100,000.00  4,436,500.00 

1898  5,174,748.47  4,336,500       474,782.22  4,811,282.22 

1899  6,615,922.64  5,000,000       903,934. 14  5,903,934. 14 

1900  8,122,052.61  7,000,000f     421,172.53  7,421,172.53 

1901  9,933,480.47  9,000,000       296,432.87  9,296,432.87 

1902  12,333,854.20  11,993,400       346,551.32  12,339,951.32 

1903  13,909,268.38  14,000,000       646,551.32  14,646,551.32 

1904  14,593,186. 16  14,000,000       913,825.83  14,913,825.83 

1905  15,930,664.83  14,000,000       1,295,155.61  15,295,155.61 

1906  18,683,669.11  14,000,000       1,692,066.24  15,692,066 . 24* 

1907  27,007,758.41  16,908,500       1,899,613.46  18,808, 113. 46  f 

1908  29,090,647.83  27,000,000fl    1,901,739.25  28,901,739.25 

1909  31,001,017.78  27,000,000    $5,000,000    1,901,739.25  33,901,739.25 

1910  33,737,612.48  27,000,000  6,000,000    3,695,160.95  35,695,160.95 

1911  37,137,217.75  27,000,000  6,000,000    4,971,823.19  36,971,823.19 

*Working  capital  for  whioh  the  Company  claims  about  $1,900,000  is  here 
omitted  because  the  exact  increase  from  year  to  year  cannot  be  definitely  ascer- 
tained. All  of  the  existing  capital,  however,  must  have  been  accumulated 
out  of  earnings.  The  figures  are  taken  from  Hagenah's  balance  sheets  down  to 
1900  and  thereafter. 

t  $1,000,000  was  a  stock  dividend. 

JThe  following  balance  must  bo  taken  into  account  for  the  years  1906  and  1907 : 

1906  1907 

Surplus $1,073,33*.  67      $5,109,942.69 

Loans  from  bankers 250,000. (X)        1,385,000.00 


H  $4,500,000  was  a  stock  dividend 


$1,323,338.67      $:i,494,942.69 


890         MATERIALS    OP    CORPORATION    FINANCE 

APPENDIX   No.    13 
THE    COMPANY'S   TREATMENT   OF  DEPRECIATION 

(From  Hall's  Report,  pp.  20-23.) 

Whatever  may  have  been  the  ruling  policy  as  regards  the  anticipation  of 
the  future,  the  records  show  that  a  reserve  for  deferred  maintenance  was  in- 
augurated in  1894  to  which  certain  annual  credits  were  made,  emanating  from 
the  maintenance  accounts.  These  credits  continued  until  1907  and  amounted 
to  $6,765,595.05,  made  up  as  follows: 

Calendar  Year  Amount 

1894 $120,000.00 

1895 100,000.00 

1898 374,782.22 

1899 429,151 . 92 

1900 329,702.13 

1901 357,919.39 

1902 503,304.95 

1903 600,000.00 

1904 1,267,274.51 

1905 1,187,566.10 

1906 1,245,893.83 

1907 250,000.00 


$6,765,595.05 

Of  this  amount,  however,  $1,575,000.00  was  transferred  to  surplus,  leaving  a 
net  credit  of  $5.190,595.05  as  a  fund  ostensibly  for  the  dual  purpose  of  providing 
for  deferred  maintenance  and  for  contingencies.  Doubtless,  owing  to  this  two- 
fold character,  certain  sums  were  charged  each  year  to  the  fund  and  deducted 
from  the  investment  account,  representing  estimated  depreciation  which  has 
taken  place,  while  a  steadily  increasing  balance  was  allowed  to  remain  in  the 
fund,  accumulating  to  $1,836,714.26  at  the  close  of  1907.  The  following  sum- 
mary shows  the  position  with  regard  to  the  fund,  December  31,  1907: 

Net  amount  credited  to  fund $5,190,595 . 05 

Less:    Estimated  depreciation  written  off  invest- 
ment as  follows: 

1895 $19,110.60 

1897 100,889.40 

1900 412,463.74 

1901 469,612.35 

1902 300,000.00 

1903 300,000.00 

1904 500,000.00 

1905 400,000.00 

1906 700,000.00 


$3,202,076.09 
Adjustment  of  maintenance  accounts,  supplies,  etc.        151,804 . 70      3,353,880 . 79 

Balance  at  credit  of  fund  December  31, 1907. .  $1,836,714.26 


It  might  be  inferred  from  the  above  that,  inasmuch  as  the  investment  was 
being  written  down  to  the  extent  of  the  above  charges,  the  actual  depreciation 
of  the  plant,  over  and  above  replacements  each  year,  was,  in  the  opinion  of  the 
management,  developing  with  considerable  momentum.  That  this  view  was 
not  altogether  steadfast  is  apparent  from  the  fact  that  at  December  1,  1907, 
the  whole  of  these  deductions,  together  with  certain  other  credits  to  invest- 
ment account  which  were  charged  direct  to  maintenance  and  to  surplus,  were 
reversed,  leaving  the  investment  at  its  original  book  cost.  As  a  result  of  this 
transaction  the  plant  account  was  increased  by  the  sum  of  $3,767,233.55,  this 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      891 

amount  being  credited  to  the  surplus  account  in  place  of  the  above  reserve, 
which  had  contributed  practically  the  whole  of  the  amount.  Looking  to  the 
fact  that  this  credit  to  surplus  account  was  diverted  from  its  primary  pur- 
pose to  serve  as  a  means  to  an  end  diametrically  opposite,  namely,  the  dis- 
tribution of  a  stock  dividend  of  $4,500,000.00  in  the  following  year,  little,  if 
any,  importance  can  be  attached  to  its  treatment  in  the  accounts  of  the  com- 
pany as  having  any  bearing  on  the  question  of  depreciation.  Neither  can  any 
significance  be  attached  to  the  balance  of  $1,836,714.26  remaining  in  the  re- 
serve fund,  as  indicative  of  the  physical  condition  of  the  plant  at  that  time. 
It  may  have  been,  and  doubtless  was,  regarded  as  the  nucleus  of  the  fund 
now  standing  in  the  books. 

The  history  of  the  fund  from  January  1,  1908,  to  the  present  time  may  best 
be  seen  from  the  following  synopsis  showing  how  the  fund  at  December  31, 
1911,  namely,  $4,971,823.19,  was  accumulated: 

Balance  at  credit  January  1,  1908 $1,836,714 . 26 

From  reserve  for  depreciation  of  buildings — balance 

at  December  31,  1908 62,899.20 

Sundry  credits  added  in  1908 2,125.79 

From  surplus— balance  as  at  December  31,  1909.  847,068.84 

From  mamtenance^-1910 $1,500,000.00 

Less :    Reconstruction  and  replacements 553,647 . 14         946,352 . 86 


From  maintenancer-1911 1,620,000.00 

Less:    Reconstruction  and  replacements 445,211.75 


1,174,788  25 
Sundry  credits  added  in  1911 101,873.99 

Balance  at  credit,  December  31,  1911 $4,971,823. 19 


It  will  be  observed  that  the  credit  of  1909  consisted  of  a  transfer  of  the 
balance  in  surplus  account  at  the  close  of  that  year.  The  credits  for  1910 
and  1911  appear  to  have  been  regulated  substantially  by  the  balance  of  profit 
remaining  after  meeting  all  expenses  and  the  eight  per  cent,  dividend,  the 
undivided  profit  added  to  surplus  for  each  of  these  years  amounting  to  $95,- 
072.93  and  $102,540.31,  respectively.  In  view  of  all  the  facts  concerning  this 
fund,  it  is  perhaps  not  irrational  to  regard  it  as  a  general  reserve  for  the 
purpose  of  providing  for  contingencies  and  for  automatically  regulating  the 
dividend.  Whether  or  not  this  fund  is  adequate  for  the  present  purpose  may 
perhaps  be  best  judged  from  the  experience  of  the  company  in  the  past  in 
regard  to  actual  expenditures  for  maintenance  and  renewals.  This  considera- 
tion may  be  regarded  as  the  element  affecting  the  present  value  of  the  plant, 
the  other  two  elements  having  also  to  be  taken  into  account  in  determining 
the  sufficiency  of  t.he  fund  in  its  complete  aspect. 

This  more  direct  view  of  the  question  may  be  obtained  in  a  study  of  the 
actual  expenditures  in  the  past  in  respect  of  repairs  and  renewals.  The  per- 
centage of  the  average  annual  expenditure  thus  ascertained,  to  the  invest- 
ments which  do  depreciate  may  be  regarded  as  the  basis  for  the  nnnual  allow- 
ance to  be  set  aside  for  the  purpose  in  view.  It  should  be  observed  that  it  is 
not  possible  to  differentiate  between  current  repairs  and  reconstruction  outlay 
until  within  the  last  seven  or  eight  years.  It  is  reasonable,  however,  to 
assume  that  although  this  period  may  not  be  sufficiently  full  to  determine  an 
average  for  reconstruction,  it  may  be  regarded  as  of  sufficient  duration  to  give 
the  average  for  current  nnnual  repairs.  The  average  for  the  total  expenditure 
being  determinate,  it  is  thus  possible  to  deduce  the  average  for  reconstruc- 
tion outlay  indirectly. 


892 


MATEEIALS    OF    COEPORATION    FINANCE 


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Repairs  
Renewals  

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Addition  to  Deprecij 

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Station  Removals  .  .  . 

Maintenance,  Depre 
Removals  
Average  Depreciabl 
to  the  Books.... 

Repairs  
Renewals  

Repairs  and  Renewa 
Additions  to  Deprec: 

Total  for  Maintenan 
Station  Removals.  .  . 

Total  of  Maintenanc 
Station  Removal 
Excess  of  Repairs, 
Reserve  above  9. 

PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      893 

APPENDIX  No.  15 

COMPOSITE  LIFE,  SALVAGE  AND  ANNUAL  DEPRECIATION 
230  West  Washington  Street,  Chicago,  October  24,  1912. 

Prof  E.  W.  Bemis,  City  Hall,  Chicago. 
Dear  Sir: 

DEPRECIATION 

Since  talking  to  you  this  noon  we  have  checked  over  our  depreciation  figures 
very  carefully  and  find  the  following: 

CHICAGO  TELEPHONE  COMPANY 

APPRAISAL  VALUES  OF  PLANT  AS  OF  AUGUST  1,  1911 
CHICAGO  EXCHANGE 


Chicago  Telephone          Byllesby  &  Arnold 
Life  and  Salvage  Life  and  Salvage 


Composite  Life 13 .455  years  18 . 961  years 

Salvage 29.234%  22.862% 

Annual  Depreciation  Allowance 5 . 260%  4 . 068% 


BOOK  VALUES  OF  PLANT  AS  OF  AUGUST  1,  1911 
CHICAGO  EXCHANGE 


Chicago  Telephone 
Life  and  Salvage 


Composite  Life 12.802  years  18.318  years 

Salvage 29.196%  22.542% 

Annual  Depreciation  Allowance 5 . 531  %  4 . 228% 


NOTE — The  percentages  in  the  above  tables  are  based  on  total  plant  in  service, 
including  land,  but  not  including  working  capital,  construction  in  process,  tools, 
teams,  and  supplies,  and  furniture  and  fixtures.  The  depreciation  allowance 
is  figured  on  straight  line  basis.  Salvage  is  made  to  include  land  and  installa- 
tion of  subscribers'  instruments. 

Yours  truly, 

(Signed)  J.  G.  WRAY,  Chief  Engineer 
JGW— FF 


894 


MATERIALS    OF    CORPORATION    FINANCE 


APPENDIX  No.  16 

QUANTITIES  OF  PHYSICAL  PLANT  IN  CHICAGO  AND  SUBURBAN 
TERRITORY,  CHICAGO  TELEPHONE  COMPANY 

AS  OF  AUGUST  1,  1911,  ACCORDING  TO  APPRAISAL 
ACCOUNT  103—  REAL  ESTATE 


Chicago 

Suburban 

Total 

103-20  Land: 
No.  of  Tracts  

34 

22 

56 

103-10  Buildings: 
Office  Buildings  

24 

14 

38 

Flat  Buildings  

2 

2 

Division  Headquarters  

4 

4 

Switch  Tracks  

1 

1 

Barns  

2 

3 

5 

Miscellaneous.  . 

5 

1 

6 

Total. 


38 


18 


56 


105— EQUIPMENT 
17— CENTRAL  OFFICE  OPERATING  EQUIPMENT 


CHICAGO 


SUBURBAN 


TOTAL 


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Subscribers: 
Sections      417% 
Positions       1252 

22 
22 

439% 
1274 

82% 
227 

126 

126 

208% 
353 

449% 
1479 

148 
148 

647% 
1627 

Subs.  Ans.  Jack 

Lines  139830  1414  141244  29020  6832  35852 


168850  8246  177096 


Trunks: 

Sections          270 

270 

270 

Positions         555 

555 

555 

Trunks        19393       206 

19393 

19599 

Toll: 

Sections        61% 

33% 

95% 

95% 

Positions        124 

91 

215 

215 

Toll  Lines      650 

790      702 

1440      702 

2142 

105— EQUIPMENT 
18— STATION  APPARATUS 


Chicago      Suburban       Total 


Stations 254742          64118        318860 

105-08— SUBS.  STATION  EQUIPMENT 

38— DROP  WIRES 
Drops 161825          60452        222277 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      895 

105— EQUIPMENT 
48— INTERIOR  BLOCK  WIRES 


Chicago          Suburban 


Total 


No.  18  Twist.  Pair 305897ft.        51994ft.        357891ft. 

105— EQUIPMENT 
58— PRIVATE  BRANCH  EXCHANGES 

Switchboards 2639      166      2805. 

Local  Lines..  57131     3509     60640 

Trunk  Lines 15549      644     16193 

SUMMARY  OF  107—109  ACCOUNTS 
EXCHANGE  AND  TOLL  LINES 


Sub. 
Acct.            Item 

CHICAGO 

Quantity        Unit 

SUBURBAN 
Quantity        Unit 

TOTAL 
Quantity        Unit 

01     Pole  Lines 

81822  Poles 

229195  Poles 

311017  Poles 

02    Aerial  Cable 

56324.  29  Cond.  Mi. 

29767  .  60  Cond.  Mi. 

86091.89  Cond.  Mi. 

03     Aerial  Wire 

7920.  86Cond.  Mi. 

37247.51  Cond.  Mi. 

45168.  37  Cond.  Mi. 

14     U.  G.  Conduit 

12069228  Duct.  Ft. 

2218889  Duct.  Ft. 

14288117  Duct  Ft. 

Main 

24     U.  G.  Conduit 

913399  Duct.  Ft. 

271999  Duct.  Ft. 

1185398  Duct  Ft. 

Subsidiary 

15    U.  G.  Cable 

518299.  13  Cond.  Mi. 

52665.  17  Cond.  Mi. 

570964.30  Cond.  Mi. 

Main 

25    U.  G.  Cable 

21562.  58  Cond.  ML 

4526.  02  Cond.  Mi. 

26088.60  Cond.  Mi. 

Subsidiary 

53    House  Cables 

43885  Pairs 

1000  Pairs 

44885  Pairs 

112— TOOLS  AND  VEHICLES 


Chicago      Suburban      Total 


02  Teams  and  Vehicles: 

Outfits 

Horses 

Vehicles 

03  Motor  Vehicles: 
Auto,  and  Motorcycles. 


216 
221 

45 


71 


40 


71 

216 
221 

85 


APPENDIX  No.  17. 

CITY    PURCHASE. 

Being  Section  16  of  Ordinance  Regulating  Telephone  Charges  in  the  City  of 

Chicago,  November  6,  1907. 
16.     Right  to  Purchase  Plant  Reserved  by  City — Price  Fixed  by  Appraisers. 

The  City  of  Chicago  shall  have  the  right  on  the  first  day  of  January,  1919, 
or  on  the  first  day  of  January,  1924,  or  within  thirty  (30)  days  after  cither  of 
said  dates,  if  it  shall  so  elect,  to  terminate  the  grant  of  privileges  of  sai'J 
Chicago  Telephone  Company  conferred  hereby,  and  on  either  of  the  said  dates, 
or  at  the  expiration  of  the  term  hereof,  or  within  thirty  (30)  days  after 
either  of  the  times  mentioned,  to  take  over  for  municipal,  state  or  federal 
operation  the  plant  and  system  of  the  grantee,  or  its  successor  or  successors, 
including  the  property  hereinafter  mentioned;  provided  that  twelve  (12) 


896         MATERIALS    OF   CORPORATION    FINANCE 

months'  previous  notice  in  writing  shall  have  been  given  of  the  intention  of 
the  City  to  take  over  the  telephone  plant  system  of  the  grantee,  or  its  suc- 
cessor or  successors,  within  the  City  of  Chicago,  including  all  appurtenances, 
appliances,  equipment,  lines,  leaseholds,  buildings,  stores,  furniture  and  fix- 
tures, suitable  to  and  used  by  it  for  the  purposes  of  this  grant,  taking  into 
consideration  the  then  condition  of  the  art,  and  in  the  event  that  the  City 
Council  shall  so  terminate  this  grant,  or  that  said  grant  shall  have  expired, 
and  the  City  Council  shall  take  over  the  property  of  said  Company  above 
mentioned,  then  the  City  shall  pay  therefor  in  cash  the  then  cost  of  the 
duplication,  taking  into  consideration  the  then  condition  of  the  art,  less 
depreciation,  of  said  telephone  plant  and  system  and  other  property  aforesaid, 
together  with,  if  the  said  grant  shall  not  then  have  expired,  five  per  cent. 
(5%)  thereon  in  addition  as  compensation  for  the  compulsory  sale,  but  there 
shall  be  no  allowance  for  earning  power,  or  for  the  value  of  the  rights  and 
privileges  hereby  granted,  or  for  any  franchise  or  license  value. 

In  the  event  that  the  City  shall  desire  to  purchase  the  property  of  the  com- 
pany within  the  City  of  Chicago,  as  aforesaid,  the  purchase  price  of  said  prop- 
erty shall  be  determined  by  appraisement  as  follows: 

One  appraiser  shall  be  appointed  by  the  City  in  such  manner  as  the  City 
Council  shall  direct;  one  shall  be  appointed  by  the  company  and  a  third  shall 
be  appointed  by  the  two  so  selected.  Either  party  may  appoint  its  appraiser 
at  any  time  after  the  giving  of  the  notice  of  intention  to  take  over  the  tele- 
phone plant  and  system  of  the  grantee,  and  serve  written  notice  of  such  ap- 
pointment upon  the  other  party,  and  said  other  party  within  thirty  (30) 
days  after  service  of  notice  of  such  appointment  shall  appoint  its  appraiser 
and  serve  written  notice  of  such  appointment  upon  the  other  party;  where- 
upon the  two  appraisers  so  appointed  shall  appoint  a  third  appraiser. 

In  the  event  that  the  party  first  receiving  the  notice  of  the  selection  of  an 
appraiser  by  the  other  party,  shall  refuse  or  fail  to  appoint  an  appraiser  and 
give  notice  thereof  as  above  provided,  or  in  the  event  that  the  two  appraisers 
first  appointed  shall  fail  to  agree  upon  a  third  appraiser  within  thirty  (30) 
days  after  the  giving  of  notice  of  the  appointment  of  the  second  appraiser, 
either  party,  upon  giving  a  written  notice  of  ten  ( 10 )  days  to  the  other 
party,  may  apply  to  the  then  judges  of  the  Appellate  Court  for  the  First 
District  of  Illinois,  or  a  majority  of  the  judges  of  the  said  Appellate  Court, 
for  fhe  appointment  of  an-  appraiser,  and  if  the  appraiser  appointed  by  the 
judges  of  the  said  court,  or  by  a  majority  of  them,  shall  be  the  second  ap- 
praiser, then  the  third  appraiser  shall  be  selected  by  the  two  appraisers,  or 
if  they  fail  to  agree,  by  the  said  judges  of  the  said  court,  or  a  majority  of 
them,  in  the  manner  hereinbefore  provided,  and  any  appraiser  or  appraisers 
appointed  by  said  judges,  or  a  majority  of  them,  shall  have  the  same  powers 
and  duties  as  if  regularly  appointed  in  the  manner  as  first  hereinabove  pro- 
vided. 

The  appraisers  shall  determine  what  tangible  property,  real  and  personal, 
owned  by  the  said  company  and  used  for  the  purposes  of  this  grant  is  reason- 
ably required  for  its  continued  operation,  taking  into  consideration  the  then 
condition  of  the  art,  and  in  determining  the  fair  cash  value  of  said  property 
they  shall  not  take  into  consideration  its  earning  power,  or  the  value  of  the 
rights  or  privileges  hereby  granted,  or  the  value  of  any  license  or  franchise, 
but  shall  allow  for  the  property  the  then  cost  of  duplication,  taking  into  con- 
sideration the  then  condition  of  the  art,  less  depreciation.  In  considering  the 
cost  of  duplication  of  underground  conduits,  wires,  cables,  electrical  conduc- 


PHYSICAL  VALUATION  OF   CHICAGO   TEL.  COS.      897 

tors  and  any  other  underground  construction  located  in  any  street,  alley  or 
other  public  way  which  was  or  were  placed  therein  at  a  time  when  such  street, 
alley  or  other  public  way  was  unpaved,  the  said  appraisers  shall  not  take 
into  consideration  the  cost  and  expense  of  removing  or  replacing  any  paving, 
or  part  thereof,  in  such  street,  alley  or  other  public  way.  An  award  in  writ- 
ing, signed  by  a  majority  of  the  appraisers,  shall  be  valid  and  binding  upon 
the  parties. 

Within  ninety  (90)  days  after  the  making  of  said  written  award  by  the 
said  appraisers,  or  a  majority  of  them,  the  Chicago  Telephone  Company  shall 
cause  to  be  duly  made,  executed  and  delivered  proper  bills  of  sale  and  deeds 
of  the  said  telephone  plant  and  system  and  tangible  property  covered  by  said 
award,  and  the  City  of  Chicago,  upon  the  delivery  of  said  bills  of  sale  and 
deeds,  and  the  delivery  of,  or  the  transfer  of  control  over,  said  telephone  plant 
and  system  and  tangible  property,  shall  make  payment  in  cash  therefor,  as 
hereinbefore  provided. 

If  said  award  shall  not  have  been  made  until  after  the  date  named  in  the 
written  notice  given  by  the  City  of  its  intention  to  take  over  the  telephone 
plant  and  system  of  the  grantee,  or  its  successor  or  successors,  as  hereinbe- 
fore provided,  such  delay  on  the  part  of  the  said  appraisers,  or  a  majority 
of  them,  in  making  their  award,  shall  not  affect  the  right  of  the  City  of 
Chicago  to  take  over  the  said  telephone  plant  and  system  and  tangible  prop- 
erty of  the  Chicago  Telephone  Company. 

Said  City  of  Chicago  shall  pay  the  expenses  and  charges  of  the  said  ap- 
praisers for  their  services  under  a  contract  which  shall  be  authorized  by  the 
City  Council  and  entered  into  by  each  of  said  appraisers  at  the  time  of  his 
appointment.  Such  contract  shall  not  allow  to  each  of  said  appraisers  more 
than  one  hundred  dollars  per  day  as  compensation  and  shall  bind  them  to 
complete  their  award  within  a  stipulated  time,  or  be  subject  to  a  specified 
reduction  per  day  in  compensation.  Such  contract  shall  also  forbid  any  of 
the  said  appraisers  from  contracting  for  or  accepting  any  other  or  additional 
compensation  for  his  or  their  services  (from  any  person,  firm  or  corporation) 
except  that  provided  in  said  contract.  The  other  terms  of  said  contract  shall 
be  such  as  may  meet  the  approval  of  the  City  Council.  Provided,  that  the 
City  of  Chicago  may  deduct  from  the  purchase  price  fixed  by  said  award  one- 
half  of  the  total  amount  paid  as  the  total  expenses  and  charges  of  said 
appraisal. 

The  appraisers  selected  in  the  manner  aforesaid,  or  a  majority  of  them,  shall 
have  and  may  exercise  at  all  times  the  right  to  make  a  complete  examination 
of  the  records,  books  of  account,  vouchers,  bills,  contracts  and  documents  of 
said  company,  for  the  purpose  of  fully  informing  themselves  as  to  the  actual 
cost,  value  and  depreciation  of  the  plant  and  system  of  said  company,  includ- 
ing all  appurtenances,  appliances,  equipment,  lands,  leaseholds,  buildings, 
stores,  furniture  and  fixtures  and  other  property. 

Any  vacancy  or  vacancies  occurring  at  any  time  in  said  Board  of  Appraisers 
by  death,  resignation,  disqualification  or  inability  to  act,  may  be  filled  within 
fifteen  days,  by  the  party  or  body  making  the  original  appointment,  and  if 
not  so  filled,  by  the  judges  of  said  court,  or  a  majority  of  them,  upon  the  ap- 
plication of  either  party  thereto,  provided  five  days'  previous  notice  in  writing 
of  such  application  shall  have  been  given  to  the  other  party. 

The  Chicago  Telephone  Company  by  the  filing  of  the  acceptance  hereinbefore 
provided  for  shall  be  understood  as  granting  and  does  hereby  grant  to  the 
City  of  Chicago,  and  the  said  City  of  Chicago  hereby  reserves  to  itself  the 


898         MATERIALS    OF   CORPORATION    FINANCE 

right  to  designate  any  person,  firm  or  corporation  having  lawful  authority 
to  acquire,  own  and  operate  a  telephone  line  or  lines  or  a  system  in  said  City 
of  Chicago  (hereinafter  called  the  "licensee")  who  or  which  shall  have  the 
right  to  purchase  the  plant,  system,  rights  and  property  of  said  Chicago  Tele- 
phone Company  at  the  expiration  of  the  term  of  this  grant,  or  within  thirty 
(30)  days  thereafter,  in  the  same  manner  which  the  City  hereunder  has  the 
right  to  purchase  the  same  within  such  time,  and  any  person,  firm  or  corpora- 
tion so  designated  by  said  City  of  Chicago  as  licensee  twelve  or  more  months 
prior  to  the  expiration  of  this  grant  shall  for  all  the  purposes  of  this  section 
stand  in  the  position  of  said  City  of  Chicago.  The  right  of  the  licensee  oi 
said  City  of  Chicago  to  acquire  said  telephone  plant,  system,  rights  and 
property  by  purchase  under  the  provisions  of  this  ordinance  shall  in  no  way 
be  impaired  or  diminished  by  any  lack  of  authority  or  power  on  the  part  of 
the  City  of  Chicago  itself  to  acquire  the  said  telephone  plant,  system,  rights 
and  property  for  municipal  or  other  use  and  operation. 

Nothing  in  this  section,  however,  shall  have  the  effect  or  be  construed  to 
have  the  effect  of  lessening  or  limiting  the  right  of  the  City  of  Chicago  to 
alter,  change  or  reduce  the  charges,  rates,  tolls  or  other  compensation  to  be 
charged  by  said  licensee  in  the  operation  of  said  plant  and  system,  or  of 
lessening  or  limiting  any  of  the  authority,  power  or  rights  reserved  by  said 
City  of  Chicago  to  itself  by  this  ordinance,  or  of  changing,  lessening  or  limiting 
any  of  the  duties,  obligations  or  restrictions  imposed  by  this  ordinance  upon 
the  grantee. 

Nothing  in  this  ordinance  shall  have  the  effect  or  be  construed  to  have  the 
effect  of  extending,  so  far  as  the  licensee  is  concerned,  the  term  of  this  grant 
beyond  January  7,  1929.  Upon  the  purchase  of  said  plant,  system,  rights  and 
property  under  the  provisions  of  this  section  either  by  the  City  of  Chicago,  or 
by  any  licensee  of  said  City,  all  the  rights  of  said  Chicago  Telephone  Com- 
pany, its  licensee  or  assigns,  in  or  to  said  plant,  system,  rights  and  property, 
or  any  part  or  parts  thereof,  or  the  operation  thereof,  or  receipts  therefrom, 
shall  wholly  cease  and  determine.  If  at  the  expiration  of  this  grant  the  City 
shall  not  have  elected  to  purchase  the  plant,  system  and  other  property  of 
said  company  hereinbefore  mentioned,  and  shall  not  have  designated  any 
licensee,  the  failure  on  the  part  of  the  City  to  purchase,  or  elect  to  purchase, 
or  elect  to  designate  a  licensee,  shall  not  be  construed  as  an  extension  of  this 
grant,  or  any  of  the  rights  and  privileges  hereby  granted. 

The  authority,  powers,  privileges  and  rights  by  this  section  reserved  by  and 
granted  to  the  City  of  Chicago  to  itself  purchase  the  plant,  system  and  prop- 
erty of  said  Chicago  Telephone  Company  are  so  reserved  and  granted  upon 
the  understanding  that  they  and  each  of  them  may  be  exercised  only  if  at  the 
time  said  City  of  Chicago  seeks  to  exercise  the  same,  or  any  of  them,  it  shall 
possess  the  charter  power  so  to  do.  But  said  Chicago  Telephone  Company 
by  the  acceptance  of  this  ordinance  shall  be  understood  as  precluded  from  in 
any  manner  attacking  or  questioning  the  power  of  the  City  of  Chicago  to  exer- 
cise the  authority,  powers,  privileges  and  rights  hereby  reserved  or  granted,  or 
any  of  them. 


DEPKECIAT10N  899 


DIVERGENT   VIEWS  ON  DEPRECIATION1 

JAMES  CAMPBELL  ON  DEPRECIATION 

Under  the  heading  of  "General"  in  the  annual  report  of  the 
North  American  Company  for  the  fiscal  year  ended  Dec.  31,  1913, 
James  Campbell,  formerly  president  of  the  Company  and  now 
chairman  of  the  Board,  says  in  discussing  the  question  of  de- 
preciation : 

"The  fact  that  the  subsidiary  companies  in  which  your  company  is 
interested  appropriate  large  reserves  each  year  for  the  present  main- 
tenance and  future  preservation  of  their  physical  properties  should 
not  be  without  its  influence  on  the  value  of  your  equities.  Many 
other  public  utilities  are  at  present  operated  under  the  assumption 
that  a  provision  for  ordinary  maintenance  is  sufficient  to  arrest  depre- 
ciation. Examination,  however,  of  the  causes  leading  to  the  abandon- 
ment of  various  items  of  physical  property  shows  that  in  the  majority 
of  instances  the  replacement  becomes  necessary  before  the  item  has 
been  worn  out.  Maintenance  will  do  little  other  than  permit  the 
realization  of  the  expected  life,  whereas  depreciation  is  designed  to 
insure  the  replacement  which  will  increase  the  useful  life  of  the 
property. 

"The  determination  of  the  proper  allowances  for  maintenance  and 
depreciation  of  properties  is  not  without  its  difficulties.  In  fact,  it 
calls  for  the  exercise  of  conservative  judgment  and  possibly  modifica- 
tion from  time  to  time  as  the  necessity  therefor  develops.  The  esti- 
mates made  by  regulating  commissions  in  cases  involving  the  regula- 
tion of  rates  are  at  best  crude  guesses,  and  are  rarely  substantiated 
by  accurate  statistical  information.  That  the  principle  of  providing 
for  depreciation  is  sound  appears  evident  when  it  is  recognized 
that  it  is  necessary  to  provide  to-day  replacements  to  be  made  in 
later  years  in  order  that  to-day's  users  of  service  may  bear  the  cost 
thereof." 

During  the  year  the  companies  controlled  by  the  North  American 
Company  expended  $10,528,891,  which  was  charged  to  capital  account, 
and  provided  out  of  earnings  reserves  for  depreciation  aggregating 
$3,401,029,  and  in  addition  thereto  expended  $3,116,082  on  main- 
tenance. The  proportion  of  gross  revenues  expended  on  maintenance 
and  appropriated  for  depreciation  during  the  year  1913  by  the  rail- 

1  Reprinted  from  the  Electric  Railway  Journal. 


900         MATERIALS    OF    CORPORATION    FINANCE 

ways  controlled  by  the  company  are  shown  by  the  following  tabula- 
tion: 


Per  Cent,  of  Gross 

Revenue 
Expended        Appropriated 


Total 
The  Milwaukee  Electric  Railway  & 
Light  Company: 
Railway  department  22  .  00 

for                      for 
Maintenance      Depreciation 

11.16                  10  84 

Milwaukee  Light,  Heat  &  Traction 
Company; 
Railway  department  22  .  00 

19.00                   3  00 

Wisconsin  Gas  &  Electric  Company: 
Railway  department  15  .  00 

5.54                    9.46 

United  Railways,  St.  Louis  24  88 

13  32                  11  56 

H.  M.  BYLLESBY  ON  DEPRECIATION 

In  the  recent  annual  report  of  the  Northern  States  Power  Com- 
pany, H.  M.  Byllesby,  president  of  the  Company,  gives  the  following 
interesting  discussion  concerning  the  manner  of  appropriating 
amount  out  of  the  earnings  of  public  utilities  for  depreciation : 

"All  of  the  properties  of  the  Company  have  been  fully  maintained 
to  100  per  cent  efficiency.  The  cost  of  this  maintenance  has  been 
charged  to  operation.  Beyond  this  no  arbitrary  charge  has  been 
made  out  of  current  earnings  to  represent  any  accruing  depreciation 
which  has  not  become  evident,  except  in  certain  particular  instances 
amounting  to  the  sum  of  $67,861.  The  question  of  an  allowance  for 
accruing  depreciation  beyond  the  full  maintenance  of  the  property 
is  one  which  is  under  discussion  at  the  present  time  and  upon  which 
the  most  divergent  views  are  expressed  by  operating  officials.  On  the 
one  hand,  it  is  contended  that  beyond  maintenance  to  100  per  cent 
efficiency  no  further  arbitrary  depreciation  should  be  charged.  On 
the  other  hand,  it  is  contended  that  in  addition  to  the  full  maintenance 
a  certain  definite  allowance  for  accruing  depreciation  should  be  made. 
The  amounts  so  to  be  allowed,  whether  based  on  percentages  of  gross 
income  or  percentages  of  depreciable  value  of  the  property,  vary  from 
the  smallest  amounts  to  amounts  which  are  far  beyond  the  possibilities 
of  any  property  to  sustain  with  present  rates. 

"In  the  meantime,  no  distribution  has  been  made  on  the  common 
stock  of  the  Northern  States  Power  Company  since  its  formation. 
The  earnings  which  have  accrued  on  the  operating  statements  as 
applicable  to  that  purpose  have  been  reinvested  in  the  plant  and 
ertensions  to  the  service.  This  policy  will  be  continued  until  such 
time  as  a  more  definite  program  as  to  depreciation  has  been  generally 


DEPRECIATION  901 

adopted  by  public  service  companies  similarly  situated  or  until,  by 
the  establishment  of  public  utility  commissions  in  the  states  wherein 
the  company  operates,  more  definite  rules  on  this  subject  are  laid 
down  for  the  guidance  of  the  officers.  Then  the  officers  will  put  into 
effect  in  this  property  a  working  plan  for  the  definite  providing  of 
accrued  depreciation  beyond  the  full  maintenance  which  the  properties 
always  have. 

"Certain  of  the  real  estate  holdings  of  the  company  have  increased 
pronouncedly  from  the  general  appreciation  in  values  in  their  vicinity. 
These  appreciations  in  value  should  be  taken  into  account  in  any  con- 
sideration of  the  more  or  less  academic  question  of  accruing  deprecia- 
tion where  properties  have  been  fully  maintained." 


'A  !  .<A  STATE  COLLEGE  LIBR 


902 


MATERIALS    OP   CORPORATION   FINANCE 


7  YORK, 
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STATEMENT  FORM  FOR  CORPORATIONS  i 

To  KNICKERBOCKER  NATIONAL  BANK,  NEV 
from  time  to  time  with  you  for  our  negotiable  paper  or  otherwise,  we  furnish  the  followil 
90.  .  .  .,  which  you  are  to  consider  as  continuing  to  be  full  and  accurate  until  we  give  you 

LIABILI 

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Notes  Payable  negotiated  to  own  banks. 
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INSURANCE:  on  merchandise  $  buildings  
BUSINESS  and  RESULTS:  Annual  Sales  for  the  year  ended  

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904         MATEEIALS    OF   CORPORATION   FINANCE 

NOTE  USED  TO  PROTECT  OVERDRAFTS 

New  York, 19, 


On  demand  for  value  received, promise  to  pay  to 

NATIONAL  BANK  OF  FINANCE  *  IN  NEW  YORK, 

or  order, 
at  the  office  of  said  Bank  in  the  City  of  New  York, 

the  sum  of Dollars,  hereby  agreeing  that  said 

Bank  shall  have  a  lien  upon  all  property  of  the  undersigned  and  all 
collaterals  pledged  by  the  undersigned,  now  or  hereafter  in  possession 
of  said  Bank,  or  under  its  control,  as  security  for  any  indebtedness 
of  the  undersigned  now  existing  or  to  become  due  or  that  may  be 
hereafter  contracted,  with  the  right  at  any  time  to  demand  additional 
security  and  with  the  right,  in  case  of  failure  to  comply  with  such 
demand  for  additional  security  or  in  case  of  default  in  payment,  to. 
sell  without  advertisement  or  notice  to  the  undersigned,  at  any 
broker's  board  in  the  City  of  New  York,  or  at  public  or  private  sale 
in  the  said  City  or  elsewhere,  or  to  otherwise  dispose  of  the  same  in 
the  discretion  of  any  of  the  officers  of  the  said  Bank,  without  notice 
of  amount  due  or  claimed  to  be  due,  without  advertisement,  and  with- 
out notice  of  the  time  or  place  of  sale,  each  and  every  of  which  is 
hereby  expressly  waived,  applying  the  proceeds  thereof  upon  the  said 
indebtedness,  together  with  interest  and  expenses,  legal  or  otherwise, 
the  undersigned  to  be  liable  for  any  deficiency. 

It  is  further  agreed,  that  upon  any  sale  by  virtue  hereof,  the  holder 
hereof  may  purchase  the  whole  or  any  part  of  such  property  dis- 
charged from  any  right  of  redemption,  which  is  hereby  expressly 
released  to  the  holder  hereof,  who  shall  have  a  claim  against  the 
maker  hereof  for  any  deficiency  arising  upon  such  sale. 

It  is  further  agreed  that  any  moneys  or  property  at  any  time  in  the 
possession  of  said  Bank  belonging  to  any  of  the  parties  liable  hereon 
to  said  Bank,  and  any  deposits,  balance  of  deposits,  or  other  sums  at 
any  time  credited  by  or  due  from  said  Bank  to  any  of  said  parties 
may  at  all  times  at  the  option  of  said  Bank  be  held  and  treated  as 
collateral  security  for  the  payment  of  this  note  or  the  indebtedness 
evidenced  hereby  whether  due  or  not  due,  and  said  Bank  may  at  any 
time  at  its  option  without  demand  for  payment  and  without  notice 
charge  this  note  to  the  account  of  the  undersigned  with  said  Bank, 
or  set  off  the  amount  due  or  to  become  due  hereon  against  any  claim 
of  any  of  said  parties  against  said  Bank. 

i  Fictitious  name.    This  note,  however,  is  in  actual  use. 


COLLATERAL    NOTE  905 


COLLATERAL  NOTE 

$ New  York, 19 

after  date,  for  value  received  the  under- 
signed promises  to  pay  to  The  National  Park  Bank  of  New  York,  or 

order,  at  its  banking  house  in  the  City  of  New  York, 

Dollars, ,  having  deposited  with  said  Bank, 

as  collateral  security  for  the  payment  of  this  note  and  of  any  other 
liability  or  liabilities,  direct  or  contingent,  due  or  not  due,  of  the 
undersigned  to  the  said  Bank,  or  claims  of  said  Bank  against  the 
undersigned,  whether  now  existing  or  hereafter  incurred,  or  acquired 
by  said  Bank,  the  following  property,  viz. : 


the  undersigned  also  hereby  giving  to  the  said  Bank  a  lien,  for  the 
amount  of  all  the  aforesaid  liabilities  and  claims  upon  the  title  or 
interest  of  the  undersigned  in  any  other  property  or  securities  left 
with  the  said  Bank  for  safekeeping  or  otherwise,  or  coming  to  the 
possession  of  said  Bank  in  any  way,  and  also  upon  the  balance  of  any 
deposit  account  of  the  undersigned  with  the  said  Bank  at  any  time 
existing,  such  deposit  balance  and  other  property  to  be  regarded  as 
additional  collateral  security  for  such  liabilities  and  claims,  with  the 
right  to  the  said  Bank  in  its  discretion  to  resort  first  to  any  part  of 
the  collateral.  In  case  any  of  the  securities  above  pledged  should 
decline  in  market  value,  the  undersigned  hereby  agrees  to  deposit 
with  the  said  Bank,  without  notice  or  demand,  additional  collateral 
security  satisfactory  to  it;  and  further  agrees  that  in  case  of  failure 
to  deposit  such  additional  collateral,  or  in  case  of  the  failure  of  the 
undersigned  to  meet  at  maturity  any  liability  of  the  undersigned, 
either  to  said  Bank  or  to  any  other  party,  or  upon  the  declared  in- 
solvency or  failure  in  business  of,  or  appointment  of  a  receiver  for, 
or  commencement  of  bankruptcy  proceedings  by  or  against  the  under- 
signed, or  the  entry  of  any  judgment  against  the  undersigned,  or  in 
case  of  any  such  default,  insolvency,  appointment  of  receiver,  bank- 
ruptcy proceedings  or  judgment  by  or  against  any  endorser  or  guar- 
antor of  this  note,  all  liabilities  of  the  undersigned  to  said  Bank 
including  this  note,  shall,  at  the  option  of  said  Bank,  without  demand 
of  payment  thereof,  immediatel}  mature  and  become  forthwith  due 
and  payable.  The  undersigned  further  agrees  that  upon  failure  to 
pay  this  note  at  maturity  or  upon  its  becoming  due  in  accordance 


906         MATERIALS    OP   COEPOEATION    FINANCE 

with  any  of  its  provisions,  said  Bank  may  forthwith  proceed  to  collect 
and  receive  and  realize  upon  any  deposit  balance  or  any  accounts, 
bills,  notes  or  claims  held  by  it  as  collateral,  and  also,  without  demand, 
advertisement,  notice  to  redeem  or  other  notice  to  the  undersigned,  to 
sell  at  public  or  private  sale  or  at  the  New  York  Stock  Exchange,  or 
at  any  other  exchange  or  brokers'  board,  at  such  prices  as  it  may  deem 
best,  and  either  for  cash  or  on  credit  or  for  future  delivery,  any  or 
all  securities  or  property  of  any  kind  held  by  it  as  collateral  security 
for  the  indebtedness  of  the  undersigned  as  hereinbefore  provided, 
with  the  right  to  said  Bank  at  any  such  sale,  public  or  private,  to 
purchase  the  whole  or  any  part  of  any  securities  or  property  so  sold, 
free  from  any  right  or  equity  of  redemption  in  the  undersigned, 
which  is  hereby  expressly  waived,  applying  the  net  proceeds  to  the 
payment  of  this  note  and  of  any  other  liabilities  of  the  undersigned 
to  said  Bank,  and  accounting  for  the  surplus,  if  any,  to  the  under- 
signed, who  hereby  expressly  agrees  to  remain  bound  for  the  payment 
of  any  deficiency,  with  legal  interest.  The  above  described  property 
may  from  time  to  time,  by  mutual  consent,  be  exchanged  for  other 
property,  which  shall  be  held  by  said  Bank  subject  to  all  the  terms 
of  this  note.  Upon  any  transfer  of  this  note  the  collateral  held  there- 
for at  the  time  of  transfer  or  any  part  thereof  may  be  delivered  to  the 
transferee,  who  shall  thereupon  become  vested  with  all  the  rights  and 
powers  above  given  to  said  Bank  in  respect  thereto. 

Due 

1  In  consideration  of  the  making,  at  the  request  of  the  undersigned, 
of  the  loan  evidenced  by  the  within  note,  upon  the  terms  thereof, 
which  are  hereby  agreed  to  by  the  undersigned,  and  of  the  sum  of 
one  dollar,  the  receipt  of  which  is  acknowledged,  the  undersigned 
(who,  if  two  or  more  in  number,  shall  be  jointly  and  severally  bound) 
hereby  guarantee  to  the  National  Park  Bank  of  New  York,  its  suc- 
cessors, endorsees  and  assigns,  the  punctual  payment  of  the  within 
note  at  maturity  or  whenever  it  becomes  due  in  accordance  with  any 
of  the  terms  thereof,  and  hereby  consent  that  the  securities  for  said 
loan  may  be  exchanged  or  surrendered,  from  time  to  time,  or  the  pay- 
ment of  the  within  note  or  of  any  of  the  liabilities  of  the  maker 
thereof  may  be  extended  or  any  of  the  provisions  of  said  note  may 
be  modified,  without  notice  to  or  further  assent  by  the  undersigned, 
who  will  remain  bound  hereon,  notwithstanding  such  exchange,  sur- 
render or  modification.  The  undersigned  hereby  waive  demand  of 
payment  from  the  maker  of  said  note,  and  also  waive  notice  of  non- 
payment thereof,  notice  of  sale  of  any  of  the  collateral  therefor  and 
all  other  notices  in  connection  therewith. 
1  Indorsed  on  back  of  above  note. 


REGISTRATION    OF    COMMERCIAL    PAPER      907 


REGISTRATION  OF  COMMERCIAL  PAPER1 

The  International  Paper  Company  purposes  in  future  to  do  such 
through  the  issue  of  its  direct  paper  rather  than  through  the  paper 
of  its  subsidiary  companies. 

The  company  has  effected  an  arrangement  for  the  registration  of 
its  obligation  in  respect  to  both  classes  of  such  paper,  and  for  the 
purpose  of  such  registration  it  has  appointed  the  Bankers'  Trust  Com- 
pany, New  York  City,  registrar.  The  International  Paper  Company 
hereby  gives  notice  that  all  paper  issued  on  and  after  February  1, 
1911,  bearing  its  signature  either  as  maker,  endorser,  or  acceptor,  will 
not  be  complete  and  binding  on  the  company  unless  such  obligation 
has  been  registered  by  Bankers'  Trust  Company,  registrar,  and  such 
registry  noted  thereon.  Such  obligations  respectively  will  bear  the 
following  notations: 

This  note  is  not  valid  nor  is  its  issue  complete  unless  registered  by 
Bankers'  Trust  Company,  registrar,  and  such  registry  noted  hereon. 


Sh&MfiM 


SPECIMEN 


Endorsement  by  International  Paper  Company  not  complete  unless 
registered  by  Bankers'  Trust  Company,  registrar,  and  such  registry 
noted  here  on. 

Acceptance  by  International  Paper  Company  not  complete  unless 
registered  by  Bankers'  Trust  Company,  registrar,  and  such  registry 
noted  hereon. 

This  method  of  registration  will  permit  any  bank,  banker,  or  trust 
company  to  ascertain  at  any  time  upon  application  in  writing  to 
Bankers'  Trust  Company,  registrar,  New  York  City,  the  amount  of 
liabilities  of  the  company,  as  evidenced  by  the  registrar's  record. 
The  Bankers'  Trust  Company  will  furnish,  upon  request,  specimen 

'From  circular  of  the  International  Paper  Company. 
80 


908         MATERIALS    OF   CORPORATION    FINANCE 

signatures  of  its  officers  authorized  to  sign  in  its  behalf  as  registrar. 
The  International  Paper  Company  will  be  pleased  to  furnish  upon 
request,  any  further  information  regarding  the  above  plan  of  regis- 
tration. 


FOR  VALUE  RECEIVED,  we,  the  undersigned,  have  bargained,  sold, 
assigned,  transferred  and  set  over  and  by  these  presents  do  sell,  assign, 
transfer  and  set  over  unto  L.  SPIEGELBERG  &  SONS,  their  successors 
and  assigns,  the  claims  and  accounts  more  specifically  set  forth  in  the" 
statement  annexed  hereto  and  made  part  hereof,  which  is  a  copy  of 
the  original  claims  and  accounts,  assigning,  transferring  and  convey- 
ing to  the  said  L.  SPIEGELBERG  &  SONS  all  our  right,  title  and  interest 
in  and  to  the  same  and  in  and  to  the  merchandise,  the  sale  of  which 
created  said  accounts  with  full  power  to  reclaim  said  merchandise  as 
heretofore  stated. 

To  HAVE  AND  TO  HOLD  the  same  unto  L.  SPIEGELBERG  &  SONS,  their 
successors  and  assigns  and  we  hereby  constitute  and  appoint  said  L. 
SPIEGELBERG  &  SONS  our  true  and  lawful  attorneys  irrevocably  in  our 
name  or  otherwise  but  to  their  own  use  and  benefit  to  collect  and 
receive  all  moneys  due  or  to  grow  due  upon  said  accounts  and  to  col- 
lect, sell,  assign,  transfer,  set  over,  compromise  or  discharge  the  whole 
or  any  part  of  said  accounts  and  to  receive,  reclaim  and  without 
notice  to  us,  dispose  of  the  merchandise,  the  sale  of  which  created 
said  accounts  (in  the  event  that  for  any  reason  said  merchandise  in 
whole  or  in  part  shall  come  back  upon  said  accounts)  and  for  those 
purposes  do  all  acts  and  things  necessary  or  proper  in  the  premises. 
This  assignment  is  made  for  due  and  valuable  considerations,  having 
been  paid  to  the  undersigned  by  L.  SPIEGELBERG  &  SONS  and  also  is 


ASSIGNING   OPEN   ACCOUNTS    AS   SECURITY      909 

made  in  furtherance  of  an  agreement  about  to  be  made  between  the 
undersigned  and  L.  SPIEOELBERQ  &  SONS  and  as  further  collateral 
security  for  the  payment  of  any  indebtedness  arising  as  a  result  of 
said  agreement  and  otherwise. 

We  hereby  guarantee  payment  of  said  accounts  at  maturity  and 
hereby  represent  that  the  accounts  so  assigned  are  just  and  true  and 
are  the  result  of  bona  fide  sales  and  that  the  merchandise,  the  sale 
of  which  created  the  accounts  hereby  assigned,  belonged  to  us  solely 
and  absolutely  and  was  not  in  whole  or  in  part  consigned  to  us  and 
that  the  debtors  therein  named  have  agreed  to  accept  the  same ;  that 
no  payment  has  been  made  on  said  accounts;  that  there  are  no  set- 
offs  or  counterclaims  thereto  and  that  the  terms  of  credit  are  as 
specified  and  that  any  and  all  remittances  on  said  accounts  coming 
direct  to  us  shall  be  received  by  us  in  trust  for  L.  SPIEGELBERG  &  SONS 
only  and  that  the  identical  remittance  in  whatever  form  it  may  be 
received  by  us  shall  be  immediately  handed  over  to  L.  SPIEGELBERG  & 
SONS  and  that  all  deductions  on  said  accounts  will  be  made  good  by 
us  to  L.  SPIEGELBERG  &  SONS  by  payment  of  the  same  in  cash  or  by 
payment  of  the  same  out  of  any  balance  to  our  credit  in  the  hands  of 
L.  SPIEGELBERG  &  SONS,  if  any,  and  should  the  purchasers  reject,  re- 
turn or  refuse  to  accept  any  or  all  of  the  merchandise  mentioned  in  said 
accounts  that  we  will  immediately  give  notice  thereof  to  L.  SPIEGEL- 
BERG &  SONS  and  it  shall  then  be  optional  with  L.  SPIEGELBERG  &  SONS 
to  surrender  to  us  the  said  merchandise  refused,  rejected  or  returned 
upon  receiving  payment  thereof  in  cash  or  if  they  so  elect,  to  deduct 
from  any  balance  which  they  may  have  on  hand  or  out  of  any  sum 
which  they  may  thereafter  have  on  hand  to  credit  the  amount  of  said 
merchandise. 

The  said  representations  are  made  to  induce  Messrs.  L.  SPIEGEL- 
BERG &  SONS  to  make  advances  to  us  on  the  faith  of  the  said  accounts 
herein  assigned  by  us. 

The  said  account  so  assigned  by  us  shall  in  the  event  of  the  under- 
signed making  an  agreement  with  Messrs.  L.  SPIEGELBERG  &  SONS  for 
further  advances  on  other  merchandise  become  part  of  the  accounts 
under  said  contract  and  shall  be  treated  in  the  same  manner  as  pro- 
vided for  in  said  contract. 

IN  WITNESS  WHEREOF  COMPANY  has  hereunto  set 

its  hand  and  seal  this  day  of  December,  1910. 

L.  S. 


910         MATERIALS    OF    CORPORATION    FINANCE 


TEE  FACTS  CONCERNING  THE  RECAPITALIZATION  OF 
THE  CHICAGO  &  ALTON  RAILROAD  CO.1 

In  view  of  the  evident  misunderstanding  of  the  facts  respecting 
the  recapitalization  of  the  Chicago  &  Alton  Railroad  Co.  resulting 
from  the  recent  inquiry  by  the  Interstate  Commerce  Commission,  the 
following  statement  of  facts,  which  has  been  prepared  primarily  for 
the  information  of  the  holders  of  Chicago  &  Alton  securities,  is  au- 
thorized on  behalf  of  the  syndicate  which  acquired  control  of  the 
property  in  1899 : 

Early  in  the  year  1899  over  97  per  cent,  of  the  capital  stock  of  the 
Chicago  &  Alton  Railroad  Co.  was  acquired  by  the  purchasing  syndi- 
cate at  an  aggregate  cost  of  over  $39,000,000  at  the  rate  of  $175  a 
share  for  the  common  and  $200  a  share  for  the  preferred  stock,  in 
response  to  an  offer  to  all  stockholders  contained  in  a  widely  published 
circular.  That  the  stockholders  at  that  time  were  fully  apprised  of 
the  future  course  of  the  company  with  respect  to  the  capitalization  of 
previous  expenditures  of  income  for  permanent  improvements  and 
the  declaration  of  a  substantial  dividend  therefrom,  is  shown  by  the 
following  public  circular  which,  in  February,  1899,  was  addressed  to 
the  stockholders  by  Mr.  T.  B.  Blackstone,  who  for  upward  of  20  years 
had  been  the  president  and  moving  spirit  of  the  Chicago  &  Alton  Co. : 

February,  1899 
To  Chicago  &  Alton  Stockholders: 

In  my  communication  addressed  to  you  under  date  of  31st  of  Jan- 
uary [1899],  I  made  certain  statements  with  reference  to  an  offer 
made  by  Mr.  J.  J.  Mitchell  to  purchase  your  shares.  I  now  wish 
to  supplement  that  statement  by  advising  you  that  in  case  a  majority 
of  the  shares  of  the  company  are  not  sold  to  the  syndicate  represented 
by  Mr.  Mitchell,  I  shall  advise  that  you  authorize  the  refunding  of 
the  outstanding  bonds  of  the  company  and  the  issue  of  a  stock  divi- 
dend to  represent  earnings  heretofore  invested  in  permanent  improve- 
ments. 

T.  B.  BLACKSTONE. 

The  syndicate  comprised  upward  of  100  individuals,  firms,  and 
corporations,  and  for  over  a  year  certificates  representing  participa- 
tions in  this  syndicate  were  dealt  in  upon  the  open  market.  The  plan 
of  recapitalization  was  intended  to  create  low  interest  bearing  pre- 
ferred securities  (bonds  and  preferred  stock)  based  upon  the  past 
earnings  of  the  property,  which  preferred  securities  were  to  repre- 

1  Circular  reprinted  as  an  exhibit  in  the  so-called  Congressional  Money  Trust 
Investigation  of  the  Pujo  Committee. 


RECAPITALIZATION  OF  CHIC.  &  ALTON   BY.      911 

sent  the  greater  part  of  the  syndicate's  investment ;  and  also  common 
stock  which  would  represent  the  future  of  the  property  and  the  addi- 
tional earning  capacity  which  was  expected  to  result  from  the  applica- 
tion of  progressive  methods  of  management  and  a  liberal  expenditure 
of  new  capital  for  the  improvement  of  the  property  and  the  expansion 
of  traffic  and  of  the  service  to  the  public.  Every  step  in  the  recapi- 
talization was  taken  publicly,  under  the  advice  of  eminent  counsel, 
and  all  the  facts  stated  below  and  all  the  facts  brought  out  in  the 
recent  investigation  have  been  publicly  stated  in  applications  for  list- 
ing the  securities  upon  the  New  York  Stock  Exchange,  in  annual 
reports  of  the  company  and  in  other  public  documents  which  have 
been  accessible  to  everybody. 

The  complicated  legal  and  bookkeeping  technicalities  incident  to 
the  scheme  of  readjustment  have  been  misunderstood,  with  the  result 
that  the  increase  in  capitalization  and  the  profits  of  the  syndicate 
have  been  absurdly  overestimated. 

On  December  31,  1898,  immediately  prior  to  the  acquisition  of 
•  control  by  the  syndicate,  the  market  value  of  the  securities  represent- 
ing the  capitalization  of  the  Chicago  &  Alton  Railroad  Co.  was  sub- 
stantially as  follows: 

Par  value :  Market  value. 

$8,650,850  high  interest  bearing  bonds    (market 

value,  say,  at  105  per  cent.) $0,083,392.50 

$3,693,200  guaranteed  stocks  (including  $1,750,- 
000  6  per  cent,  preferred  stock  and  $114,200 
common  stock  of  Kansas  City,  St.  Louis  & 
Chicago  R.  R.  Co.,  outstanding  in  the  hands 
of  the  public,  but  not  taken  up  in  the  report  of 

1898)  at  150  per  cent 5,539,800.00 

$3,479,500  7  per  cent,  preferred  stock  (at  200  per 
cent.)  ;  $18,751,100  7  per  cent,  common  stock 
(at  175  per  cent.) 39,773,425.00 


Total  value  as  of  Dec.  31,  1898 $54,396,617.50 

To  this  amount  should  be  added  the  subsequent  ex- 
penditures for  improvements  and  additions  as  fol- 
lows: 

Actual  cost  of  Springfield  &  Peoria  line,  about. . .     3,000,000.00 
Cash  spent  subsequent  to  Dec.  31,  1898,  for  im- 
provements, new  equipment,  reconstruction,  etc., 
up  to  June  30,  1906,  about 19,600,000.00 


Total  investment  on  cash  basis,  about. .......  $76,896,617.50 


912         MATERIALS   OF   CORPORATION   FINANCE 

As  the  result  of  the  recapitalization  and  capital  expenditures  the 
amounts  of  securities  outstanding  on  June  30,  1906,  were  as  follows : 

$37,350,000,  par  value,  3  per  cent,  bonds  representing 
a  value  at  the  average  price  realized,  say  90  per  cent, 
(the  remaining  $8,000,000  bonds  of  this  issue  being 
pledged  to  secure  notes  mentioned  below  or  being 
held  in  the  treasury),  about $33,615,000.00 

$22,000,000,  par  value,  3|  per  cent,  bonds  actual  value 

at  average  price,  say  82£  per  cent.,  about 18,150,000.00 

$8,016,918,  par  value,  notes  and  car  trusts,  value  say. .     7,800,000.00 

$3,693,200,  par  value,  guaranteed  stock,  cash  value  say 

150,  same  as  in  1898 5,539,800.00 

$899,300,  par  value,  4  per  cent,  prior  lien  stock,  at  par.        899,300.00 

$19,544,000,  par  value,  4  per  cent,  preferred  stock,  at 

par  19,544,000.00 

$19,542,800,  par  value,  common  stock,  at  par 19,542,800.00 


Total  capitalization  $105,090,900.00 

This  shows  an  increase,  as  compared  to  December  31,  1898,  of 
about  $28,000,000,  taking  the  new  common  and  preferred  stock  at 
par.  As  a  matter  of  fact,  these  stocks  have  always  sold  considerably 
below  par.  At  its  issue  the  common  stock  sold  at  about  33  and  the 
preferred  stock  at  about  70. 

The  fixed  charges  on  the  outstanding  securities  under  the  recap- 
italization, including  full  dividends  upon  the  preferred  stock,  are 
less  than  the  aggregate  amount  which,  under  the  former  management, 
the  company  had  been  paying  out  annually  by  way  of  interest  and 
dividends,  plus  interest  upon  the  new  capital  expended  for  improve- 
ments and  additions.  This  appears  from  the  following  comparison: 

For  the  year  ending  Dec.  31, 1898,  the  amount  paid  out 
by  the  company  by  way  of  interest  upon  its  funded 
debt,  rentals,  and  dividends  (7  per  cent.)  upon  its 
capital  stock  (after  crediting  $231,232  interest  and 
dividends  collected  on  bonds  and  stocks  owned  by  the 
company)  was $2,339,448.05 

The  annual  fixed  charges  as  of  June  30,  1906,  including 
interest  upon  all  obligations,  rentals,  and  4  per  cent, 
dividends  upon  the  preferred  stock  (after  crediting 
$240,000  interest  on  bonds  owned  by  the  com- 
pany) were  3,228,864.69 


An  increase  of . .  ......  889,416.64 


KECAPITALIZATION  OF  CHIC.  &  ALTON  EY.      913 

This  increase  is  considerably  less  than  interest  at  4£  per 
cent,  per  annum  upon  $19,500,000  of  the  new  capital 
which  the  present  management  has  expended  upon 
the  property  and  $3,000,000  paid  for  the  Spring- 
field and  Peoria  line,  which  interest  aggregates $1,012,500.00 

It  will  thus  be  seen  that  the  net  result  of  the  recapitalization  was 
the  creation  of  preferred  securities  consisting  of  bonds  and  preferred 
stock,  the  interest  and  dividends  upon  which  absorb  only  such  earn- 
ings as  the  company  had  already  been  paying  out  for  many  years 
under  unprogressive  management  and  unfavorable  conditions.  The 
common  stock  was  created  to  represent  the  future  of  the  property 
and  the  increased  earning  capacity  which  was  expected  to  result  from 
progressive  management  and  a  radical  increase  in  the  company's  fa- 
cilities. This  was  precisely  the  basis  of  capitalization  which  at  that 
period  was  being  applied  in  the  readjustment  and  reorganization  of 
many  railroad  enterprises  in  the  United  States.  That  the  Chicago  & 
Alton  was  in  need  of  readjustment  is  apparent  from  the  fact  that  for 
years  it  had  been  steadily  deteriorating  in  physical  condition,  in  the 
quality  of  its  service  to  the  communities  along  its  lines,  and  in  earning 
power. 

The  fact  that  the  property  has  not  made  as  large  earnings  upon  the 
new  common  stock  as  was  expected  is  due  to  the  fact  that  the  capital 
expenditures  required  to  modernize  the  property  proved  to  be  much 
greater  than  was  anticipated  and  also  to  the  very  great  decline  in 
freight  rates  in  the  company's  territory  which  has  taken  place  in  the 
last  few  years.  The  official  statements  show  an  aggregate  decline  in 
the  freight  rates  of  the  Chicago  &  Alton  since  1898  of  approximately 
30  per  cent,  as  compared  to  present  rates.  Even  with  this  decline  it 
is  estimated  that  in  the  current  fiscal  year  the  Chicago  &  Alton  will 
make  substantial  earnings  on  its  common  stock. 

With  respect  to  the  sale  of  3  per  cent,  bonds  in  1899  at  65,  it  is 
pointed  out  that  the  bonds  were  sold,  not  to  favored  individuals,  but 
without  discrimination  to  all  stockholders,  including  the  large  num- 
ber of  holders  of  syndicate  participations,  and  that  the  sale  of  both 
bonds  and  stock  to  stockholders  at  less  than  market  value  has  been  a 
common  and  generally  approved  expedient.  While  the  low  interest 
rates  which  prevailed  in  1899,  and  the  fact  that  the  bonds  became 
savings  bank  investments,  made  it  possible  to  market  them  at  a  sub- 
stantial profit,  the  stockholders,  in  taking  them  at  65,  took  them 
upon  an  interest  basis  of  about  4|  per  cent,  per  annum.  In  other 
words,  the  effect  of  the  transaction,  so  far  as  the  company  was  con- 
cerned, was  precisely  the  same  as  if  5  per  cent,  bonds  had  been  sold 
to  the  stockholders  at  a  price  slightly  above  par. 


914         MATERIALS    OF    CORPORATION   FINANCE 

That  the  public  has  enormously  benefited  from  the  improvement 
of  the  property,  and  the  application  of  progressive  methods  to  its 
management  is  shown  by  the  fact  that  since  1898  the  volume  of 
freight  traffic  upon  the  Chicago  &  Alton  has  more  than  doubled,  while 
the  amount  of  freight  carried  for  every  dollar  paid  out  in  interest  and 
dividends  has  increased  more  than  80  per  cent.  The  capacity  of  the 
freight  equipment  has  been  increased  over  200  per  cent.,  that  of  the 
passenger  equipment  nearly  100  per  cent.,  and  the  traction  capacity 
of  locomotives  over  130  per  cent. 

In  capitalizing  part  of  the  company's  expenditures  for  improve- 
ments and  distributing  $6,669,180  of  this  addition  to  surplus  by  way 
of  an  extra  dividend  of  30  per  cent,  upon  the  old  stock,  the  directors 
were  simply  carrying  out  the  purpose  of  the  former  management  of 
the  company,  as  contemplated  in  the  public  circular  of  Mr.  Black- 
stone,  quoted  above. 

An  apparent  misapprehension  has  resulted  from  the  testimony  of 
a  witness  that  the  mortgage  securing  the  3|  per  cent,  bonds  covered, 
as  an  unimportant  part  of  the  security  a  short  piece  of  road  which 
the  company  was  authorized  to  build,  but  which  had  not  been  actually 
constructed.  This  provision  is  in  accord  with  the  common  practice 
with  respect  to  general  mortgages  of  railroad  companies  and  it  con- 
ferred no  pecuniary  adavantage  whatsoever  on  any  one. 

For  the  information  of  bondholders  it  is  stated  that  eminent  coun- 
sel have  advised  that  there  is  not  the  slightest  doubt  as  to  the  validity 
of  both  issues  of  bonds.  Copies  of  counsel's  opinion  will  be  furnished 
to  bondholders  upon  application  to  the  president  of  the  company. 


CHICAGO,  January  31,  1899. 
To  the  stockholders  of  the  Chicago  &  Alton  Railroad  Co.: 

John  J.  Mitchell,  of  Chicago  (the  undersigned),  has  entered  into 
a  certain  agreement,  dated  January  28,  1899,  and  lodged  with  the 
United  States  Trust  Co.  of  New  York,  providing  for  the  purchase, 
upon  the  terms  and  conditions  thereof,  by  certain  parties  therein 
named,  of  any  or  all  of  the  outstanding  capital  stock  of  the  Chicago  & 
Alton  Railroad  Co.  Said  agreement  is  conditioned,  among  other 
things,  upon  the  acceptance  of  the  offer  of  the  said  parties  to  so  pur- 
chase, by  the  holders  of  a  majority  of  the  outstanding  capital  stock, 
irrespective  of  classification,  on  or  before  March  1,  1899.  The  terms 
of  purchase  are  at  the  rate  of  $200  per  share  for  each  share  of  pre- 
ferred stock  and  $175  per  share  for  each  share  of  common  stock. 
The  agreement  provides  also  that  without  the  mutual  consent  of  the 


RECAPITALIZATION   OF  CHIC.  &  ALTON   RY.      915 

parties  thereto  there  shall  be  no  sale  unless  a  majority  accept  the 
offer  as  stated  in  the  agreement.  Stockholders  may  inspect  the  orig- 
inal agreement  so  lodged  with  the  United  States  Trust  Co. 

The  agreement  also  provides : 

1.  That  the  acceptance  of  shareholders  shall  be  evidenced  by  the 
deposit  of  share  certificates  duly  indorsed  in  blank  with  said  United 
States  Trust  Co.,  for  which  said  trust  company  shall  issue  negotiable 
receipts  to  depositors,  subject  to  the  terms  and  conditions  of  the  said 
agreement. 

2.  That  if  said  majority  aforesaid  shall  have  been  deposited  with 
said  trust  company  on  March  1,  1899,  then,  and  in  that  event,  the 
time  for  remaining  holders  of  common  or  preferred  stock  to  accept 
said  offer  and  deposit  their  certificates  with  said  trust  company  shall 
be  extended  to  and  including  April  1,  1899. 

3.  That  persons  away  from  home  or  outside  of  the  United  States 
shall  have  until  and  including  June  1,  1899,  to  deposit  their  stock, 
provided  notification  is  given  to  the  United  States  Trust  Company, 
by  or  for  them,  on  or  before  April  1,  1899,  that  they  accept  the  offer 
to  purchase  and  that  they  will  deposit  their  stock  indorsed  in  blank 
with  said  United  States  Trust  Company  on  or  before  June  1,  1899 ; 
also  that  guardians,  trustees,  executors  or  administrators  who  are 
without  power  to  accept  said  offer  and  deposit  their  stock  without  an 
order  of  court  shall  likewise  have  until  June  1,  1899,  to  accept  the 
same  and  to  deposit  their  certificates  indorsed  in  blank  with  said 
United  States  Trust  Company,  provided  notification  is  given  said 
trust  company,  by  or  for  them,  on  or  before  April  1,  1899,  of  their 
intention,  if  authorized  by  order  of  court,  to  accept  the  said  offer  and 
to  deposi.t  their  stock  indorsed  in  blank  as  aforesaid  on  or  before  June 
1,  1899,  and  of  their  purpose  to  present  to  the  proper  court  a  petition 
asking  for  authority  to  accept  said  offer  and  to  deposit  their  stock 
subject  to  the  terms  of  said  agreement. 

4.  That  if  such  purchase  be  consummated  pa3'ment  for  all  stock 
sold  shall  be  made  at  the  office  of  said  United  States  Trust  Company 
on  or  before  March  15,  1899,  but  that  from  the  purchase  price  shall 
be  deducted  any  and  all  dividends  declared  and  paid  subsequent  to  the 
date  of  the  said  agreement,  and  also  the  necessary  internal  revenue 
taxes.    Thereafter  payments  for  additional  stock,  deposited  within  the 
limitation  of  time  provided  in  the  agreement  shall  be  made  within 
three  days  of  deposit. 

The  undersigned,  in  view  of  the  said  offer,  herewith  submits  the 
same  to  the  stockholders  of  the  Chicago  &  Alton  Railroad  Company, 
with  the  suggestion  that  stockholders  promptly  consider  the  same, 


916         MATERIALS    OF   CORPORATION   FINANCE 

and  in  the  event  of  acceptance,  forward  their  certificates  indorsed  in 
blank  to  the  said  United  States  Trust  Company. 

I  inclose  herewith  blank  form  of  letter  for  use  by  those  desiring  to 
deposit  their  stock. 

I  also  inclose  blank  form  of  letter  addressed  to  the  secretary  of  the 
company  so  that  the  undersigned  may  be  advised  of  the  receipt  by  you 
of  this  communication. 

Respectfully, 

JOHN  J.  MITCHELL. 

The  foregoing  is  upon  the  request  of  the  parties  to  said  agreement, 
submitted  to  the  stockholders  by  the  unanimous  order  of  the  Board  of 
Directors. 

Respectfully, 

H.  E.  R.  WOOD,  Secretary. 


CHICAGO  &  ALTON  SYNDICATE 

[Syndicate  agreement  of  March  2,  1899.] 

The  United  States  Trust  Company  of  New  York  is  prepared  to 
deliver  on  or  after  October  25,  1900,  in  settlement  of  Chicago  &  Alton 
purchase  money  certificates,  for  each  $1,000  face  value  of  such  cer- 
tificates, $375  face  value  of  temporary  certificates  of  interest  for  Chi- 
cago &  Alton  Railroad  Company,  3  per  cent,  refunding  50-year  gold 
bonds;  $500  face  value  of  Chicago  &  Alton  Railway  Company  first 
lien  3£  per  cent,  gold  bonds;  $400  face  value  of  Chicago  &  Alton 
Railway  Company  4  per  cent,  noncumulative  preferred  stock;  $250 
face  value  of  Chicago  &  Alton  Railway  Company  common  stock;  $10 
cash  (including  adjustment  of  interest  to  July  1,  1900). 

The  certificates  of  interest  for  Chicago  &  Alton  Railroad  Company 
3  per  cent,  refunding  50-year  gold  bonds  provide  for  the  right  of  sale 
until  July  1,  1901,  of  all  or  any  part  of  the  bonds  which  have  been 
deposited  with  the  United  States  Trust  Company  of  New  York,  at 
the  price  of  95  per  cent,  and  accrued  interest.  If  the  bonds  remain 
unsold,  the  certificates  of  interest  are  to  be  exchanged  for  the  actual 
bonds  on  and  after  July  1,  1901.  If  sold,  the  certificates  will  be  re- 
deemed in  cash  on  or  before  the  above  date,  at  95  per  cent,  and  the 
accrued  interest  from  April  1,  1900 ;  if  only  part  are  sold,  redemption 
will  be  made  proportionately  in  cash  and  bonds.  These  3  per  cent, 
refunding  bonds  certificates  of  interest,  as  well  as  the  Chicago  &  Alton 
Railway  Company  3£  per  cent,  coupon  bonds  are  of  the  denomination 
of  $1,000  each,  and  the  shares  are  of  the  par  value  of  $100  each. 


RECAPITALIZATION  OF  CHIC.  &  ALTON  RY.     917 

Holders  entitled  to  fractional  amounts  of  certificates,  bonds  or  shares, 
can  either  sell  the  fractions  or  can  purchase  sufficient  to  entitle  them 
to  an  entire  certificate,  bond,  or  share.  Holders  transmitting  Chicago 
&  Alton  purchase  money  certificates  by  mail  or  express  should  indi- 
cate whether  they  wish  to  sell  or  purchase  fractional  amounts,  and 
whether  they  wish  the  securities  sent  by  registered  mail  or  express  at 
their  expense  and  risk. 
New  York,  October  22,  1900. 


CHICAGO   &  ALTON  SYNDICATE — NEW  SECURITIES 

Chicago  &  Alton  Railroad  Company  3  per  cent,  refunding  50-year 
gold  bonds,  due  1949.— Total  authorized  amount  $40,000,000,  of 
which  $31,988,000  par  value  have  been  issued.  These  bonds  are 
secured  by  mortgage  dated  October  1,  1899,  to  the  Illinois  Trust  and 
Savings  Bank  as  trustee.  Out  of  the  proceeds  of  the  bonds  already 
issued,  the  prior  bonds  which  matured  during  this  year  have  been  paid 
off,  and  funds  have  also  been  deposited  with  the  United  States  Trust 
Company  of  New  York  to  redeem  the  principal,  and  to  pay  the  in- 
terest thereon  until  maturity  of  all  outstanding  prior  bonds  amount- 
ing to  $6,789,850  face  value. 

The  privilege  of  subscription  was  exercised  for  the  syndicate  in  re- 
spect of  its  holdings  at  the  time  the  refunding  bonds  were  offered  to 
the  railroad  company's  shareholders.  Of  the  bonds  received  for  syn- 
dicate account,  a  sufficient  amount  has  been  sold  to  provide,  together 
with  dividends  received,  the  funds  for  the  cash  requirements  of  the 
syndicate.  The  bonds  now  distributable  among  certificate  holders  rep- 
resent the  balance  of  the  bonds  subscribed  for  syndicate  account. 

The  further  issue  of  3  per  cent,  refunding  mortgage  bonds  beyond 
the  first  $40,000,000  is  restricted  to  funding  the  existing  leasehold 
obligations  of  the  railroad  company,  now  amounting  to  about  $233,000 
net  per  annum,  and  to  providing  funds  for  building,  completing,  or 
acquiring  additional  railroad  in  extension  of  the  present  property,  for 
which  latter  purpose  an  amount  not  exceeding  $10,000,000  may  be 
issued,  and  to  providing  funds  for  future  requirements  and  better- 
ments undertaken  or  contracted  for  after  January  1,  1900,  for  which 
purpose  an  additional  $5,000,000  may  be  issued.  These  additional 
bonds,  over  the  $40,000,000  now  authorized,  can  only  be  issued  when 
authorized  by  the  holders  of  two-thirds  of  the  outstanding  preferred 
and  common  stock  of  the  railroad  company. 

Of  the  3  per  cent,  refunding  mortgage  bonds  subscribed  for  syndi- 
cate account  a  portion  has  been  sold,  and  the  remaining  bonds  have 


918         MATERIALS    OF   CORPORATION    FINANCE 

been  deposited  with  the  United  States  Trust  Company  of  New  York 
against  which  negotiable  receipts  in  the  denomination  of  $1,000  will 
be  issued  to  the  holders  of  Chicago  &  Alton  purchase  money  certi- 
ficates. The  receipts  provide  for  the  right  of  sale  until  July  1,  1901, 
of  all  or  any  part  of  the  deposited  bonds  at  the  price  of  95  per  cent, 
and  accrued  interest.  If  the  bonds  remain  unsold,  the  receipts  are 
exchangeable  for  the  deposited  bonds  on  and  after  July  1,  1901.  If 
the  bonds  are  sold,  the  receipts  will  be  redeemed  in  cash  on  or  before 
the  above  date  at  95  per  cent,  and  the  accrued  interest  from  April  1, 
1900 ;  and  if  only  part  of  the  bonds  are  sold  redemption  will  be  made 
proportionally  in  cash  and  bonds. 

Chicago  &  Alton  Railway  Company  securities. — The  Chicago  & 
Alton  Railway  Company  was  incorporated  in  April,  1900,  under  the 
laws  of  the  State  of  Illinois,  with  a  capital  of  $20,000,000  noncumu- 
lative  4  per  cent,  preferred  stock  and  $20,000,000  common  stock.  The 
preferred  stock  is  entitled  to  noncumulative  preferential  dividends 
not  exceeding  4  per  cent,  annually,  and  the  balance  appropriated  in 
any  year  to  dividends  goes  to  the  common  stock.  The  Chicago  & 
Alton  Railway  Company  has  acquired  the  railroad  from  Springfield 
to  Peoria,  formerly  owned  by  the  St.  Louis,  Peoria  &  Northern  Rail- 
way Company,  and  it  has  leased  the  lines  of  the  Chicago  &  Alton  Rail- 
road Company  for  the  term  of  99  years  from  April  3,  1900,  at  a  ren- 
tal equal  to  the  net  earnings  of  the  lines  of  the  railroad  company 
after  payment  of  all  fixed  charges,  taxes,  etc.  The  new  company  has 
also  purchased  183,224  shares  of  the  common  stock  and  34,722  shares 
of  the  preferred  stock  of  the  Chicago  &  Alton  Railroad  Company  (out 
of  a  total  of  187,511  shares  of  common  and  34,795  shares  of  preferred 
stock  outstanding). 

The  Chicago  &  Alton  Railway  Company  has  also  created  an  issue 
of  $22,000,000  first  lien  3£  per  cent,  gold  bonds'  maturing  July  1, 
1950,  but  redeemable  at  par  at  any  time  on  six  months'  notice.  These 
bonds  are  secured  by  a  mortgage  to  the  Farmers'  Loan  &  Trust  Com- 
pany of  New  York,  as  trustee,  mortgaging  the  railway  line  and  the 
entire  corporate  property  of  the  railway  company,  including  lease- 
holds and  pledging  34,722  shares  of  preferred  stock  and  183,224 
shares  of  common  stock  of  the  Chicago  &  Alton  Railroad  Company, 
certificates  for  which  have  been  deposited  with  said  trustee.  This 
mortgage  provides  that  the  railway  company  as  owner  of  stock  of  the 
railroad  company  will  not  give  its  consent  to  the  issue  of  any  of  the 
refunding  3  per  cent,  bonds  of  the  Chicago  &  Alton  Railroad  Com- 
pany in  excess  of  the  $40,000,000  now  authorized,  except  when  such 
additional  issue  is  expressly  authorized  by  a  three-fourths  vote  of  the 
entire  Board  of  Directors  of  the  railroad  company  and  approved  by  a 


RECAPITALIZATION  OF  CHIC.  &  ALTON   RY.      919 

three-fourths  vote  of  the  entire  Board  of  Directors  of  the  railway 
company.  All  the  bonds  and  the  entire  capital  stock  of  the  railway 
company  have  been  issued  with  the  exception  of  4,572  shares  of  com- 
mon and  4,560  shares  of  preferred  stock,  which  have  been  reserved 
to  acquire,  if  practicable,  the  4,287  shares  of  common  stock  of  the 
Chicago  &  Alton  Railroad  Company  outstanding  in  the  hands  of  oth- 
ers than  the  railway  company. 

The  position  of  the  Chicago  &  Alton  Railway  Company  at  this  time 
is  as  follows: 

Interest  on  $31,988,000  Chicago  &  Alton  R.  R.  Co.  3 
per  cent,  refunding  mortgage  bonds  (assumed  under 

lease)    $959,640.00 

Annual  net  rentals  of  the  Chicago  &  Alton  R.  S.  Co. .       233,030.00 
Interest  on  $22,000,000  Chicago  &  Alton  Ry.  Co.  first 
lien  3£  per  cent,  bonds 770,000.00 


Total  requirements  for  fixed  charges,  including 

rentals    1$1,962,670.00 

The  gross  earnings  of  the  Chicago  &  Alton  Railroad  Company  for 
the  year  ending  June  30,  1900,  during  which  year  the  road  lacked 
much  needed  improvements  and  betterments  which  are  now  progress- 
ing, and  suffered  from  want  of  equipment  now  acquired  and  in  course 
of  delivery  were  $7,796,450;  net  earnings,  $2,964,628. 

In  the  two  months  of  the  current  year  ending  August  31,  the  gross 
earnings  increased  over  1899,  $432,551;  and  the  net  earnings  in- 
creased over  1899,  $151,783. 

In  the  above  figures  the  earnings  of  the  line  from  Springfield  to 
Peoria  are  not  included. 

New  York,  October  25,  1900. 

1  The  railroad  and  railway  companies  have  agreed  to  take  over  on  or  before 
January  1,  1904,  if  previously  not  otherwise  disposed  of,  the  terminals  in  the 
city  of  Chicago,  111.,  leased  on  October  1,  1898,  to  the  St.  Louis,  Peoria  & 
Northern  Railway  Co.  by  the  Chicago  Terminal  Transfer  Co.,  upon  the  terms 
and  conditions  of  the  agreement  of  lease  between  the  two  companies  as  modi- 
fied by  the  supplemental  agreement  of  May  25,  1899. 


920         MATERIALS    OF   CORPORATION    FINANCE 

CONDEMNATION  OF  CHICAGO-ALTON 
RECAPITALIZATION1 

Now  it  appears  that  for  many  years  before  the  road  was  acquired 
by  this  syindicate  in  1899,  Mr.  Blackstone  had  managed  the  Chicago 
&  Alton  Railroad ;  that  it  had  been  exceedingly  prosperous ;  that  it  had 
paid  exceeding  8  per  cent,  dividends  to  its  stockholders ;  that  it  had  a 
low  capitalization;  that  it  was  a  model  railroad,  as  we  all  understood 
it  in  the  West,  in  capitalization  and  in  management.  To  be  accu- 
rate, the  book  cost  of  the  road,  as  it  appeared  by  the  books  of  the 
Alton  Company,  was  $34,153,927.  It  had  other  assets  of  a  little  over 
$5,000,000.  Its  total  capitalization,  including  stock,  funded  debt,  and 
other  liabilities,  was  $33,951,407.  It  owned  over  843  miles  of  rail- 
road, 6,377  cars,  232  locomotives,  and  148  passenger  cars.  In  less 
than  seven  years  these  gentlemen  had  expanded  that  indebtedness,  ac- 
cording to  the  last  report  of  the  Alton,  to  about  $122,000,000 ;  but  as 
it  is  claimed  there  are  some  duplications,  I  will  take  the  lowest  figures 
shown  by  these  reports.  They  had  expended  it  to  $113,894,356,  an 
increase  of  about  $80,000,000.  And  out  of  this  increase  they  had 
spent  upon  the  property  but  $18,000,000,  of  which  $3,000,000  was  for. 
a  railroad  that  the  men  who  reorganized  it  sold  to  the  Alton  Company. 
In  other  words,  they  increased  its  liabilities  about  $62,000,000  or  $65,- 
433  a  mile  on  946.66  miles  of  road  owned  by  the  company,  for  which 
they  did  not  give  the  company  one  dollar — not  one  dollar — of  prop- 
erty or  money  expended. 

Now,  in  all  this  time  it  had  only  increased  its  mileage  103  miles, 
and  58  of  that  was  the  $3,000,000  road  bought  of  Harriman  and  his 
associates ;  only  increased  its  locomotives  18,  its  passenger  cars  69 ; 
and  its  freight  cars  3,730.  I  have  no  doubt  it  improved  the  quality 
of  this  equipment ;  but  to  say  that  it  was  necessary  to  expand  the  liabil- 
ities of  this  company  any  such  sum  as  that  for  the  purpose  of  adding 
$18,000,000  to  a  road  which  had  a  credit  so  good  that  its  bonds  then 
were  selling  on  a  basis  of  a  little  over  3^  per  cent.,  is  to  my  mind 
incredible.  I  do  not  believe  it.  Why,  the  amount  of  money  that 
these  gentlemen  added  to  this  capitalization  without  giving  it  a  dollar 
of  assets  is  more  than  the  capitalization  per  mile  of  the  majority  of 
the  great  western  lines  of  road — the  Milwaukee,  with  $32,000  and  a 
little  over  per  mile;  the  Northwestern,  with  $32,000  per  mile;  the 
Burlington,  about  the  same  or  a  little  more ;  the  Rock  Island,  $45,000 ; 
the  Great  Northern,  $38,000.  Of  course  there  are  other  roads  in  the 
United  States  that  far  exceeded  that. 

1  From  the  report  of  the  oral  argument  of  Frank  B.  Kellogg,  attorney  for 
the  Interstate  Commerce  Commission,  before  that  Commission,  April  5,  1907. 


RECAPITALIZATION  OF  CHIC.  &  ALTON   RY.      921 

It  is  said  they  spent  $22,000,000.  They  did  not  spend  $22,000,000 
out  of  this  expanded  capitalization.  Mr.  Harriman  said  they  had 
spent  $22,000,000.  On  cross-examination  he  admitted  his  figures  were 
given  him  by  Mr.  Felton  and  that  he  did  not  personally  know  any- 
thing about  it,  except  in  a  general  way.  When  Mr.  Felton  went  on 
the  stand  he  said  that  from  the  day  these  gentlemen  took  hold  of 
the  road  down  to  the  present  time  this  winter,  the  company  had  (in- 
cluding the  58  miles  of  road  they  bought)  expended  $22,327,219.04, 
but  that  $2,708,000  was  equipment  trust  notes  not  included  in  this 
capitalization  made  since  July  1st  last,  and  $1,000,000  was  taken  out 
of  earnings  and  not  included  in  this  capitalization.  So  that,  according 
to  his  figures,  it  would  be  $18,547,219.  I  said  about  $18,000,000,  for 
the  reason  that  Mr.  Mahl,  the  comptroller  of  the  Union  Pacific  road, 
added  this  clause  to  Mr.  Hillard's  statement,  Mr.  Hillard  now  being 
the  comptroller  of  the  Alton  road,  and  that  statement  was  that  they 
added  but  about  $18,000,000,  and  he  was  about  right. 

What  is  this  capitalization  and  for  what  was  it  spent?  It  is  ad- 
mitted that  at  the  time  this  road  was  recapitalized  or  reorganized  it 
had  a  bonded  indebtedness  of  about  eight  and  a  half  million  dollars. 
The  report  of  the  Alton — the  last  one  made  by  Mr.  Blackstone,  I  be- 
lieve in  1898 — showed  that  these  bonds  were  short-time,  high  interest- 
bearing  bonds.  They  were  bonds  which  matured  a  few  months  less 
than  three  years  thereafter,  some  of  which  were  selling  in  the  market 
at  a  rate  to  yield  3£  per  cent.,  substantially  all  of  which  might  have 
been  retired  within  the  next  three  years,  and  a  number  of  them  within 
a  few  months.  With  the  credit  of  that  line  of  railroad  it  stands  un- 
disputed that  it  might  have  sold  its  4  per  cent,  bonds  at  par,  and 
instead  of  increasing  its  fixed  charges  from  $1,000,000  to  over  $2,600,- 
000  per  annum,  could  have  made  all  of  these  improvements  by  increas- 
ing its  interest  account  $720,000  or  $750,000. 

From  this  report  for  1898  it  will  be  seen  that  $1,785,000  of  the 
Louisiana  &  Missouri  River  Railroad  first-mortgage  sevens  matured 
August  1,  1900,  within  a  'year  after  they  sold  these  $40,000,000  or 
$32,000,000  of  bonds  they  put  upon  the  road;  of  Louisiana  &  Mis- 
souri River  Railroad  second  sevens,  $300,000  on  November  1,  1900; 
$1,695,000  of  the  Chicago  &  Alton  sinking  fund  sixes,  May  1,  1903, 
and  $4,379,850  of  Chicago  &  Alton  sixes,  July  1,  1903. 

These  included  all  of  the  bonds  except  $491,000,  making  a  total  of 
$8,159,850  in  bonds. 

Now,  what  did  they  do  ?  Mr.  Harriman,  Mr.  Schiff,  Mr.  Gould,  and 
Mr.  Stillman  bought  the  control  of  this  stock. 

What  became  of  this  $40,000,000  of  bonds  ?  Immediately  after  they 
acquired  this  stock  they  placed  a  $40,000,000  3  per  cent,  fifty-year 


922         MATERIALS    OF    CORPORATION    FINANCE 

mortgage  upon  the  property.  It  does  appear,  and  could  not  appear  in 
any  other  way,  that  if  the  Chicago  &  Alton  Railroad  stock  was  worth 
$39,000,000,  its  3  per  cent,  bonds  were  worth  more  than  65.  They 
certainly  sold  for  about  two  years  at  90  or  above,  or  substantially  that 
and  they  certainly  could  have  borrowed  all  the  money  the  Chicago  & 
Alton  wanted  at  4  per  cent.  To  take  up  the  eight  million  six  hundred 
and  some  thousand  dollars  of  prior  mortgage  bonds  and  the  interest 
and  for  other  corporate  purposes,  this  mortgage  was  placed  upon  the 
property.  They  sold  through  Kuhn,  Loeb  &  Co.  to  Goldman,  Sachs 
&  Co.,  who  sold  then  to  the  New  York  Life  $10,000,000  of  these  bonds 
at  96  cents  on  the  dollar. 

What  was  the  average  price  of  these  bonds?  It  does  appear  that 
the  $10,000,000  not  only  sold  for  96  but  that  Kuhn,  Loeb  &  Co.  sold 
$1,000,000  to  the  Equitable  Life  Insurance  Company  in  1901  at  92  and 
$550,000  in  1902  at  88  so  that  for  nearly  three  years — over  two  years — • 
these  bonds  sold  between  88  and  96.  As  a  matter  of  fact,  during  the 
months  of  October,  November  and  December  of  1899,  all  of  1900, 
and  January,  February  and  March  of  1901,  these  bonds  never  went 
below  92|. 

Now,  those  men,  according  to  these  market  prices,  could  have  sold 
those  bonds  at  90.  Why,  the  Alton  bonds  were  then  selling  in  the 
market  on  a  3£  per  cent,  basis,  according  to  the  Financial  Chronicle, 
which  is  in  evidence;  and  Union  Pacific  fours,  the  Northern  Pacific 
fours,  and  other  high-class  railroad  first  mortgage  4  per  cent,  bonds, 
with  no  better  credit  than  the  Chicago  &  Alton  were  selling  in  this 
country  above  par.  We  do  not  deny  that  at  times  railroads  cannot  do 
that,  and  they  cannot  do  it  now;  but  they  could  have  done  it  then, 
and  the  Alton  had  exceptionally  fine  credit.  It  was,  in  fact,  a  shining 
mark. 

Even  had  these  3 '  per  cent,  bonds  been  placed  on  a  4  per  cent, 
basis  they  would  have  sold  at  78.45 — that  is,  placed  on  a  basis  that  they 
would  produce  during  the  fifty  years  4  per  cent.  But  they  were  sold 
to  these  gentlemen  at  65.  No  amount  of  explanation  will  show  that 
to  be  good  conservative  railroad  financing,  and  it  is  no  answer  to  say 
that  it  was  done  in  other  railroads.  It  was  certainly  done  in  this. 

Shortly  after  the  purchase  of  this  stock  these  gentlemen  paid  to 
themselves  a  dividend  of  30  per  cent,  out  of  the  proceeds  of  this  mort- 
gage. They  owned  all  the  stock  except  73  shares  of  preferred  and 
4,287  shares  of  common.  They  controlled  the  company.  If  you  de- 
duct this  dividend  which  they  took  out  of  the  mortgage,  they  really 
paid  about  48  or  49  cents  on  the  dollar  for  the  bonds. 

The  fallacy,  it  seems  to  me,  of  Judge  Lovett's  argument  that  a  road 
should  be  judged  by  what  it  has  paid  out  in  dividends  and  interest 


RECAPITALIZATION  OF  CHIC.  &   ALTON   RY.     923 

is  this :  He  said,  "We  haven't  paid  out  in  dividends  and  interest  much 
more  since  the  reorganization  than  was  paid  out  before."  But  re- 
member that  Mr.  Blackstone  was  paying  his  stockholders  8  per  cent, 
dividends,  while  the  reorganized  Alton  was  only  paying  4  per  cent, 
on  its  preferred  stock  and  nothing  on  its  common. 

Furthermore,  the  time  may  come  when  the  Commission  would  say 
that  8  per  cent,  dividends  was  rather  large,  if  dividends  are  to  be 
taken  as  the  basis  for  rate  making.  I  do  not  say  whether  it  is  or  not. 
A  railroad  should  have  good  earnings.  Dividends  should  not  be  small. 
It  is  not  in  the  interest  of  the  country  to  make  rates  so  low  that  rail- 
road securities,  which  form  a  large  part  of  the  wealth  of  the  people, 
should  not  receive  a  reasonable  income,  and  should  be  depressed. 

If  the  Commission  and  the  country  have  no  interest  at  all  in  inves- 
tigating the  question  of  overcapitalization,  if  they  have  no  interest  in 
the  stability  of  securities  placed  on  the  market  in  which  people  in- 
vest their  savings  and  which  they  buy  on  the  faith  of  the  security,  then 
perhaps  Judge  Lovett's  theory  is  correct,  that  the  amount  of  the 
securities  issued  is  entirely  immaterial.  I  prefer  to  adopt  Mr.  Cra- 
vath's  suggestion  that  the  people  have  an  interest  in  this,  and  that 
there  should  at  this  day  be  reasonable  regulations  which  will  insure 
the  stability  and  the  safety  of  railroad  securities  and  make  them  a  de- 
sirable investment. 

I  do  not  deny  that  in  the  construction  of  new  lines  of  railroad,  espe- 
cially into  new  country,  it  has  been  necessary  to  issue  bonus  stock  and 
sell  railroad  securities  much  below  par.  I  do  not  deny  that  this  has 
tended  to  develop  the  great  western  country,  to  furnish  it  lines  of 
transportation,  and  to  add  millions  to  the  wealth  of  the  nation.  But 
I  believe  the  time  is  coming  when  Congress  should  reasonably  limit  the 
inflation  and  manipulation  of  railroad  securities,  in  order  that  their 
stability  may  be  insured  and  their  value  maintained.  Investors  cannot 
inquire  into  the  history  and  value  of  the  property  and  the  basis  of 
credit  of  all  railway  securities ;  they  must  accept  them  on  the  faith  of 
their  earning  capacity  and  the  integrity  of  the  management.  This 
regulation  should  not  be  unreasonable.  It  should  not  hamper  the 
capitalization  or  the  increase  of  capitalization  of  railways;  it  should 
not  retard  the  construction  of  new  lines,  and  the  development  of  the 
country;  but  it  should  prevent  great  railway  systems,  which  are  to- 
day reasonably  capitalized  and  have  high  credit,  from  being  shining 
marks  of  manipulation  in  Wall  Street  or  any  other  financial  market. 
That  is  what  I  say. 

There  is  another  thing  the  Commission  should  consider,  and  that 
is  the  system  of  bookkeeping  by  railroads.  What  becomes  of  these 
dividends?  Why,  the  counsel  says  they  were  openly,  notoriously  paid. 


924         MATEEIALS    OF   COKPOKATION   FINANCE 

Nobody  denied  it.  But  I  think  the  law  requires  that  dividends  should 
be  reported  to  this  Commission  in  the  annual  reports;  and  that  30 
per  cent,  dividend,  I  am  informed,  was  never  reported  to  the  Commis- 
sion. It  is  not  in  the  annual  reports  to  the  Commission  at  all,  and 
not  shown.  The  $8,150,000  of  discount  on  bonds  is  not  shown  in  the 
reports  to  the  Commission  or  in  the  annual  reports  of  the  company; 
and  Mr.  Hillard  says  they  were  charged  against  this  $12,444,176.66, 
which  was  expenditures  uncapitalized,  in  order  to  cover  it  up. 

What  is  this  $12,000,000  that  so  much  has  been  said  about?  In 
the  report  of  1899  to  the  Interstate  Commerce  Commission  there  ap- 
pears an  item  credited  "  Construction  expenditures  uncapitalized,  $12,- 
444,176.66."  What  was  that?  These  gentlemen  went  back  into  the 
history  of  the  Alton  road ;  they  took  the  report  made  ten  years  before 
by  Mr.  Blackstone  to  his  stockholders,  in  which,  with  commendable 
pride,  he  pointed  out  to  them  that  the  Alton  road  was  worth  at  least 
$11,000,000  more  than  it  was  capitalized  for,  owing,  partly  at  least, 
to  the  losses  of  the  original  stockholders  of  the  old  Joliet  and  Chicago 
road,  which  had  been  foreclosed  way  back  in  war  times  before  1863. 
And  I  believe  that  this  is  the  first  time  I  have  ever  heard  of  waiting 
thirty  years  and  recapitalizing  losses  of  stockholders  of  another  road 
made  in  foreclosure  proceedings  years  before.  That  looks  to  me  some- 
what like  robbing  the  graveyard. 

Let  us  see  whether  I  am  correct  in  that.  I  would  like  to  call  your 
attention  for  a  moment  to  Mr.  Blackstone's  report  of  1898.  Well, 
I  will  find  it  in  Mr.  Harriman's  testimony,  page  66.  Here  is  what 
Mr.  Blackstone  says: 

"Taking  into  account  the  loss  sustained  by  the  original  corporations 
which  constructed  that  part  of  your  lines  between  Joliet  and  Alton 
and  operated  it  until  it  passed  from  their  hands  to  yours  by  fore- 
closure and  sale  under  the  original  mortgages,  and  the  amount  which 
your  company  has  expended  for  additional  property  not  represented 
by  stocks  or  bonds,  we  find  not  only  that  your  company  has  never 
issued  a  share  of  stock  or  an  obligation  of  any  kind  that  did  not  repre- 
sent at  its  par  value  an  equal  amount  of  cash  or  its  full  equivalent  of 
property  at  the  time  actually  received,  but  also  that  the  original  cash 
cost  of  your  property,  as  nearly  as  it  can  be  ascertained,  was  $10,989,- 
878.15,  or,  in  round  numbers,  $11,000,000,  more  than  the  par  value 
of  the  total  amount  of  stocks  and  bonds  which  your  company  has 
issued  or  assumed. 

"To  ascertain  the  difference  between  the  original  cost  of  your  prop- 
erty and  the  amount  of  stocks  and  bonds  for  which  your  company  is 
responsible  now  outstanding,  $725,000  should  be  added  to  the  amount 
above  stated,  being  the  amount  of  bridge  and  sinking-fund  bonds 


RECAPITALIZATION   OF  CHIC.  &  ALTON  RY.      925 

since  paid  and  canceled,  in  place  of  which  no  stock  or  bonds  have  been 
issued." 

In  other  words,  they  paid  their  debts  and  canceled  the  bonds;  and 
these  gentlemen  took  the  losses  of  the  original  stockholders,  money 
expended  twenty  or  thirty  years  ago  and  charged  off,  and  bonds  paid 
and  canceled,  as  the  starting  point  of  their  recapitalization  of  the 
Chicago  &  Alton  Railway. 

I  will  go  further  than  that.  I  say  that  they  not  only  did  that,  but 
they  took  from  that  time  on  the  annual  appropriations  made  by  the 
board  of  directors — who  had  it  in  control,  and  who  were  entitled  to 
speak  and  had  the  authority  to  charge  it  off — they  took  the  annual 
Bum  for  ten  years  which  had  been  spent  in  betterments  and  improve- 
ment of  that  property  to  keep  it  up  to  the  standard  to  which  Mr. 
Blackstone  thought  it  should  be  kept  up,  and  they  took  that  and  added 
it  to  the  $11,000,000  and  made  $12,444,176.66. 

I  would  like  to  refer  to  the  details  of  that,  because  I  believe  that  that 
sort  of  bookkeeping  is  not  lawful.  I  do  not  mean  that  it  is  criminal ; 
I  mean  that  it  is  not  lawful,  in  that  the  board  of  directors  had  dis- 
posed of  it  and  no  subsequent  board  of  directors  had  a  right,  in  my 
opinion,  to  repeal  those  resolutions,  to  dig  up  those  amounts,  add  them 
to  capitalization,  and  pay  it  out  in  dividends,  or  charge  it  to  discount 
on  bonds. 

On  pages  204  and  205  of  the  exhibits  of  Mr.  Hillard,  who  is  now 
the  comptroller  of  the  Alton,  will  be  found  the  items  of  those  sums, 
and  from  1889  down  to  1898  the  annual  sums  appropriated  were 
charged  off.  I  have  all  the  reports  here.  I  will  not  stop  to  read  them, 
but  I  will  give  the  Commission  an  illustration.  For  instance,  in  the 
income  account,  after  the  payment  of  the  interest  on  the  funded  debt 
and  the  dividends  and  the  rentals  each  year,  the  company  made  this 
charge :  "Appropriated  from  this  account  for  additional  property,  real 
estate,  and  new  tracks,  $18,764.71."  Some  years  it  was  more;  one 
year  it  was  $238,000 ;  one  year  it  was  $32,000 ;  another  year,  $26,000. 
I  am  giving  round  numbers.  Those  sums  had  been  annually  appro- 
priated. 

Now,  I  deny  the  right  of  any  subsequent  board  of  directors  ten 
years  later,  or  any  time  later,  after  the  board  of  directors  has  passed 
on  that  question,  to  take  all  those  sums  and  capitalize  them  and  pay 
them  out  in  dividends.  We  all  know  that  every  railroad  which  is  kept 
up  to  the  standard  it  ought  to  be,  must  spend  a  large  sum  of  money 
in  betterments  which  are  not  strictly  new  construction  and  should 
not  be  charged  to  capital  account.  Railroads  must  be  maintained,  and 
there  is  not  a  well-managed  railroad  in  the  United  States  that  under- 
takes to  capitalize  every  dollar  spent  for  betterments.  Every  well- 


926         MATERIALS    OF   CORPORATION    FINANCE 

managed  railroad  capitalizes  certain  amounts — new  construction,  usu- 
ally double  tracking,  sometimes  additional  weight  of  rails — but  I 
think  the  conservative  men  will  admit  that  it  is  necessary  every  year 
to  spend  a  large  sum  of  money  which  is  in  the  nature  of  betterment 
of  property,  in  order  to  keep  it  up  to  the  standard ;  because  otherwise, 
if  you  capitalize  every  dollar,  the  time  will  come  when  your  indebted- 
ness will  break  any  road  in  the  United  States. 

At  least  I  deny  that  it  is  conservative  railroad  management  to  go 
back  thirty  years,  take  the  losses  of  the  original  stockholders,  take  all 
the  money  used  during  those  years  for  the  improvement  and  betterment 
of  the  railway,  and  charge  them  up  as  a  part  of  the  capital  account, 
borrow  money  on  a  mortgage  to  pay  it  back  to  the  railway  company, 
and  then  turn  around  and  pay  it  out  to  themselves  in  dividends  and 
in  profits  on  bonds  sold  to  themselves  at  unreasonable  and  absurdly  low 
prices. 

Against  that  $12,444,177  they  charged  this  dividend  of  $6,669,180, 
and  $8,155,751  of  discount  on  bonds.  Now,  what  was  that?  It  was 
not  the  discount  on  the  $32,000,000  of  bonds  at  35,  which  would  be 
the  ordinary  way.  I  have  never  known — I  am  not  an  expert  in  rail- 
road accounting,  but  I  have  never  before  known  discount  on  bonds 
to  be  charged  in  that  way.  But  $8,155,000  for  some  reason  seems  to 
have  been  charged  as  discount  on  bonds,  as  against  $12,444,000 — I 
cannot  for  the  moment  think  for  any  other  reason  than  to  cover  it  up. 
That  probably,  I  suggest,  may  have,  been  profits  to  these  gentlemen 
on  those  bonds.  Whether  it  was  or  not,  it  is  certainly  a  discount  on 
bonds  charged  against  a  raked-up  old  account  of  the  Chicago  &  Alton 
for  construction  expenditures  uncapitalized  and  losses  of  prior  stock- 
holders. 

A  few  words  more  on  that  point.  These  gentlemen,  having  bought 
the  Chicago  &  Alton  Railroad  stock,  organized  the  Chicago  &  Alton 
Railway  Company.  They  placed  their  stock  in  the  treasury  and  they 
mortgaged  it  for  $22,000,000.  That  transaction  took  this  form — and 
I  do  not  deny  that  it  is  a  form  which  is  sometimes  used  in  transferring 
property  into  a  railroad  in  order  to  get  out  the  securities — but  it  did 
take  this  form.  These  gentlemen  transferred  their  stock  to  Mr.  Louis 
Stanton  and  transferred,  or  at  least  nominally  transferred,  this  58 
miles  of  road  to  Mr.  Stanton.  Mr.  Stanton  made  a  proposition  to  the 
new  Chicago  &  Alton  Railway  Company  to  sell  it  34,722  shares  of 
preferred  stock,  which  had  cost  them  $6,944,400,  and  on  which  they 
had  received  a  dividend  of  $1,041,660,  leaving  a  net  cost  of  $5,902,- 
740 — they  proposed  to  sell  that  to  the  new  company  for  $10,000,000 
in  cash.  The  183,224  shares  of  common  stock  which  they  had  bought, 
which  had  cost  them  $32,064,200,  on  which  they  had  received  a  divi- 


RECAPITALIZATION  OF  CHIC.  &  ALTON   RY.      927 

dend  of  $5,496,720,  they  proposed  to  sell  to  the  new  company  for 
390,318  shares  of  its  stock,  one-half  of  which  was  preferred  and  one- 
half  common.  It  does  not  appear  what  these  gentlemen  got  for  their 
common  stock  or  their  preferred  stock,  but  if  they  sold  it  for  anywhere 
near  the  market  price,  as  shown  by  the  table  which  Mr.  Lovett  put  in 
evidence,  they  must  have  made  a  very  large  profit  on  this  transaction. 

Now,  they  were  to  get  $10,000,000  for  this  stock  and  they  were 
to  get  $3,000,000  for  the  railroad,  making  $13,000,000;  and  the 
records  show  they  sold  the  $22,000,000  of  bonds  for  $13,000,000. 
But,  as  a  matter  of  fact,  they  transferred  all  the  stock  and  all  the 
bonds  for  the  securities. 

That  is  the  practical  effect.  But  the  bonds,  if  sold  for  $13,000,000, 
would  be  a  little  less  than  60  cents  on  the  dollar,  and  they  never  sold 
thereafter  at  anywhere  near  that  low  price;  in  fact,  they  averaged 
from  1900  down  to  the  present  time  from  76|  to  86£,  and  during 
the  two  or  three  years  after  their  issue  they  sold  for  82£  to  86. 

There  was  the  issuance  of  $40,000,000  of  common  stock  and  $22,- 
000,000  of  bonds  which  have  been  put  on  the  market  in  addition  to  the 
$40,000,000  of  bonds,  much  of  which  was  an  increase  of  the  capitaliza- 
tion of  this  company. 

There  is  another  item  that  I  wish  very  briefly  to  call  to  the  Com- 
mission's attention,  and  that  is  the  item  of  $973,477  of  funded  in- 
terest account  which  was  added  to  the  capital  of  this  road.  That  mort- 
gage was  made  to  take  up  the  prior  bonds  and  coupons.  From  June, 
1901,  down  to  1906,  there  was  carried  in  the  treasury  of  the  Chicago 
&  Alton  Company  $973,477  worth  of  the  coupons  of  its  prior  mortgage 
bonds  which  had  been  paid.  It  was  carried  as  an  asset  in  the  treas- 
ury of  the  Chicago  &  Alton  Company.  I  take  it  that  coupons  from 
the  bonds  paid  with  that  mortgage  should  have  been  canceled,  and 
were  not  legitimate  assets  in  the  treasury.  As  a  matter  of  fact,  in  1905, 
after  having  carried  them  for  four  years  as  an  asset,  they  were  charged 
to  capital  account. 

Again,  it  may  not  have  been  illegal,  but  it  was  bad  business  to  mort- 
gage that  34  miles  of  road  in  process  of  construction,  sell  all  the  bonds, 
and  leave  no  way  of  raising  funds  to  complete  it. 

Mr.  CBAVATH.     To  build  that  road? 

Mr.  KELLOGO.  To  build  that  road ;  yes.  As  a  matter  of  fact,  when 
the  new  management  took  hold  of  the  Chicago  &  Alton  Company  what 
was  its  condition  ?  After  having  expanded  its  securities  from  $33,000,- 
000  to  $114,000,000,  and  only  having  spent  $18,000,000  on  the  prop- 
erty, it  found  itself  confronted  with  the  necessity  of  buying  additional 
equipment,  and  was  compelled  to  issue  $2,780,000  of  trust  certificates 
to  do  so.  It  was  reduced  to  the  necessity  of  giving  its  equipment  notes 


928         MATERIALS    OF   CORPORATION    FINANCE 

in  order  to  obtain  the  facilities  with  which  to  serve  the  public.  Not 
only  that,  but  it  had  no  money  in  the  treasury,  and  no  way  of  raising 
money,  to  complete  the  34  miles  of  road  in  process  of  construction. 
Here  was  the  Alton  company,  with  all  its  splendid  credit,  in  six  years 
of  prosperous  times,  unable  to  meet  its  demands,  after  this  enormous 
recapitalization,  made  (as  Mr.  Harriman  said)  to  meet  modern  con- 
ditions. 

Now,  I  deny  the  necessity,  I  deny  the  morality,  and  I  deny  that  it 
is  good  financiering,  whether  it  was  within  the  law  or  whether  it  was 
not.  I  believe  that  is  a  most  conspicuous  instance  of  taking  a  railroad 
with  a  splendid  credit,  with  low  capitalization,  making  it  the  object  of 
speculation,  for  the  purpose  of  increasing  its  securities  and  unload- 
ing them  on  the  public  for  the  purpose  of  enriching  the  managers, 
when  the  earnings  of  the  road  do  not  and  cannot  justify  the  increased 
capitalization.  I  deny  that  it  is  necessary,  and  I  believe  the  law  should 
not  permit  such  transaction;  that  the  law  should  require  that  money 
borrowed  be  used  for  corporate  purposes  of  construction  and  acquisi- 
tion of  the  property,  improvement  of  the  railway,  or  the  funding  of 
prior  indebtedness,  and  that  reasonable  restrictions  should  at  this  date 
be  placed  upon  the  unlimited  issue  of  securities  of  railroads. 

One  other  suggestion.  I  do  not  believe  that  it  is  wise,  as  I  said 
before,  that  unreasonable  restrictions  should  be  placed  upon  the  acqui- 
sition of  stocks  and  securities  of  connecting  railways ;  but  I  do  not  be- 
lieve it  is  in  the  interest  of  the  railways  themselves,  or  of  the  public, 
that  they  should  be  allowed  to  become  great  financial  investment  in- 
stitutions, dealing  in  the  stocks  and  securities  of  other  railways.  Their 
credit  should  be  used  in  the  expansion  and  development  of  their  lines 
in  the  transportation  business  of  the  country.  Their  securities  should 
return  reasonable  and  generous  dividends.  Their  credit  should  be  of 
the  highest.  I  should  deplore  action  or  legislation  which  would  ham- 
per them  or  show  an  unreasonable  spirit  toward  their  expansion,  for  the 
expansion  of  the  railway  systems  of  the  country  must  go  hand  in  hand 
with  its  prosperity  and  its  development.  But  I  do  not  believe  that  the 
enormous  credit  of  railway  companies  should  be  used  for  the  purpose 
of  purchase  and  sale  of  securities  of  other  lines  or  used  for  other  than 
transportation  business,  and  that  their  solvency  should  not  be  imperiled 
by  the  rise  and  fall  in  the  prices  of  stocks. 


READJUSTMENT    OF   CAPITAL   ACCOUNT         929 


READJUSTMENT   OF   PUBLIC    UTILITY1 

President  F.  G.  Drum,  of  the  Pacific  Gas  &  Electric  Co.,  San  Fran- 
cisco, in  a  circular  of  June  3,  says  in  part  (compare  ann.  report  in  V. 
98,  p.1773)  : 

This  plan  is  submitted  after  many  months  of  deliberation,  pursu- 
ant to  an  order  of  the  California  Railroad  Commission  requiring  us 
to  provide  for  existing  short-term  obligations  and  for  future  capital 
needs.  The  effect  of  its  adoption  will  be  as  follows : 

Reclassification  (Without  Increase)  of  Present  Maximum  Auth.  Stock, 
Common  Stock,  no  change,  except  the  decrease  of 

authorized  maximum  by  $50,000,000  to $100,000,000 

First  Pref.  (p.  &  d.)  Stock — 6%  cumulative,  divi- 
dends quarterly,  a  new  class  of  stock  authorized  in 
place  of  a  like  amount  of  unissued  common  stock. 
It  is  to  be  issued  as  fully  paid  with  the  express 
covenant  that  it  shall  not  be  subject  to  assessment 
for  any  purpose.  Present  issue  ($12,500,000), 
and  all  future  issues  to  be  made  only  with  author- 
ity of  California  Railroad  Commission  for  exten- 
sions, additions,  betterments  and  for  refunding  as 
provided  in  the  P.  U.  Act  of  California.  Tax- 
exempt  in  California 50,000,000 

Preferred  Stock — (Present  issue  6%  cum.)  now  to 
be  made  2nd  pref,  with  the  right  of  exchange  after 
July  1,  1916,  for  the  new  first  pref.  at  the  rate  of 
1.025  shares  of  the  new  stock  for  each  share  of 
the  old  10,000,000 

Necessity  of  Plan. — The  recent  annual  report  (V.  98,  p.  1773) 
clearly  shows  the  extraordinary  growth  of  our  business,  the  gross  reve- 
nue having  increased  from  $8,947,162  in  1906  to  $16,202,337  in  1913, 
being  an  average  annual  increase  for  the  seven  years  of  $1,036,453, 
and  for  1913  an  increase  of  $1,457,686.  The  future  promises  a  still 
more  rapid  growth,  for  which  additional  capital  must  necessarily  be 
obtained. 

The  present  capitalization  limits  the  practicable  means  of  raising 
new  capital  to  the  General  and  Refunding  M.  5%  bonds,  and  the 
major  portion  of  new  capital  required  within  recent  years  has  been 
obtained  in  this  way.  This  policy  has  made  it  necessary  to  reinvest 
in  the  property  an  undue  proportion  of  the  earnings,  thereby  divert- 

1  From  The  Commercial  d  Financial  Chronicle,  June  13,  1914. 


930         MATEEIALS    OF    CORPORATION    FINANCE 

ing  from  the  holders  of  the  common  stock  a  substantial  portion  of  the 
profits  of  the  business  to  which  they  were  legitimately  entitled,  and 
which,  under  the  present  plan,  will  for  the  future  be  available  for 
distribution.  The  Railroad  Commission  has  also  indicated  quite 
clearly  that  it  views  with  disfavor  the  practice  of  raising  new  capital 
entirely  from  the  sale  of  bonds. 

Our  stockholders  are  familiar  with  recent  conditions  which  have 
rendered  it  difficult  for  even  the  most  prosperous  enterprises  to  secure 
new  capital  in  large  amounts  at  reasonable  rates  through  the  sale  of 
bonds.  Your  company's  experience  in  this  respect,  notwithstanding 
its  constantly  growing  profits,  has  been  no  different  from  that  of  other 
corporations,  and  since  March,  1913,  it  has  been  compelled  to  carry 
on  the  largest  construction  program  in  its  history  entirely  from 
earnings  and  from  the  proceeds  of  money  secured  on  short-term 
notes. 

This  condition  is  reflected  in  our  balance  sheet  (V.  98,  p.  1778)  in 
the  item  of  "uncapitalized  advances  to  Construction  Account,"  amount- 
ing to  $11,586,662  at  April  30,  1914.  Short-term  notes  are  an  ad- 
mittedly costly  form  of  financing  and  the  diversion  of  earnings  for 
plant  additions  affords  little  satisfaction  to  the  stockholders,  who  are 
thereby  deprived  of  dividends,  but  the  unquestioned  necessity  of  com- 
pleting the  new  hydro-electric  plants  on  the  South  Yuba  and  Bear 
Rivers,  and  of  making  other  extensions  and  additions  to  meet  the 
growing  demand  for  the  company's  products,  left  no  desirable  alterna- 
tive. Current  returns  indicate  a  saving  in  operating  expenses  of  at. 
least  $400,000  from  the  operation  of  the  new  Drum  power  house 
during  1914. 

Object  of  Present  Issue. — While  the  results  amply  justify  the  course 
pursued,  the  provision  must  now  be  made  for  the  payment  of  $7,000,000 
one-year  notes  maturing  March  25,  1915,  and  of  certain  other  obliga-. 
tions  aggregating  about  $1,000,000.  It  is  proposed  to  accomplish  this 
by  the  sale  to  the  stockholders  of  $12,500,000  of  the  new  first  pre- 
ferred 6%  stock  at  82^2,  a  price  which  will  yield  approximately  $10,- 
300,000  in  cash.  This  amount  will  be  sufficient  to  pay  the  entire 
floating  debt,  and  with  other  assets  accruing  on  account  of  past  con- 
struction will  give  the  company  a  net  working  capital  in  excess  of 
$3,000,000,  and  place  its  treasury  in  the  strongest  position  it  has  occu- 
pied since  organization. 

Outlook  as  to  Dividends. — Annual  dividends  on  the  new  issue  of 
$12,500,000  preferred  stock  will  amount  to  $750,000.  As  the  pay- 
ment of  the  floating  debt  will,  however,  reduce  annual  interest  charges 
by  about  $400,000,  and  as  the  money  remaining  from  the  proceeds 


READJUSTMENT    OF   CAPITAL   ACCOUNT          931 

of  the  stock  sale,  after  the  payment  of  this  debt,  will  be  profitably  em- 
ployed, the  additional  dividend  charges  ahead  of  the  present  preferred 
and  common  stocks  will  be  negligible.  During  the  year  1913-14  net 
earnings  after  bond  interest  and  discount  were  4£  times  the  amount 
necessary  to  pay  the  annual  dividends  on  the  new  preferred  issue  and 
during  the  fiscal  year  1915  such  earnings  will  undoubtedly  exceed  five 
times  the  dividends  on  the  new  stock. 

Contingent  upon  the  new  stock  being  subscribed  for,  your  board,  in 
view  of  the  present  earnings,  will  feel  warranted  in  resuming  divi- 
dends on  the  common  stock  on  a  permanent  basis  at  the  beginning  of 
the  year  1915  at  the  minimum  rate  of  1%  quarterly.  While  our  esti- 
mates for  the  year  1915  indicate  that  a  higher  rate  might  be  paid,  it  is 
our  desire  to  be  as  conservative  as  possible  in  naming  this  as  the 
minimum  disbursement. 

Advantages  of  Plan  to  Preferred  Stockholders — Right  of  Exchange 
for  First  Preferred  after  Two  Years. — The  existing  floating  debt  pre- 
cedes the  equity  of  the  present  preferred  shareholders  and  lays  these 
open  to  the  application  of  statutory  remedies  against  stockholders;  if 
funded  by  a  junior  bond  issue  it  would  place  ahead  of  the  present  pre- 
ferred stock  a  forecloseable  interest-bearing  obligation.  The  plan  here- 
in proposed  avoids  this  and  extends  to  the  holders  of  the  present  pre- 
ferred stock  the  right,  after  two  years,  of  exchanging  their  present 
stock  for  the  new  stock  at  the  rate  of  ten  shares  of  the  old  stock  for 
10 }4  shares  of  the  new.  This  additional  exchange  value,  at  the  present 
offering  price  of  the  new  stock,  is  equivalent  to  $20.60  on  each  ten 
shares.  This  amount,  added  to  the  regular  dividends,  is  equiva- 
lent to  7%  return  per  annum  on  the  par  value  of  the  old  stock 
during  the  interim,  pending  exchange.  [Under  the  plan  the 
present  common  and  preferred  will  retain  their  assessable  fea- 
ture.— ED.] 

Subscriptions. — Subject  to  the  adoption  of  the  plan  and  to  the  ap- 
proval of  the  Railroad  Commission,  your  board  has  authorized  the  ten- 
der to  the  stockholders  of  the  right  to  subscribe  at  $82.50  per  share, 
for  125,000  shares  of  the  new  first  preferred  stock  in  the  proportion  of 
approximately  30%  of  their  holdings  of  all  existing  stock,  both  com- 
mon and  preferred.  Subscriptions  must  be  received  on  or  before  July 
15,  1914,  and  may  be  paid  as  follows:  $5  per  share  July  15,  1914;  $15 
August  15,  1914;  $12.50  October  1,  1914;  $12.50  January  1,  1915; 
$12.50  April  1,  1915;  $12.50  July  1,  1915;  $12.50  October  1,  1915. 
Interest  at  6%  per  annum  will  be  paid  by  the  company  on  all  install- 
ments. Subscribers  may  pay  any  unmatured  installments  at  any  time. 
Upon  the  payment  of  all  installments  a  full-paid  certificate  of  stock 


932         MATEEIALS    OF   COEPOKATION   FINANCE 

will  be  issued  on  the  first  day  of  the  next  succeeding  dividend  period 
and  will  bear  dividends  at  6%  per  annum  from  date  of  issuance. 

Stockholders  may  increase  their  subscriptions  beyond  the  amount 
allotted  subject  to  allotment  of  any  part  of  the  $12,500,000  not  taken 
as  above. 

If  by  August  15,  1914  Hie  company  shall  not  have  received  subscrip- 
tions for,  or  otherwise  disposed  of,  at  least  70%  of  the  stock  herein 
offered,  the  amounts  paid  on  all  subscriptions  will  be  returned  not  later 
than  September  1, 1914,  with  interest  at  6%  per  annum. 

At  $82.50  per  share  this  stock  yields  7.27%  per  annum  on  the  in- 
vestment.—V.  98,  pp.  1760,  1778. 


READJUSTMENT   OF   CAPITAL   ACCOUNT         933 


READJUSTMENT  OF  DEBT  OF  HUDSON  &  MANHATTAN 
RAILROAD    COMPANY 

To  the  Holders  of  the  First  Mortgage  Four  and  One-half  Per  Cent. 
Bonds  and  of  Preferred  and  Common  Shares  (and  Voting  Trust 
Certificates)  of  the  Hudson  &  Manhattan  Railroad  Company. 

At  the  request  of  holders  and  representatives  of  a  large  majority 
of  the  above  bonds  and  shares,  the  undersigned  have  caused  to  be 
made,  by  independent  competent  experts,  an  examination  of  the  prop- 
erties, earnings  and  financial  condition  of  the  Hudson  &  Manhattan 
Railroad  Company.  Summaries  of  the  reports  of  this  investigation 
are  appended  hereto.  These  reports  show  that  the  Hudson  &  Man- 
hattan Railroad  Company  has  not  earned,  and  is  not  now  earning, 
the  full  interest  upon  its  outstanding  First  Mortgage  Four  and  One- 
Half  Per  Cent.  Bonds.  It,  therefore,  cannot  market  securities  to  pro- 
vide funds  to  pay  the  cost  of  improvements  and  betterments,  nor  has 
it  the  funds  to  pay  such  of  its  car  trust  obligations  as  are  approaching 
maturity,  and,  unless  its  fixed  charges  are  reduced  through  the  action 
of  the  bondholders  and  the  needed  funds  are  furnished  by  the  stock- 
holders, it  will  be  impossible  to  avoid  the  foreclosure  of  the  mortgage 
securing  the  First  Mortgage  Four  and  One-Half  Per  Cent.  Bonds. 

The  undersigned  have  accordingly  formulated  the  within  plan  for 
the  readjustment  of  the  debt  of  the  Company,  which  has  been  ap- 
proved by  the  holders  and  representatives  of  a  majority  of  the  First 
Mortgage  Four  and  One-Half  Per  Cent.  Bonds  and  of  the  Preferred 
and  Common  Shares  of  the  Company.  The  undersigned  have  also 
agreed  to  form  a  Syndicate  to  purchase  from  the  Hudson  Companies 
the  New  First  Mortgage  Bonds  and  Adjustment  Income  Bonds  which 
it  will  receive  upon  the  consummation  of  the  Readjustment,  in  order 
that  it  may  be  in  a  position  to  take  up  its  outstanding  collateral  trust 
notes  and  participate  in  the  Plan  of  Readjustment. 

The  undersigned  believe  that  the  within  plan  is  fair  to  all  interests. 
It  should  be  promptly  accepted  with  substantial  unanimity  by  the 
holders  of  the  First  Mortgage  Four  and  One-Half  Per  Cent.  Bonds 
and  of  the  Preferred  and  Common  Shares  of  the  Company  in  order 
to  avoid  a  forced  reorganization  based  upon  the  foreclosure  of  the 
First  Mortgage. 

Bondholders  and  stockholders,  to  assent  to  the  plan  and  become 
parties  to  the  Readjustment  Agreement,  must  deposit  their  bonds  or 
stock  certificates  or  voting  trust  certificates,  with  Guaranty  Trust 
Company  of  New  York  on  or  before  February  14,  1913,  after  which 


934 


MATERIALS    OF    CORPORATION    FINANCE 


date  no  deposits  will  be  received  except  with  the  consent  of,  and  upon 
such  terms  as  may  be  imposed  by,  the  Readjustment  Managers.  All 
bonds  deposited  should  be  in  bearer  form,  with  February  1,  1913,  and 
all  subsequent  coupons  attached,  and  all  stock  certificates  or  voting 
trust  certificates  should  be  endorsed  in  blank  or  be  accompanied  by 
proper  instruments  of  transfer  in  blank. 

The  undersigned  will,  if  desired  by  depositing  bondholders,  advance 
to  them  upon  their  bonds,  at  the  time  of  deposit  of  the  same,  the 
amount  of  the  coupon  due  February  1,  1913. 

In  case  the  within  Plan  of  Readjustment  should  be  abandoned  and 
a  modified  or  substitute  plan  adopted  by  the  Readjustment  Managers, 
at  least  thirty  days'  notice  of  the  terms  thereof  will  be  given  in  the 
manner  provided  in  the  Readjustment  Agreement,  and  depositors  of 
bonds  and  shares  will  be  given  an  opportunity  of  withdrawing  without 
any  payment  for  expenses. 

New  York,  January  14,  1913. 


KTJHN,  LOEB  &  CO., 

New  York. 
ROBERT  FLEMING  &  CO., 

London. 
HARVEY  FISK  &  SONS, 

New  York. 


Readjustment 
Managers. 


935 


HUDSON  &•  MANHATTAN  RAILROAD  COMPANY 
Plan  for  Readjustment  of  Debt 

I 

PRESENT  SECURITIES  OUTSTANDING 

Debt  to  be  comprised  in  readjustment: 

First  Mortgage  Four  and  One-Half  Per  Cent.  Gold  Bonds,  due 
February  1,  1957  (hereinafter  called  the  "Present  First- 
Mortgage  Bonds")  $67,148,000.00 

Equipment  obligations  maturing  prior  to  September  1,  1913. . . .          113,000.00 

Debt  not  to  be  disturbed  by  readjustment: 
New  York  and  Jersey  Railroad  First  Mortgage  Five  Per  Cent. 

Thirty- Year  Gold  Bonds,  due  February  1,  1932 $5,000,000.00 

Equipment  obligations  maturing  from  September   1,   1913,  to 

August  1,  1921  1,263,000.00 

Real  Estate  Mortgages   (including  mortgages  upon  real  estate 

to  be  acquired  under  Plan)    1,207,500.00 


Total  debt   $74,731,500.00 


Capital  Stock: 

Five  Per  Cent.  Non-Cumulative  Preferred  Stock $5,242,151.25 

Common  Stock  39,994,890.00 


$45,237,041.25 
II 

CASH    REQUIREMENTS     (ESTIMATED) 

To  acquire  from  the  Hudson  Companies,  at  cost,  real  estate  on 
the  blocks  occupied  by  the  Terminal  Buildings  (subject  to 

$555,500  mortgages)    $435,000.00 

Payment  in  lieu  of  interest  due  February  1,  1913,  on  Present 
First  Mortgage  Bonds  (excluding  $7,148,000  of  the  bonds 

held  by  Hudson  Companies)    1,350,000.00 

Improvements    150,000.00 

Car  trust  obligations  maturing  prior  to  September  1,  1913 113,000.00 

For  back  taxes  in  course  of  adjustment 325,000.00 

Recording  Tax  on  new  bonds 353,045.00 

For  working  capital,  expenses  of  readjustment  including  com- 
pensation of  Readjustment  Managers  and  other  corporate 
purposes  1,119,103.50 


Total  (equal  to  cash  to  be  provided  by  payment  of  $8.50 

per  share  by  stockholders)    $3,845,148.50 


936         MATEKIALS    OF   COKPOKATION    FINANCE 

III 

PROPOSED   ISSUE   OF    NEW  BONDS 

Five  Per  Cent.  First  Mortgage  Bonds,  bearing  interest  from 
February  1,  1913,i  and  secured  (subject  only  to  existing 
liens)  by  a  mortgage  upon  the  property  covered  by  the 
Present  First  Mortgage  and  upon  the  Equity  in  the  addi- 
tional real  estate  to  be  acquired  or  by  such  mortgage  and 
by  the  pledge  of  the  bonds  secured  by  the  Present  First 
Mortgage  which  become  subject  to  the  Plan;  present  issue.  $37,035,000.00 

Five  Per  Cent.  Adjustment  Income  Bonds  bearing  interest  (if 
earned)  from  February  1,  1913,*  secured  by  a  mortgage 
upon  all  the  property  which  is  to  be  subject  to  the  new 
First  Mortgage  subject  to  the  prior  lien  of  that  mortgage, 
the  interest  charge  against  income  to  be  non-cumulative 
until  January  1,  1920,  and  cumulative  thereafter;  total 
issue  (closed)  33,574,000.00 

IV 

DISPOSITION   OF   NEW   BONDS 

New  Five  Per  Cent.  First  Mortgage  Bonds. 
To  be  issued  to  holders  of  existing  First  Mortgage  Bonds  at 

the  rate  of  $500  of  new  bonds  for  $1,000  of  old  bonds $33,574,000.00 

To  be  issued  to  preferred  and  common  stockholders  for  cash 

payment  of  $8.50  per  share  at  the  rate  of  $900  face  value 

of  bonds  for  $1,000  of  cash  paid  2 3,461,000.00 


Total  to  be  presently  issued  $37,035,000.00 

Five  Per  Cent.  Adjustment  Income  Bonds. 

To  be  issued  to  holders  of  existing  First  Mortgage  Bonds  at  the 
rate  of  $500  of  Adjustment  Income  Bonds  for  $1,000  of 
Old  Bonds  $33,574,000.00 


Holders  of  Present  First  Mortgage  Bonds  to  receive  for  each  $1,000 
thereof : 

*In  case  the  Hudson  &  Manhattan  Railroad  Co.  should  make  any  payment 
on  account  of  interest  accruing  from  February  1,  1913,  on  its  Present  4%% 
First  Mortgage  Bonds,  any  amount  so  paid  for  any  half  yearly  period,  shall, 
to  the  extent  of  $12.50  per  Bond,  be  considered  as  payment  on  account  of  the 
corresponding  interest  on  the  New  First  Mortgage  5%  Bonds,  and  any 
amount  over  $12.50  per  Bond,  as  interest  on  the  New  5%  Adjustment  Income 
Bonds. 

2  See  footnote,  p.  937. 


READJUSTMENT    OF   CAPITAL   ACCOUNT         937 

New  First  Mortgage  Five  Per  Cent.  Bonds $500.00 

New  Adjustment  Income  Bonds 500.00 

Cash  in  lieu  of  interest  due  February  1,  1913  (excepting  interest  upon 
$7,148,000  of  bonds  owned  by  Hudson  Companies,  which  interest 
is  waived)  22.50s 

Preferred  and  common  stockholders  to  retain  their  present  shares 
and,  on  the  payment  of  $8.50  per  share,  to  receive  (subject  to  an 
adjustment  of  accrued  interest  as  of  the  date  of  payment) : 
New  First  Mortgage  Five  Per  Cent.  Bonds  (face  amount) 2 $7.65 

No  payment  need  be  made  by  stockholders  at  the  time  of  the  de- 
posit of  their  stock,  but  said  payment  at  the  rate  of  $8.50  per  share 
shall  be  made  to  the  Depositary  in  respect  of  all  deposited  stock  within 
such  period  (not  less  than  ten  days)  after  notice  from  the  Readjust- 
ment Managers,  given  as  provided  in  the  Agreement,  as  may  be  speci- 
fied in  such  notice.  In  case  any  Depositor  shall  fail  to  make  such 
payment,  the  stock  deposited  by  him  shall  be  forfeited  to  the  Read- 
justment Managers,  who  may  acquire  such  stock  for  themselves  or 
transfer  it  to  others,  upon  payment  to  the  Depositary  of  said  amount 
of  $8.50  for  each  share  of  such  stock;  and  for  such  payment  New 
First  Mortgage  Bonds  shall  be  issued  as  in  the  case  of  other  pay- 
ments by  stockholders. 


VI 

SECURITIES   OUTSTANDING   UPON   CONSUMMATION  OF  PLAN 

New  York  and  Jersey  Railroad  First  Mortgage  Five  Per  Cent. 

Thirty- Year  Gold  Bonds $5,000,000.00 

Five  Per  Cent.  Equipment  obligations  maturing  from  Septem- 
ber 1,  1913,  to  August  1,  1921 1,263,000.00 

Real   Estate  mortgages    1,207,500.00 

Five  Per  Cent.  First  Mortgage  Bonds 37,035,000.00 

Five  Per  Cent.  Adjustment  Income  Bonds 33,574,000.00 


Total  obligations   $78,079,500.00 


Five  Per  Cent.  Non-Cumulative  Preferred  Stock $5,242,151.25 

Common  Stock  .  39,994,890.00 


Total  Capital  Stock $45,237,041.25 

1  For  fractional  amounts  of  bonds  there  will  be  non-interest  bearing  scrip 
exchangeable  in  amounts  of  $500  or  $1,000  for  bonds  carrying  the  interest  not 
paid  on  the  scrip. 

'  In  case  the  Hudson  &  Manhattan  Railroad  Company  should  make  any 
payment  on  account  of  the  interest  due  February  1,  1913,  on  its  present  4%% 
First  Mortgage  Bonds,  any  amount  so  paid  is  to  be  deducted  from  said 
amount  of  $22.50. 


938         MATERIALS    OF    CORPORATION    FINANCE 

VII 

POSITION  OF  NEW  BONDS  IN  RESPECT  OF  INCOME 

The  position  of  the  new  bonds  in  respect  of  income  is  estimated  by 
Messrs.  Barrow,  Wade,  Guthrie  &  Co.,  Chartered  Accountants  in  a  let- 
ter dated  January  13,  1913,  addressed  to  the  Readjustment  Managers, 
as  follows: 

DEAR  SIBS: 

At  your  request,  we  have  made  an  examination  of  the  books  and  accounts 
of  the  Hudson  and  Manhattan  Railroad  Company,  and  beg  to  state  that  for 
the  year  ended  December  31,  1912,  we  find  the  earnings  applicable  to  the  pay- 
ment of  interest  on  new  bonds  to  be  issued  in  lieu  of  the  First  Mortgage  4y2% 
Bonds,  after  charging  taxes  and  all  other  prior  sums,  and  writing  off  adequate 
depreciation  on  both  the  Eailroad  properties  and  the  Terminal  Buildings,  are 
as  stated  below: 

The  result  here  shown  is  after  taking  into  account  the  saving  of  interest  in 
respect  of  debts  and  obligations  paid  or  to  be  paid  in  accordance  with  the 
readjustment  plan,  credits  for  net  rentals  of  properties  to  be  acquired,  and 
the  expected  savings  in  the  Special  Franchise  Tax  for  the  year: 

Total  Net  Earnings $2,567,781.85 

Interest  on  $37,035,000  5%  First  Mortgage  Bonds 1,851,750.00 


$716,031.85 
Less:  Amortization  of  Debt  Discount  annual  charge. .  . .  47,493.33 


Leaving  applicable  to  interest  on  the  $33,574,000  new  5% 
Adjustment  Income  Bonds  equal  to  about  2%  per 
annum $668,538.52 

Yours  very  truly, 

BARROW,  WADE,  GUTHRIE  &  Co., 

Chartered  Accountants. 

VIII 

TERMS   OF    NEW   MORTGAGES 

The  New  First  Mortgage. 

The  mortgage  securing  the  new  First  Mortgage  Bonds  shall  con- 
tain the  following  provisions : 

(a)  The  aggregate  principal  amount  of  bonds  to  be  secured  there- 
by shall  be  limited  to  $65,000,000.    The  bonds  shall  mature  February 
1,  1957. 

(b)  Such  an  amount  of  bonds  as  the  Readjustment  Managers 
deem  proper  shall  be  reserved  to  provide  for  the  purchase,  redemp- 
tion, retirement  or  payment  of  the  underlying  First  Mortgage  Five 
Per  Cent.  Thirty  Year  Gold  Bonds  of  the  New  York  and  Jersey  Rail- 


READJUSTMENT   OF   CAPITAL   ACCOUNT         939 

road  Company  ($5,000,000),  the  equipment  obligations  maturing 
from  September  1,  1913,  to  August  1,  1921  ($1,263,000)  and  the 
underlying  real  estate  mortgages  ($1,207,500). 

(c)  Bonds  other  than  those  issued  under  the  Plan  and  reserved  to 
retire  underlying  liens  as  above  provided,  shall  be  used  only  (1)  for 
additions,  betterments,  equipment  and  extensions  (which  extensions 
must  be  free  from  prior  encumbrance),  provided  that  no  bonds  shall 
be  issued  for  such  extensions  of  the  Company's  lines  of  railroad  unless 
the  net  income  of  the  Company  for  the  last  preceding  calendar  year 
available  for  interest  upon  the  New  First  Mortgage  Bonds  shall  be 
one  and  a  half  times  the  annual  interest  upon  the  New  First  Mort- 
gage Bonds  at  the  time  outstanding  and  those  then  about  to  be  is- 
sued; or  (2)  to  an  amount  not  to  exceed  $6,000,000  for  an  extension 
of  the  Company's  line  to  the  Grand  Central  Railroad  Station  (which 
extension  must  be  free  from  prior  encumbrances),  provided  that  no 
bonds  shall  be  issued  for  such  extension  unless  the  net  income  of  the 
Company  for  the  last  preceding  calendar  year  available  for  interest 
upon  the  New  First  Mortgage  Bonds  shall  be  one  and  a  half  times 
the  annual  interest  upon  the  New  First  Mortgage  Bonds  at  the  time 
outstanding. 

(d)  The  bonds  secured  by  the  mortgage  shall  be  in  denominations 
of  $1,000  and  $500,  and  the  principal  and  interest  thereof,  besides 
being  payable  in  New  York,  shall  also  be  payable  in  London  in 
Pounds  Sterling  at  the  fixed  rate  of  exchange  of  $4.86£  per  Pound 
Sterling. 

(e)  The  bonds  issued  under  the  Plan  shall  be  redeemable  in  whole 
or  in  part  at  105%  and  interest  upon  any 'semi-annual  interest  date. 
Bonds  subsequently  issued  shall  not  bear  interest  at  a  rate  higher  than 
5%  per  annum  and  may  be  redeemable  at  any  price  that  may  be 
specified  in  the  bonds. 

The  Adjustment  Income  Mortgage. 

The  Mortgage  securing  the  Adjustment  Income  Bonds  shall  be  lim- 
ited to  said  amount  of  $33,574,000  and  shall  contain  the  following 
provisions : 

(a)  The  interest  upon  the  income  bonds  shall  be  payable  on  the 
first  days  of  April  and  October  of  each  year.  The  first  interest  shall 
be  payable  on  October  1,  1913,  and  shall  be  payable  out  of  the  surplus 
income  for  the  five  months  ending  June  30  of  that  year.  For  every 
subsequent  year  the  interest  payment  due  on  the  first  day  of  October 
shall  be  payable  out  of  the  surplus  income  for  the  half  year  ending 
on  the  last  preceding  30th  day  of  June,  and  the  interest  payment  due 
on  the  first  day  of  April  shall  be  payable  out  of  the  remaining  surplus 
-. 


940         MATERIALS    OF   CORPORATION    FINANCE 

income  of  the  Company  for  the  year  ending  on  the  last  preceding 
thirty-first  day  of  December. 

The  entire  net  income  of  the  Company  for  each  year  (and  of  said 
period  of  five  months  ending  June  30,  1913)  over  the  interest  upon 
the  First  Mortgage  Bonds  at  the  time  outstanding,  as  such  net  income 
is  ascertained  by  the  Company's  Board  of  Directors  in  accordance 
with  the  provisions  of  the  Mortgage,  shall  be  payable  by  way  of  in- 
terest upon  the  Adjustment  Income  Bonds  up  to  the  full  amount  of 
such  interest  for  such  period  (including  accumulations  of  arrears  of 
interest  accruing  from  earnings  from  January  1,  1920),  except  that 
the  semi-annual  interest  payments  need  not  be  in  fractions  other  than 
one-quarter  of  one  per  cent,  upon  the  Adjustment  Income  Bonds  out- 
standing or  multiples  thereof;  but  any  smaller  fractional  amount  of 
earnings  remaining  after  an  interest  payment  shall,  for  the  purpose  of 
determining  the  income  payable  by  way  of  interest  upon  said  Adjust- 
ment Income  Bonds,  be  carried  into  the  next  succeeding  half-yearly 
period. 

(b)  The  Adjustment  Income  Bonds  shall  be  denominations  of 
$1,000  and  $500,  and  the  principal  and  interest  thereof  besides  being 
payable  in  New  York,  shall  also  be  payable  in  London  in  Pounds 
Sterling  at  the  fixed  rate  of  exchange  of  $4.86^  per  Pound  Sterling. 

(c)  The  Adjustment  Income  Bonds  shall  mature  February  1, 
1957,  but  shall  be  redeemable  in  whole  or  part  on  any  semi-annual 
interest  day  at  par  and  accrued  interest. 

IX 

VOTING    TRUSTEES 

The  deposited  capital  stock  of  the  Company  is  to  be  deposited  with 
a  Bank  or  Trust  Company  under  an  agreement  which  will  vest  the 
voting  power  in  respect  of  such  stock  for  a  period  of  five  years  from 
the  date  of  the  agreement  in  voting  trustees  to  be  named  by  the  Re- 
adjustment Managers.  Said  Voting  Trust  Agreement  shall  provide 
that  whenever  and  so  long  as  five  per  cent,  interest  has  not  been  paid 
on  all  the  Adjustment  Income  Bonds  outstanding  during  the  last 
preceding  fiscal  year,  the  persons  elected  to  the  Board  of  Directors 
of  the  Company  shall  be  persons  approved  or  nominated  at  a  meeting 
of  the  holders  of  the  Adjustment  Income  Bonds,  until  one  less  than 
a  majority  of  the  Board  of  Directors  shall  be  persons  so  approved  or 
nominated,  provided  that  the  action  of  the  meeting  of  the  holders 
of  the  Adjustment  Income  Bonds,  approving  or  nominating  the  neces- 
sary candidates  for  election  shall  be  taken  within  a  reasonable  time 
after  the  opportunity  to  do  so  is  given. 


READJUSTMENT   OF   CAPITAL   ACCOUNT         941 


READJUSTMENT    MANAGERS 

Said  Plan  is  to  be  carried  out  by  Messrs.  Kuhn,  Loeb  &  Co.,  Robert 
Fleming  &  Co.  and  Harvey  Fisk  &  Sons,  as  Readjustment  Managers, 
acting  under  an  agreement  of  even  date  herewith,  an  original  of  which 
is  lodged  with  the  Depositary  hereinafter  named,  where  it  is  subject 
to  the  inspection  of  bondholders  and  stockholders.  Reference  is  here- 
by made  to  said  agreement  for  a  statement  of  the  powers  of  the  Re- 
adjustment Managers  and  for  further  details  of  the  Plan.  In  case 
of  conflict  between  the  Plan  and  the  terms  of  said  agreement,  the  lat- 
ter shall  govern.  The  action  of  Kuhn,  Loeb  &  Co.  and  one  other  of 
said  firms  (as  now  or  hereafter  constituted)  acting  as  Readjustment 
Managers,  shall  have  the  same  effect  as  if  concurred  in  by  all  of  them. 
Either  on  their  own  account  or  as  managers  of,  or  participants  in,  any 
present  or  future  syndicate,  any  or  all  of  the  Readjustment  Managers 
may  purchase,  or  be  interested  in  the  purchase  of,  securities  from  the 
Company  or  from  the  Hudson  Companies,  or  may  furnish  said  Com- 
panies, or  either  of  them,  with  moneys  to  enable  them,  or  either  of 
them,  to  carry  out,  or  participate  in,  said  Plan  or  readjustment,  or 
any  other  plan,  or  may  make,  or  be  interested  in,  any  other  purchases 
of  securities  or  advances  of  moneys  in  connection  with  said  readjust- 
ment, or  any  modified  or  substituted  plan  of  readjustment  or  reorgani- 
zation. The  Readjustment  Managers  shall  not  be  responsible  for  the 
accuracy  of  any  of  the  statements  or  figures  contained  in  this  Plan. 

XI 

MEANS   BY   WHICH   THE   READJUSTMENT   MAY  BE   ACCOMPLISHED 

Said  readjustment  of  the  debt  of  the  Company  may  be  accomplished 
in  such  manner  and  by  such  means  as  to  the  Readjustment  Managers 
may  seem  wise  or  proper  in  their  discretion.  The  New  First  Mort- 
gage Bonds  may  be  issued  either  under  a  new  mortgage  or  under  the 
existing  mortgage  modified  in  such  manner  as  the  Readjustment  Man- 
agers may  determine.  The  Readjustment  Managers  shall  have  power 
to  determine  when  a  sufficient  number  of  the  existing  First  Mortgage 
Bonds  and  shares  of  stock  have  been  deposited  witli  the  Depositary 
to  make  it  advisable  to  declare  the  Plan  operative. 

Except  as  herein  otherwise  specifically  provided,  the  terms  of  the 
new  First  Mortgage  Bonds  and  Adjustment  Income  Bonds  and  of 
the  mortgages  by  which  the  same  are  secured  and  of  any  instruments 
modifying  the  Existing  First  Mortgage  and  of  the  voting  trust  agree- 
ment, and  of  any  other  instruments  deemed  by  the  Readjustment 


942         MATERIALS    OF   CORPORATION    FINANCE 

Managers  to  be  necessary  or  proper  in  connection  with  the  consumma- 
tion of  the  Plan,  shall  be  such  as  the  Readjustment  Managers  shall, 
in  their  discretion,  deem  wise  and  proper.  Any  of  said  mortgages, 
bonds  and  other  instruments  may  vary  from  the  requirements  of  this 
Plan  and  of  the  Readjustment  Agreement,  provided  that,  in  the  opin- 
ion of  the  Readjustment  Managers,  the  variations  are  not  substantial 
or  are  not  of  material  disadvantage  to  any  class  of  Depositors. 

XII 

PROVISION  FOR  A  MODIFIED  OR   SUBSTITUTE  PLAN 

In  case  the  Readjustment  Managers  shall,  for  any  reason,  deter- 
mine that  it  is  impracticable  or  inadvisable  to  carry  out  said  Plan  of 
Readjustment,  they  shall  have  the  power  to  modify  the  same  or  to 
substitute  a  new  plan  and  to  carry  the  modified  or  substitute  plan  into 
effect,  but  in  case  of  the  adoption  of  any  such  modified  or  substitute 
plan,  at  least  thirty  days'  notice  of  the  terms  thereof  and  an  oppor- 
tunity of  withdrawing  deposited  securities  and  cash  (without  in- 
terest) shall  be  given  to  depositors  hereunder  in  the  manner  provided 
in  said  agreement;  no  payment  being  required  from  depositors  with- 
drawing except  reimbursement  with  interest  to  the  managers  for  any 
advances  that  may  have  been  made  in  lieu  of  interest  upon  the  securi- 
ties to  be  withdrawn. 

XIII 

METHOD  OF  DEPOSIT  UNDER  THE  PLAN 

The  holders  of  the  Present  First  Mortgage  Bonds  and  shares  of 
stock  (and  voting  trust  certificates)  of  the  Company  desiring  to  par- 
ticipate in  the  Plan  may  assent  thereto  and  become  parties  to  said 
agreement  in  the  manner  following: 

(1)  Holders  of  First  Mortgage  Bonds  must  deposit  their  bonds, 
together  with  the  February  1,  1913,  and  all  subsequent  coupons,  with 
Guaranty  Trust  Company  of  New  York  (herein  called  the  "Deposi- 
tary") at  its  office  in  the  City  of  New  York  or  at  the  London  office 
of  its  agents  in  London,  Messrs.  Robert  Fleming  &  Co.    Bonds  regis- 
tered as  to  principal  must  be  restored  to  bearer  form  before  deposit, 
and  registered  bonds  must  be  exchanged  for  coupon  bonds  or  regis- 
tered in  the  name  of  the  Depositary. 

(2)  Holders  of  the  Common  and  Preferred  Stock  or  voting  trust 
certificates  therefor  must  deposit  with  the  Depositary  the  certificates 
representing  their  shares  of  stock  duly  endorsed  for  transfer  in  blank, 
or  accompanied  by  proper  instruments  of  transfer  in  blank. 

(3)  The  Depositary  shall  issue  transferable  certificates  of  deposit 
for  all  bonds,  stock  certificates  or  voting  trust  certificates  deposited 


READJUSTMENT    OF   CAPITAL   ACCOUNT         943 

hereunder  and  every  holder  of  such  certificates  of  deposit  shall  be 
bound  by  the  provisions  of  this  Plan  and  of  the  Readjustment  Agree- 
ment. 

The  Readjustment  Managers  may  limit  or  extend  the  time  for  the 
deposit  of  any  bonds  and  stock  hereunder  and  impose  conditions  in 
respect  of  any  such  deposits,  as  provided  in  the  Agreement. 

Dated  January  14,  1913. 

The  Hudson  &  Manhattan  Railroad  Company  hereby  approves  the 
foregoing  plan  for  the  readjustment  of  its  debt  and  hereby  requests 
the  Readjustment  Managers  to  endeavor  to  carry  the  same  into  effect; 
and  in  consideration  of  the  premises,  agrees  with  them  as  follows : 

(a)  To  take  all  lawful  action  on  its  part  required  to  carry  said 
plan  into  effect; 

(b)  To  compensate  the  Managers  for  their  services  in  connection 
with  said  plan  and  the  consummation  thereof;  and 

(c)  To  take  such  action,  as  may  be  requested  by  the  Readjust- 
ment Managers,  to  cause  the  New  First  Mortgage  Bonds  and  the  New 
Adjustment  Income  Bonds  issued  under  said  plan  to  be  tax  exempt 
in  the  State  of  New  York,  provided  no  payment  in  excess  of  one-half 
of  one  per  cent,  of  the  principal  amount  of  said  bonds  shall  be  re- 
quired for  that  purpose. 

HUDSON  &  MANHATTAN  RAILROAD  COMPANY, 

By 

W.  G.  McAooo, 
(Corporate  Seal.)  President. 

Attest: 

L.  R.  THDRLOW, 

Secretary. 

ADDITIONAL  REPORTS  ON  HUDSON  &  MANHATTAN  RAILROAD  COMPANY 

Messrs.  J.  F.  Calderwood,  Vice-President  and  General  Manager  of 
the  Brooklyn  Rapid  Transit  System,  and  W.  S.  Menden,  Engineer  of 
Rapid  Transit  Development  of  Brooklyn  Rapid  Transit  System,  re- 
port as  follows  in  a  letter  dated  November  27,  1912,  addressed  to  the 
Readjustment  Managers,  concerning  the  railroad  property  of  the 
Hudson  &  Manhattan  Railroad  Company: 

GENTLEMEN  : 

In  compliance  with  your  request,  we  have  examined  the  properties  of  the 
Hudson  &  Manhattan  Railroad  Company;  analyzed  the  various  reports  of  earn- 
ings and  expenses,  also  the  reports  prepared  by  Barrow,  Wade,  Guthrie  A  Co., 
Accountants;  examined  the  contracts  and  franchises  under  which  the  proper- 


944         MATERIALS    OF   COEPOEATION    FINANCE 

ties  were  constructed  and  are  now  operated,  and  beg  to  report  as  follows 
concerning  the  railroad  property,  exclusive  of  the  Hudson  Terminal  Buildings. 

The  property  is  of  first-class  construction,  fully  equipped  and  in  good  phys- 
ical condition.  The  car  and  power  equipment  will  care  for  a  traffic  20% 
greater  than  the  present,  which  present  traffic  is  only  about  40%  of  the  total 
capacity  of  the  existing  lines.  All  equipment,  other  than  car  and  power,  is 
sufficient  for  the  operation  of  existing  lines  to  their  full  capacity. 

The  report  of  the  accountants  covers  the  first  full  year's  operation  of  the 
complete  system.  We  are  of  the  opinion  that  gross  earnings  will  show  a 
gradual  increase  and  that  the  present  unit  cost  of  operation  should  not  ma- 
terially increase.  While  the  operating  expenses  are  low  in  percentage  of 
gross,  on  account  of  the  short  haul,  they  are  reasonably  high  when  expressed 
in  unit  cost  of  operation. 

We  have  conferred  with  Barrow,  Wade,  Guthrie  &  Co.  regarding  the  amount 
to  be  included  in  the  deductions  for  depreciation  and  believe  that  the  amount 
charged  in  their  report  fully  covers  the  depreciation  chargeable  against  the 
operation  for  the  year  1912. 

We  believe  that  gross  earnings  will  show  a  gradual  increase  for  the  follow- 
ing reasons: 

(1)  Increase  in  the  population  now  served  by  all  lines  crossing  the  Hudson 
River. 

(2)  Improved  facilities  on  the  lines  now  delivering  traffic  to  the  Hudson 
&  Manhattan  Railroad  Co.  in  New  Jersey. 

(3)  Additional  connections  provided  by  the  enlarged  transit  plans  of  Man- 
hattan, Brooklyn  and  Queens. 

(4)  Increased  passenger  traffic  to  New  York  on  the  steam  railroads  ter- 
minating in  New  Jersey  delivering  their  passengers  to  the  Hudson  &  Man- 
hattan Railroad  Co. 

(5)  The  diversion  of  a  portion  of  the  traffic  now  using  the  ferries  to  the 
Hudson  &  Manhattan  tunnel  lines  by  reason  of  the  improved  conveniences  and 
accessibility.     (The  present  traffic  crossing  the  Hudson  River  is  160,000,000 
per  annum,  of  which  the  Hudson  &  Manhattan  Railroad  Co.  now  carries  less 
than  40%.) 

The  above  should  result  in  an  increase  in  the  gross  earnings  in  addition  to 
the  normal  rate  of  increase  per  annum  (which  in  Greater  New  York  is  about 
6%).  This  future  increase  in  traffic  on  the  Hudson  &  Manhattan  Railroad 
should  be  carried  at  a  less  cost  per  passenger  than  the  traffic  in  1912,  and  the 
net  earnings  should  therefore  increase  at  a  correspondingly  higher  rate. 
Yours  very  truly, 

J.  F.  CALDEBWOOD, 
W.  S.  MENDEN. 

Messrs.  Geo.  E.  Bead  &  Co.  and  Mr.  J.  H.  Ward,  appraiser  for  the 
Title  Guarantee  &  Trust  Company  report  as  follows  in  a  letter  dated 
November  26,  1912,  addressed  to  the  Eeadjustment  Managers,  con- 
cerning the  Hudson  Terminal  Buildings. 

DEAE  SIBS: 

At  your  request  we  have  made  an  examination  of  the  Hudson  Terminal 
Buildings  and  beg  to  report  as  follows: 

This  property  consists  of  two  21-story  modern  fireproof  office  buildings,  with 
extensions;  one  bounded  by  Church,  Cortlandt  and  Dey  Streets,  and  the  othel 


READJUSTMENT    OF   CAPITAL   ACCOUNT         945 

by  Church,  Dey  and  Fulton  Streets,  and  are  maintained  and  operated  in  con- 
nection with  the  Hudson  &  Manhattan  Company's  tube  system,  and  being  the 
New  York  Terminal  for  same. 

The  location  of  these  properties  is  a  strong  one  and  one  that  we  believe  will 
retain  its  strength.  The  buildings  covering  these  plots  are  substantial  and 
are  entirely  adequate  for  the  purpose  for  which  they  were  planned  and  meet 
well  the  demands  of  tenants.  The  tenant  occupation  is  a  very  desirable  one, 
comprising  many  large  and  prominent  corporations  who  would  find  it  difficult 
to  obtain  like  facilities  elsewhere.  The  care,  maintenance  and  upkeep  of  the 
buildings  have  been  and  are  well  looked  after,  reducing  the  loss  from  de- 
preciation thereby  to  a  minimum.  We  believe  the  system  of  operation  to  be 
well  organized  and  efficiently  performed  at  a  moderate  and  reasonable  cost. 
The  buildings  are  well  rented  at  conservative  rates,  which,  in  our  opinion, 
can  be  maintained. 

Yours  very  truly, 

GEO.  R.  READ  &  Co., 
J.  H.  WARD, 
Appraiser  for  Title  Guarantee  &  Trust  Co. 


946         MATERIALS    OF   CORPORATION    FINANCE 


HUDSON  &  MANHATTAN  RAILROAD  COMPANY 
READJUSTMENT  OF  DEBT 

AGREEMENT 

AGREEMENT  made  this  fourteenth  day  of  January,  one  thousand 
nine  hundred  and  thirteen,  between  KUHN,  LOEB  &  Co.,  ROBERT 
FLEMING  &  Co.,  and  HARVEY  FISK  &  SONS  (hereinafter  called  the 
"Managers"),  parties  of  the  first  part;  GUARANTY  TRUST  COMPANY 
OP  NEW  YORK  (hereinafter  called  the  "Depositary"),  party  of  the 
second  part;  and  HOLDERS  OF  THE  FIRST  MORTGAGE  FOUR  AND  ONE- 
HALF  PER  CENT.  GOLD  BONDS,  OF  THE  PREFERRED  CAPITAL  STOCK 
AND  OF  THE  COMMON  CAPITAL  STOCK  OF  HUDSON  &  MANHATTAN 
RAILROAD  COMPANY  (or  voting  trust  certificates  representing  such 
stock),  WHO  SHALL  BECOME  PARTIES  TO  THIS  AGREEMENT  (hereinafter 
called  "Depositors"),  parties  of  the  third  part, 

WITNESSETH  that  the  parties  hereto,  for  and  in  consideration  of 
the  covenants  and  promises  hereinafter  recited,  and  for  the  purpose 
of  consummating  the  foregoing  plan  for  the  readjustment  of  the  debt 
of  Hudson  and  Manhattan  Railroad  Company  (hereinafter  called  "the 
Company")  of  even  date  herewith,  or  some  modified  or  substitute 
plan  for  such  readjustment,  have  mutually  agreed  and  hereby  do 
severally  agree,  and  each  Depositor  has  agreed  and  hereby  does  agree, 
with  the  other  Depositors  and  with  the  Managers  as  follows: 

First. — The  said  plan  for  the  readjustment  of  the  debt  of  the 
Company  is  hereby  adopted  and  approved,  and  shall  be  taken  to  be 
a  part  of  this  agreement  with  the  same  effect  as  though  each  and 
every  statement  and  provision  thereof  had  been  embodied  herein,  and 
said  plan  and  this  agreement  shall  be  read  as  one  and  the  same  instru- 
ment; but  no  estimate,  statement,  explanation  or  suggestion  nor  any- 
thing else  contained  in  the  said  plan  or  in  this  agreement,  or  in  any 
circular  issued  or  which  may  hereafter  be  issued  by  the  Managers, 
is  intended  or  is  to  be  taken  as  a  representation  or  warranty,  or  as 
a  condition  of  or  inducement  for  deposit  or  assent,  under  the  plan 
and  this  agreement  or  any  modification  thereof  or  amendment  thereto, 
and  no  defect  or  error  herein  shall  release  any  deposit  thereunder,  or 
affect  or  release  any  assent  thereto,  except  by  written  consent  of  the 
Managers. 

Counterpart  originals  of  this  agreement,  signed  by  the  Managers, 
or  by  a  majority  thereof,  and  by  the  Depositary  shall  be  lodged  with 
the  Depositary,  and  with  Messrs.  Robert  Fleming  &  Co.,  the  agents 
of  the  Depositary  in  London,  England,  and  with  any  other  Depositary 


READJUSTMENT   OF   CAPITAL   ACCOUNT         947 

or  Depositaries  appointed  as  hereinafter  provided;  and  each  of  said 
originals  shall  be  taken  as  a  complete  and  original  instrument,  but 
all  together  shall  constitute  one  agreement.  This  agreement  shall 
be  deemed  to  be,  and  shall  be  construed  as,  a  New  York  contract. 

Second. — Holders  of  the  First  Mortgage  Four  and  One-half  Per 
Cent.  Gold  Bonds  and  of  the  Preferred  Capital  Stock  and  of  the 
Common  Capital  Stock  of  the  Company  and  of  voting  trust  certifi1- 
cates  for  such  stock  may  become  parties  to  this  agreement  in  the  man- 
ner provided  in  Article  XIII.  of  the  foregoing  plan  and  upon  com- 
pliance with  such  further  requirements  and  regulations  as  the  Mana- 
gers shall  from  time  to  time  establish  by  written  notice  to  the  Deposi- 
tary, and  the  Depositors  agree  respectively  at  any  time  on  demand 
of  the  Managers  to  execute  any  and  all  other  transfers,  assignments 
or  other  writings  required  for  vesting  in  the  Managers  or  their  nomi- 
nees ownership  of  and  all  powers  of  ownership  in  respect  of  the  bonds 
and  stock  deposited  hereunder  or  assigned  to  the  Managers.  The 
Managers,  in  their  discretion  and  upon  such  terms  and  conditions 
as  they  shall  prescribe,  may  permit  the  Hudson  Companies  or  other 
holders  of  bonds  or  stock  of  the  Company  to  become  parties  to  the 
plan  and  this  agreement,  or  to  a  modified  .or  substituted  plan  and 
agreement,  without  the  actual  deposit  of  securities  and  all  security 
holders  so  becoming  parties  are  intended  to  be  embraced  within  the 
term  "Depositor"  whenever  used  in  this  agreement.  Voting  Trust 
Certificates  issued  under  the  Voting  Trust  Agreement  dated  June 
15,  1908,  made  between  holders  of  stock  in  the  Company  and  Dumont 
Clarke,  Pliny  Fisk  and  William  M.  Barnum,  may  be  accepted  by 
the  Managers  in  lieu  of  the  stock  certificates  against  which  such 
voting  trust  certificates  shall  have  been  issued;  and  the  provisions 
of  this  agreement  with  respect  to  the  stock  of  the  Company  deposited 
hereunder  shall  apply  to  said  voting  trust  certificates  deposited  here- 
under. The  Managers  are  hereby  authorized,  if  they  deem  advisable, 
to  take  all  action  necessary  to  secure  the  termination  of  said  voting 
trust  in  advance  of  the  date  specified  for  termination  by  the  provisions 
thereof  and  to  secure  the  return  of  the  stock  certificates  deposited 
thereunder;  which  stock  certificates  so  returned  shall  be  deemed  to 
be  deposited  hereunder. 

Depositors  of  certificates  of  preferred  and  common  stock  of  the 
Company  hereunder  severally  and  respectively  agree,  immediately  upon 
the  deposit  hereunder  of  their  respective  certificates  of  stock,  to  de- 
liver to  the  Depositary  proxies  or  powers  of  attorney  in  respect  thereof 
authorizing  the  Managers,  or  such  person  or  persons  as  shall  be 
designated  by  them,  and  their  substitute  or  substitutes  to  represent 


948         MATEEIALS    OF   CORPORATION    FINANCE 

and  vote  the  deposited  shares  of  preferred  and  common  stock  at  any 
regular  or  special  meeting  of  the  stockholders  of  the  Company  upon 
any  question  that  may  come  before  the  said  meeting.  Every  such 
power  of  attorney,  proxy  and  every  assignment  of  a  deposited  security 
provided  for  in  this  agreement  shall  be  in  the  respective  forms  ap- 
proved by  the  Managers,  and  such  powers  of  attorney  shall  give  to 
the  Managers,  their  nominee  or  nominees  and  their  substitute  or  sub- 
stitutes, full  right  and  power  to  vote  on  behalf  of  the  stock  therein  re- 
ferred to  at  all  meetings  of  stockholders  of  the  Company.  All  powers 
of  attorney  and  proxies  delivered  to  the  Depositary  shall  be  irrevocable 
and  shall  at  all  times  be  subject  to  the  order  of  the  Managers.  The 
Syndicate  Managers  are  hereby  given  full  power  and  authority  to  vote 
and  act  for  all  the  shares  of  stock  in  the  Company  represented  by  the 
deposited  certificates  at  any  meeting  of  stockholders  or  for  any  pur- 
pose with  the  same  force  and  effect  as  if  the  separate  proxies  herein 
provided  for  had  been  given. 

All  Depositors  shall  receive  Certificates  of  Deposit,  in  a  form  to  be 
prescribed  by  the  Managers  and  approved  by  the. Depositary,  speci- 
fying the  bonds  or  stock  deposited,  and  the  holders  of  such  Certificates 
of  Deposit  issued  hereunder  shall  be  entitled  only  to  the  rights  and 
benefits  specified  in  the  plan  and  this  agreement  as  accruing  to  the 
holders  of  the  bonds  and  stock  represented  by  such  certificates  respec- 
tively, or  granted  by  the  Managers  pursuant  to  the  powers  conferred 
upon  them  hereunder;  and  thereafter  the  holder  of  any  such  certifi- 
cate or  of  any  certificate  issued  in  lieu  thereof  or  in  exchange  therefor 
shall  be  subject  to  the  plan  and  this  agreement  and  entitled  to  have 
and  exercise  only  the  rights  of  the  original  Depositor  under  the  certifi- 
cate issued  to  him  in  respect  of  the  bonds  or  stock  therein  mentioned. 
Guaranty  Trust  Company  of  New  York  shall  act  as  Depositary  under 
the  plan  and  this  agreement,  and  Messrs.  Robert  Fleming  &  Co.  may 
act  as  the  agents  of  the  Depositary  in  London,  England.  The  Man- 
agers may  appoint  additional  trust  companies  or  incorporated  banks  in 
other  cities  to  act  as  additional  Depositaries  under  the  plan  and  agree- 
ment or,  with  the  approval  of  the  Depositary,  as  agents  for  said 
Depositary. 

All  bonds  and  stock  deposited  hereunder  shall  be  held  in  escrow 
by  the  Depositary,  and  shall  not  be  delivered  to  the  Managers  except 
such  delivery  as  may  be  necessary,  appropriate  or  incidental  to  the 
presentation  thereof  for  allowance  in  any  receivership,  foreclosure, 
insolvency  or  bankruptcy  proceedings  which  may  be  instituted  against 
the  Company,  and  the  assignments  and  transfers  of  any  of  the  de- 
posited bonds  and  stock  to  the  Managers  shall  not  become  effective 
unless  and  until  the  acceptance  thereof  shall  be  signified  by  the 


EEADJUSTMENT    OF   CAPITAL   ACCOUNT         949 

Managers  by  filing  with  the  Depositary  a  certified  copy  of  a  resolu- 
tion adopted  by  the  Managers  stating  that  it  has  determined  to  accept 
the  transfer  to  them  of  the  deposited  bonds  or  stock,  or  both,  described 
or  referred  to  in  such  resolution.  Immediately  upon  the  filing  with 
the  Depositary  of  a  certified  copy  of  such  resolution,  the  title  of  the 
deposited  bonds  or  stock  described  or  referred  to  in  said  resolution 
and  all  transfers  and  assignments  thereof  and  security  therefor  shall 
forthwith  immediately  pass  from  the  respective  Depositors  to,  and 
vest  in,  the  Managers,  who  shall  thereupon  be  and  become  the  owners 
and  holders  thereof,  and  which  shall  thereafter  be  held  by  the  De- 
positary subject  to  the  order  of  the  Managers.  Meanwhile,  and  until 
the  filing  of  such  certified  resolution,  the  Depositors  shall,  subject 
as  aforesaid,  be  deemed  to  retain,  and  shall  have,  the  ownership  of, 
and  title  to,  their  respective  bonds  and  stock.  At  all  times  the  De- 
positary shall  deliver  in  accordance  with  the  request  of  the  Managers 
all  or  any  of  the  deposited  bonds  and  stock,  provided  such  request 
shall  state  that  such  deposited  securities  are  to  be  used  for  the 
purpose  of  presentation  thereof  for  allowance  in  any  receivership,  fore- 
closure, insolvency,  bankruptcy  or  other  proceedings  which  may 
be  instituted  or  for  use  in  connection  with  such  purpose.  All  de- 
posited securities  so  delivered  to  or  upon  the  order  of  the  Managers 
in  pursuance  of  any  such  request  shall,  unless  meanwhile  the  title 
thereto  shall  have  become  vested  in  the  Managers,  as  herein  provided, 
be  redelivered  to  the  Depositary  as  soon  as  such  purpose  shall  have 
been  accomplished.  After  title  thereto  shall  have  become  vested  in 
the  Managers,  as  herein  provided,  the  Depositary  shall  dispose  of  the 
deposited  bonds  and  stock  of  the  Company  in  such  manner  as  the  Man- 
agers or  a  majority  thereof  may  from  time  to  time  direct,  and  any 
direction  given  by  the  Managers  or  by  a  majority  thereof  as  to  any 
matter  whatsoever  shall  be  full  and  sufficient  authority  for  any  action 
of  the  Depositary. 

Third. — Certificates  of  Deposit  issued  hereunder  and  the  interests 
represented  thereby  shall  be  transferable  only  subject  to  the  terms 
and  conditions  of  the  plan  and  this  agreement  and  in  such  manner 
as  the  Managers  may  approve;  and  upon  such  transfer,  all  rights  of 
the  Depositors  in  respect  to  the  deposited  bonds  and  stock  represented 
by  such  Certificates  of  Deposit,  and  all  rights  under  the  Certificates 
of  Deposit  transferred,  shall  pass  to  the  transferee,  and  the  trans- 
ferees and  holders  of  such  Certificates  of  Deposit  shall  for  all  pur- 
poses be  substituted  in  place  of  the  prior  holders,  subject  to  the  plan 
and  this  agreement.  All  such  transferees,  as  well  as  the  original 
holders  of  Certificates  of  Deposit  issued  hereunder,  shall  be  embraced 
under  the  terms  "Depositors,"  whenever  used  herein.  Each  Certificate 


950 

of  Deposit  may  be  treated  by  the  Managers  and  by  the  Depositary  as  a 
negotiable  instrument,  and  the  holder  for  the  time  being  may  be 
deemed  to  be  and  be  treated  as  the  absolute  owner  thereof,  and  of  all 
rights  of  the  original  Depositor  of  the  bonds  or  stock  in  respect  of 
which  the  same  was  issued,  and  neither  the  Depositary  nor  the  Mana- 
gers shall  be  affected  by  any  notice  to  the  contrary.  By  accepting 
any  such  Certificate  of  Deposit,  every  recipient  or  holder  thereof  shall 
thereby  become  a  party  to  the  plan  and  this  agreement  with  the  same 
force  and  effect  as  though  an  actual  subscriber  hereto.  The  term 
"Depositor,"  whenever  used  herein,  is  intended,  and  shall  be  con- 
strued, to  include,  not  only  persons  acting  in  their  own  right,  but 
also  trustees,  guardians,  committees,  agents  and  all  persons  acting  in 
a  representative  or  fiduciary  capacity,  and  those  represented  by  or 
claiming  under  them,  and  partnerships,  associations,  joint-stock  com- 
panies and  corporations.  No  rights  hereunder  shall  accrue  to  any 
Depositor  in  respect  of  any  bonds  and  stock  mentioned  in  the  plan 
and  in  this  agreement  unless  and  until  the  same  shall  have  been  fully 
subjected  to  the  control  of  the  Managers  and  the  operation  of  the 
plan  and  this  agreement  as  herein  provided.  The  Managers  may, 
in  their  discretion,  fix  or  limit  the  period  or  periods  within  which 
holders  of  any  bonds  and  stock  may  deposit  their  bonds  and  stock, 
and  within  which  they  may  become  parties  to  the  plan  and  this  agree- 
ment, and  the  Managers  in  their  discretion,  either  generally  or  in 
special  instances,  may  extend  or  renew  the  period  or  periods  so  fixed 
or  limited  for  such  further  periods  and  upon  such  terms  and  con- 
ditions as  they  may  see  fit.  Holders  of  bonds  and  preferred  and 
common  stock  not  deposited  within  the  periods  respectively  fixed  or 
limited  therefor  will  not  be  entitled  to  deposit  the  same  or  to  become 
parties  to  this  agreement  or  to  share  in  the  benefits  hereof,  and  shall 
acquire  no  rights  hereunder,  except  upon  obtaining  the  express  consent 
of  the  Managers,  who  may  withhold  or  give  such  consent  in  their 
absolute  discretion  and  upon  such  terms  and  conditions  as  they  may 
see  fit.  The  Managers  shall  have  power  to  make  equitable  provision 
for  any  lost  or  destroyed  bonds,  certificates  of  stock,  voting  trust  cer- 
tificates or  certificates  of  deposit. 

As  provided  in  the  plan,  depositors  of  certificates  of  preferred  and 
common  stock  of  the  Company  must  pay  to  the  Managers  at  the  office 
of  the  Depositary,  in  the  City  of  New  York,  in  New  York  funds,  or, 
at  the  office  of  Messrs.  Eobert  Fleming  &  Co.,  in  the  City  of  London, 
England,  in  sterling,  at  the  value  of  exchange  to  be  fixed  by  the 
Managers,  or,  to  the  extent  that  the  Managers  may  permit,  to  such 
other  agents  and  at  such  other  places  as  the  Managers  shall  designate 
for  such  purpose,  $8.50  in  respect  of  each  share  of  stock  of  the  par 


READJUSTMENT    OF   CAPITAL   ACCOUNT          951 

value  of  $100  deposited.  Such  payment  need  not  be  made  at  the 
time  of  deposit  of  the  certificates  representing  said  shares  of  stock, 
but  must  be  made  on  such  date  or  dates  as  shall  be  fixed  by  the 
Managers  by  advertisement  as  provided  in  Article  Twelfth  hereof,  of 
a  notice  calling  for  such  payment,  the  first  advertisement  of  the 
notice  of  such  call  to  be  at  least  ten  days  prior  to  the  date  when  the 
cash  therein  called  for  shall  be  payable.  Such  payments  shall  be 
receipted  for  by  the  Depositary,  or  by  its  agent  in  London  above 
named,  or  by  some  one  of  such  other  agents  as  the  Managers  may 
designate,  by  stamping  or  otherwise,  on  the  respective  Certificates  of 
Deposit  issued  for  deposited  stock,  upon  presentation  at  the  Deposi- 
tary or  such  other  agent  for  that  purpose  of  the  said  certificates  of 
Deposit.  Any  or  all  of  the  moneys  paid  or  accruing  under  the  plan 
or  this  agreement  may  be  used  at  any  time  by  the  Managers  or  with 
their  approval  for  any  of  the  purposes  of  the  plan  and  of  this  agree- 
ment. 

The  Depositors  of  preferred  and  common  stock  of  the  Company 
severally  and  respectively  agree,  on  behalf  of  themselves  and  of  their 
respective  transferees  and  assigns,  that  prompt  payment  of  the  cash, 
which  under  the  terms  of  the  plan  and  of  this  agreement  they  are 
required  to  pay  in  order  to  entitle  them  to  the  new  First  Mortgage 
Five  Per  Cent.  Bonds  mentioned  in  said  plan,  is  an  essential  condition 
to  the  acquisition  by  them  respectively  of  such  bonds,  and  that  any 
Depositor  who  shall  fail  to  make  prompt  payment  of  said  cash  pay- 
able as  provided  in  the  plan  or  in  this  agreement  on  or  before  such 
date  as  shall  be  fixed  or  limited  for  such  payment  by  the  Managers 
shall  forthwith  and  without  further  or  other  notice  or  action  cease 
to  have  any  right  to  acquire  the  new  First  Morgage  Five  Per  Cent. 
Bonds  mentioned  in  said  plan,  which  pursuant  to  the  provisions  of 
the  plan  or  of  this  agreement  they  are  permitted  to  acquire,  and  shall 
cease  to  have  any  rights  in  the  shares  of  stock  deposited  by  them 
or  their  proceeds,  or  under  the  Certificates  of  Deposit  issued  to  them, 
and  shall  cease  to  be  entitled  to  any  rights  or  benefits  under  the  plan 
or  under  this  agreement,  and  no  such  Depositor  or  his  successor  in 
interest  shall  be  entitled  to  the  return  of  the  shares  of  stock  deposited 
as  represented  by  his  Certificate  of  Deposit,  or  to  have  any  further 
interest  or  right  in  or  in  respect  thereof,  and  such  shares  of  stock 
shall  be  forfeited  to  the  Managers,  their  successors  or  assigns,  who  may 
use  the  said  shares  of  stock,  for  any  purpose  deemed  by  the  Managers 
appropriate  for  carrying  out  the  plan  and  this  agreement,  and  who 
may  acquire  the  same  for  themselves  or  transfer  them  to  such  person 
or  corporation  as  the  Managers  in  their  discretion  shall  determine, 
upon  payment  to  the  Depositary  of  the  amount  of  $8.50  for  each  such 


952         MATERIALS   OF   CORPORATION   FINANCE 

share  of  stock;  and  in  case  of  any  such  failure  or  default,  the  De- 
positary is  hereby  authorized  and  directed,  upon  payment  of  such 
amount,  to  deliver  such  stock  to  the  party  paying  the  same.  For 
payments  made  upon  such  shares  of  stock  by  the  Managers  or  such 
other  person  or  corporation,  New  First  Mortgage  Five  Per  Cent. 
Bonds  shall  be  issued  as  in  the  case  of  other  payments  by  depositing 
stockholders.  The  Managers,  however,  in  their  absolute  and  uncon- 
trolled discretion,  may  waive  any  such  default,  may  accept  payment 
of  the  cash  from  any  Depositor  at  any  time  overdue  and  with  or  with- 
out the  imposition  of  such  terms  and  conditions  as  they  may  prescribe ; 
they  may  also  waive  and  remit  any  penalty  prescribed  either  in  the 
plan  or  in  this  agreement  or  in  pursuance  thereof. 

Fourth. — The  Managers  shall  have,  and  are  hereby  granted,  the 
power  and  authority  to  carry  out  and  effectuate  this  agreement  and 
said  plan  for  the  readjustment  of  the  debt  of  the  Company,  not  only 
in  the  manner  specified  in  said  annexed  plan,  but  in  whatever  lawful 
manner  may  seem  to  them  expedient  and  for  the  best  interests  of  the 
Depositors  or  likely  to  accomplish  in  substance  the  results  contem- 
plated by  the  plan. 

Fifth. — The  Depositors  hereby  request  the  Managers  to  carry  out 
the  plan  and  this  agreement,  in  its  entirety  or  in  part,  to  such  extent 
and  in  such  manner  and  with  such  additions,  exceptions  and  modifica- 
tions as  the  Managers  shall  deem  to  be  for  the  best  interests  of  the 
Depositors.  It  is  hereby  declared  that  the  Managers  shall  forthwith 
upon  the  deposit  of  the  bonds  and  stock  hereunder  be  fully  authorized 
to  vote  and  consent  as  holders  of  said  bonds  and  stock  to  any  corporate 
action,  and  to  sign  any  written  consent  required  or  permitted  by  law 
to  be  signed,  and  file  the  same;  and  each  and  every  Depositor,  for 
himself  and  not  for  any  other,  does,  subject  to  the  provisions  of 
Article  Second  hereof,  hereby  sell,  assign,  transfer  and  set  over  to  the 
Managers,  and  to  their  successors,  assigns  and  nominees,  each  and 
every  bond  and  share  of  stock  deposited  hereunder  or  assigned  to  the 
Managers,  and  every  Depositor  hereby  agrees  that  the  Managers  shall 
be,  and  they  are  hereby,  vested  with  all  the  rights  and  powers  of 
owners  of  the  bonds  and  stock  deposited  hereunder,  including  the 
right  to  transfer  the  same  into  their  own  names,  or  into  the  name 
of  any  other  person  or  persons,  party  or  parties,  whom  they  may 
select  or  to  deposit  the  same  under  a  voting  trust,  and  (without  limit- 
ing the  foregoing  provision)  to  use  every  such  bond  or  share  of  stock 
as  fully  and  to  the  same  extent  as  the  owner  or  holder  thereof;  to 
declare  due  the  principal  of  the  bonds  deposited  hereunder,  and  to 
revoke  any  such  declaration  whenever  made;  to  give  all  bonds  of 
indemnity  or  other  bonds,  and  to  charge  therewith  the  bonds  and 


READJUSTMENT   OF   CAPITAL   ACCOUNT         953 

stock  deposited  hereunder  or  the  new  securities  to  be  issued  hereunder 
or  any  part  thereof;  to  institute  or  to  become  parties  to  any  legal 
proceeding;  to  compromise  any  litigation  now  or  at  any  time  existing 
or  threatened,  in  whole  or  in  part,  with  plenary  power  to  enter  into 
any  arrangement  tending  towards,  or  deemed  by  them,  in  their  dis- 
cretion, likely  to  promote,  the  consummation  of  the  plan  and  of  this 
agreement;  to  do  whatever,  in  the  judgment  of  the  Managers,  may 
be  necessary  to  promote  or  to  procure  the  sale  as  an  entirety,  or  the 
separate  sales,  or  any  lands  or  other  property  of  the  Company,  wher- 
ever situated;  to  adjourn  any  sale  at  their  discretion;  to  bid,  or  to 
refrain  from  bidding,  at  any  sale,  either  public  or  private,  either  in 
separate  lots  or  as  a  whole,  for  any  property,  or  any  part  thereof, 
including  or  excluding  any  particular  property,  real  or  personal;  to 
hold  any  property  purchased  by  them  either  in  their  name  or  in  the 
name  of  persons  or  corporations  by  them  chosen  for  the  purposes  of 
this  agreement  and  to  resell  the  same.  The  amount  to  be  bid  or  paid 
by  the  Managers  for  any  property  shall  be  absolutely  discretionary 
with  them;  and,  in  case  of  the  sale  to  others  of  any  property,  the 
Managers  may  receive,  out  of  the  proceeds  of  such  sale,  or  otherwise, 
any  dividend  or  payment  in  any  form  accruing  on  any  bonds  and 
stock  held  by  them.  The  Managers  may  apply  any  bonds,  stocks  or 
other  property  held  by  them  hereunder  in  satisfaction  or  partial  satis- 
faction of  any  bid.  In  case  at  any  time  the  Managers  shall  have  deter- 
mined to  use  or  apply  any  of  the  deposited  securities  for  any  of  the 
purposes  herein  set  forth  and  the  title  to  the  securities  shall  not  have 
vested  in  the  Managers,  then  the  Depositary,  upon  the  delivery  to  it 
of  a  cerified  copy  of  a  resolution  of  the  Managers,  shall  permit  the 
Managers  to  apply  the  securities,  or  any  of  them,  for  the  purposes 
stated  in  such  resolution,  and  such  resolution  shall  be  full  and  suf- 
ficient authority  for  any  action  by  the  Depositary.  The  Managers 
shall  further  be  authorized  to  receive  and  dispose  of,  in  accordance 
with  any  of  the  provisions  of  the  plan  and  this  agreement,  any  new 
securities  to  be  created,  and  the  Managers  may  vote  upon  the  bonds 
and  stock  of  the  Company  or  obligations  or  stock  of  any  new  company 
for  all  purposes  in  their  judgment  necessary  or  advisable  until  tho 
said  obligations  or  stock  shall  be  delivered  to  the  Depositors  or  who- 
ever shall  be  entitled  to  receive  the  same. 

Sixth. — The  Managers  may  construe  the  plan  and  this  agreement, 
and  their  construction  thereof  or  action  thereunder,  in  good  faith 
shall  be  final  and  conclusive.  They  may  supply  any  defect  or  omis- 
sion, or  reconcile  any  inconsistencies,  in  such  manner  and  to  such 
extent  as  shall  be  deemed  by  them  necessary  to  carry  out  the  plan 
properly  and  effectively,  and  they  shall  be  the  sole  judges  of  such 


954         MATEKIALS    OF   CORPORATION    FINANCE 

necessity.  They  shall  be  the  sole  and  final  judges  as  to  when  and 
whether  the  assent  of  a  sufficient  number  of  the  holders  of  the  First 
Mortgage  Four  and  One-Half  Per  Cent.  Gold  Bonds  and  of  the  Pre- 
ferred Capital  Stock  and  of  the  Common  Capital  Stock  of  the  Com- 
pany shall  have  been  obtained  to  warrant  them  in  declaring  the  plan 
operative,  or  attempting  to  carry  the  same  or  any  part  thereof  into 
effect;  and  they  shall  have  power  whenever  they  shall  deem  proper  to 
alter,  modify,  depart  from  or  abandon  the  plan  of  readjustment,  or 
any  part  thereof  except  as  in  said  plan  provided.  They  may  at  any 
time  or  times,  after  -any  such  partial  abandonment,  restore  to  the  plan 
any  abandoned  part  or  parts  thereof,  and  may  seek  to  carry  the  same 
into  effect  as  fully  as  if  such  part  or  parts  had  not  been  abandoned. 
They  may  also  attempt  to  carry  the  plan  into  effect  rather  than  to 
abandon  the  same,  or  adopt  a  modified  or  substitute  plan  as  herein- 
after provided,  even  though  it  be  manifest  that,  as  carried  out,  the 
plan  must  depart  from  the  original  plan  or  from  some  part  thereof 
The  Managers  may  adopt  a  plan  of  reorganization  based  upon  the 
foreclosure  of  one  or  more  of  the  mortgages  which  are  now  a  lien 
upon  the  property  of  the  Company  and  the  organization  of  a  new  com- 
pany. The  Managers  shall  be  free  to  give  such  title  to  the  new  bonds 
or  other  securities  proposed  to  be  issued  under  the  foregoing  plan  or 
which  may  be  issued  under  any  modified  or  substituted  plan,  and  to 
the  mortgage  or  other  instrument  securing  the  same,  as  to  them  shall 
appear  desirable.  Any  change  or  modification  made  by  the  Managers 
shall  become  and  be  part  of  the  plan  and  this  agreement ;  and  all  pro- 
visions concerning  the  present  plan  shall  apply  to  the  plan  so  changed 
or  modified.  In  case  any  modified  or  substitute  plan  shall,  in  the 
opinion  of  the  Managers,  substantially  meet  the  requirements  stated 
in  the  annexed  plan,  or  shall  so  nearly  meet  such  requirements  that 
in  the  opinion  of  the  Managers  the  submission  of  the  substitute  or 
modified  plan  to  the  Depositors  is  unnecessary,  the  Managers  may 
proceed  with  the  execution  of  such  modified  or  substitute  plan  as 
though  the  same  had  been  herein  set  forth  in  full  and  expressly 
assented  to  by  each  Depositor.  If,  however,  any  modified  or  substi- 
tute plan  shall  so  far  depart  from  said  requirements  that  in  the  opinion 
of  the  Managers  it  is  advisable  that  the  same  should  be  submitted  to 
Depositors,  the  Managers  shall  file  a  statement  of  such  proposed 
change  or  modification  with  the  Depositary  and  give  notice  of  the 
fact  of  such  filing  as  hereinafter  provided  in  Article  Twelfth;  and 
within  thirty  days  after  first  publication  of  such  notice  all  holders 
of  the  outstanding  Certificates  of  Deposit  for  bonds  or  the  class  of 
stock  so  affected  by  any  such  change  or  modification  may  surrender 
their  respective  certificates,  properly  endorsed,  and  withdraw  their 


READJUSTMENT    OF   CAPITAL   ACCOUNT         955 

bonds  or  stock  of  such  particular  class,  or  the  proceeds  thereof  or 
substitutes  therefor,  then  under  the  control  of  the  Managers,  to  the 
extent  applicable  in  respect  of  such  Certificates  of  Deposit;  every 
holder  of  a  Certificate  of  Deposit  so  withdrawing  shall  thereupon, 
without  any  further  act,  be  released  from  the  plan  and  this  agree- 
ment and  shall  cease  to  have  any  rights  thereunder.  No  payment 
shall  be  required  of  any  Depositor  withdrawing  his  securities  except 
to  the  extent  of  any  sums  that  may  have  been  advanced  by  way  of 
interest  upon  deposited  bonds,  or  in  lieu  of  such  interest,  and  interest 
thereon.  Every  Depositor  not  so  surrendering  and  withdrawing  within 
such  thirty  days  after  first  publication  of  said  notice  shall  be  deemed 
to  have  assented  to  the  proposed  change  or  modification,  and,  whether 
or  not  otherwise  objecting,  shall  be  bound  thereby  as  fully  and  effec- 
tively as  if  he  had  actually  assented  thereto.  In  every  case  of  with- 
drawal, any  amounts  actually  collected  by  the  Managers  on  the  de- 
posited securities  will,  in  case  of  such  withdrawal,  be  accounted  for 
by  the  Managers  to  the  Depositors  for  such  securities.  The  Managers 
may,  in  their  discretion,  decline  to  further  represent  any  class  of 
securities  deposited  hereunder,  while  continuing  to  represent  the 
remaining  securities,  in  which  event  they  shall  publish,  in  the  manner 
prescribed  in  Article  Twelfth  hereof,  a  notice  specifying  the  securities 
which  they  decline  further  to  represent  and  giving  the  holders  thereof 
an  opportunity  of  withdrawing  them  without  any  payment  upon  the 
surrender  of  their  respective  Certificates  of  Deposit.  At  the  expiration 
of  ten  days  from  the  first  publication  of  such  notice,  the  Managers 
will  cease  to  be  under  any  responsibility  to  represent  the  securities  of 
the  class  mentioned  in  such  notice.  In  case  the  Managers  shall  finally 
abandon  the  entire  plan,  the  bonds  and  stocks  and  cash  deposited 
hereunder  shall  be  delivered  to  the  several  Depositors  in  amounts 
representing  their  respective  interests  upon  surrender  of  their  respec- 
tive certificates,  properly  endorsed,  and  payment  of  such  expenses  as 
shall  have  been  incurred  by  the  Managers  and  not  reimbursed  from 
other  sources  and,  in  the  case  of  deposited  bonds,  of  any  advances  by 
way  of,  or  in  lieu  of  interest,  and  interest  thereon,  and  the  Managers 
shall  have  power,  in  their  discretion,  to  determine  and  to  apportion 
among  the  bonds  and  the  two  classes  of  stock  deposited  hereunder  the 
share  of  expense  to  be  borne  by  each.  The  Managers  may  also,  in 
their  discretion,  upon  the  request  of  the  holder  of  a  Certificate  of 
Deposit  and  surrender  thereof,  whenever  and  upon  such  terms  as  they 
shall  deem  proper,  from  time  to  time  release  and  discharge  from 
participation  in  the  plan  and  from  the  operation  of  this  agreement 
the  securities  represented  by  any  such  Certificate  of  Deposit.  The 
Managers  shall  not  be  liable  for  loss  of  any  money  collected,  disbursed 


956         MATEKIALS   OF   CORPORATION    FINANCE 

or  expended  by  them  for  the  purposes  of  the  plan  or  of  this  agreement, 
nor  for  any  interest  on  any  money  collected  hereunder,  nor  for  any 
depreciation  in  value  of  any  property  purchased  by  them,  and  the 
Depositors  shall  have  no  claim  for  the  repayment  of  any  such  moneys 
except  to  the  extent  of  their  ratable  shares  (as  apportioned  by  the 
Managers)  of  such  moneys  or  their  proceeds  at  the  time  remaining 
in  the  hands  of  or  subsequently  collected  by  the  Managers  after  pay- 
ment of  all  such  expenses.  If  the  Managers  shall  at  any  time  advance 
interest  on  any  bonds  deposited  hereunder,  such  advance  shall  bear 
interest  at  the  rate  of  six  per  cent,  per  annum,  and  shall  be  secured 
by  the  bonds  in  respect  of  which  the  advance  is  made.  In  case  of 
the  withdrawal  of  bonds  under  the  provisions  hereof  any  advance  in 
respect  of  such  bonds  shall  be  repaid  with  interest  as  a  condition  of 
such  withdrawal  and  in  case  of  the  consummation  of  said  plan  such 
advances  shall  be  repaid  from  the  cash  paid  by  depositing  stock- 
holders as  provided  for  in  the  plan  and  the  interest  on  such  advances 
shall  be  treated  as  part  of  the  expenses  of  the  readjustment. 

Seventh. — The  Managers  may  proceed  under  the  plan  and  this 
agreement  or  any  part  thereof  in  such  manner  as  to  them  shall  seem 
advisable.  The  Managers  may,  in  their  discretion,  purchase  obliga- 
tions of  or  claims  against  the  Company  and  deposit  the  same  subject 
to  said  plan  and  agreement,  and  may  provide  for  the  purchase  price 
thereof  by  the  sale  of  obligations  and  claims  of  the  Company,  or  of 
any  new  company  which  may  be  organized  for  the  purpose  of  carrying 
out  said  plan.  Any  action  contemplated  in  the  plan  and  this  agree- 
ment to  be  performed  on  or  after  completion  of  the  plan  of  readjust- 
ment may  be  taken  by  the  Managers  at  any  time  when  they  shall  deem 
the  plan  advanced  sufficiently  to  justify  such  course,  and  the  Managers, 
as  they  may  deem  necessary,  may  defer  the  performance  of  any  pro- 
vision of  the  plan  and  this  agreement,  or  may  commit  such  perform- 
ance to  the  Company  or  any  successor  company.  They  may  also  in 
their  discretion  set  apart  and  hold  in  trust,  or  place  in  trust,  any  part 
of  the  new  securities  to  be  issued,  as  they  may  deem  judicious  for  the 
purpose  of  securing  the  application  thereof  for  any  of  the  purposes 
of  the  plan  and  this  agreement  or  for  the  uses  of  the  Company  or  of 
a  new  company.  The  Managers  may  cause  to  be  formed  the  voting 
trust  contemplated  by  the  plan,  or  a  different  voting  trust,  under  a 
voting  trust  agreement  containing  such  terms  and  provisions  as  the 
Managers  shall  prescribe,  and  may  cause  the  deposited  stock  of  the 
Company  to  be  transferred  to  such  trustees,  to  be  held  upon  the  terms 
of  such  voting  trust  agreement,  and  may  cause  voting  trust  certificates 
of  such  form  and  tenor  as  the  Managers  may  prescribe  to  be  issued 
in  exchange  for  such  stock.  For  all  purposes  of  the  plan  and  of  this 


READJUSTMENT   OF   CAPITAL   ACCOUNT         957 

agreement,  the  issue,  transfer  and  delivery  of  voting  trust  certificates 
to  the  Depositors  hereunder  shall  be  deemed  to  be  a  delivery  of  stock 
certificates  for  the  return  of  the  stock  of  the  Company. 

Eighth. — From  time  to  time,  for  the  purpose  of  carrying  said  plan 
and  this  agreement  into  effect,  or  of  obtaining  assents  thereto,  the 
Managers,  either  generally  or  in  specific  instances,  may  make  con- 
tracts with  any  person,  syndicate  or  corporation  in  respect  of  any 
matter  connected  with  said  readjustment,  including  an  agreement  to 
submit  to  any  person,  firm  or  committee  any  modification  of  the  plan 
before  adopting  the  same ;  and  in  their  discretion,  either  generally  or 
in  specific  instances,  and  upon  such  general  or  special  terms  and  con- 
ditions as  they  may  deem  proper,  may  arrange  to  procure  the  deposit 
of  bonds  or  stock  hereunder  or  to  purchase  and  deposit  the  same ;  they 
may  also,  from  time  to  time,  by  loan,  pledge,  guaranty,  or  sale  of 
the  deposited  bonds  and  stocks  or  of  the  new  securities  to  be  created 
or  property  purchased,  or  otherwise,  upon  such  terms,  conditions  and 
rates  as  said  Managers  shall  deem  proper,  obtain  any  moneys  required 
to  carry  out  the  plan  and  this  agreement ;  and  for  the  performance  of 
any  contract  made  by  them  said  Managers  may  charge  the  deposited 
bonds  and  stocks,  or  the  new  securities  to  be  created,  and  may  pledge 
the  same  for  the  payment  of  any  moneys  borrowed  and  interest  there- 
on, and  the  performance  of  any  other  obligations  incurred  under  the 
powers  herein  conferred.  As  provided  in  said  plan,  any  or  all  of  the 
Managers,  either  on  their  own  account  or  as  Managers  of,  or  par- 
ticipants in,  any  present  or  future  syndicate,  may  purchase,  or  be 
interested  in  the  purchase  of,  securities  from  the  Company  or  from 
the  Hudson  Companies,  or  may  furnish  said  companies,  or  either  of 
them,  or  any  other  company  formed  to  carry  out  the  purposes  of  this 
agreement,  with  moneys  to  enable  them,  or  either  of  them,  to  carry 
out  or  participate  in,  said  plan  or  any  other  plan,  or  may  make  or  be 
interested  in,  any  other  purchases  of  securities  or  advances  of  moneys 
in  connection  with  the  readjustment  contemplated  by  said  plan  or  any 
modified  or  substitute  plan  of  readjustment  or  reorganization.  The 
Managers  may  employ  counsel,  agents  and  all  necessary  assistance ;  may 
take  any  action,  which  they  are  authorized  hereunder  to  take,  by  means 
of  agents;  and  may  incur  and  discharge  or  assume  the  payment  of 
any  and  all  expenses  by  them  deemed  reasonable  for  the  purpose  of 
this  agreement.  The  compensation  and  expenses  of  the  Managers 
shall  be  paid  as  part  of  the  readjustment  by  the  Company  or  by  any 
new  company  to  be  formed,  and,  to  secure  the  payment  of  such 
expenses,  the  Managers  shall  have,  if  all  *  plan  of  readjustment  or 

1  So  in  original. 


958         MATERIALS    OF    CORPORATION    FINANCE 

reorganization  hereunder  is  abandoned,  a  first  lien  upon  the  bonds  and 
stock  deposited  and  cash  paid  hereunder.  The  Managers  may  pre- 
scribe or  approve  the  form  of  all  instruments  at  any  time  to  be  issued 
or  entered  into.  The  Managers  may,  at  public  or  private  sale,  or 
otherwise,  dispose  of,  or  purchase  for  their  own  account,  any  securities 
left  in  their  hands  because  of  any  failure  or  default  on  the  part  of 
the  depositor  to  make  deposits  or  payments  hereunder.  In  so  dispos- 
ing of  any  such  securities  or  claims  thus  left  in  their  hands,  they 
may  use  the  same  or  the  proceeds  thereof  for  the  purpose  of  carrying 
out  the  readjustment  or  defraying  any  expense  thereof  in  such  man- 
nr  as  they  may  deem  expedient  and  advisable.  At  the  time  of  the 
creation  of  the  new  securities,  or  as  soon  thereafter  as  may  be,  the 
Managers  may  take  such  action  as  they  may  deem  necessary  to  guard 
against  the  issue  of  particular  securities  in  any  manner  or  to  any 
extent  inconsistent  with  the  purposes  of  the  plan. 

Ninth. — The  Managers,  under  this  agreement,  shall  have  the  sole 
control,  direction  and  management  of  the  said  plan.  The  action  of 
Kuhn,  Loeb  &  Co.,  and  one  other  of  the  firms  constituting  the  Man- 
agers shall  have  the  same  force  and  effect  as  if  concurred  in  by  all 
the  Managers,  and  no  action  shall  be  taken  except  with  the  assent  of 
at  least  such  majority  of  the  Managers.  Any  one  of  the  firms  con- 
stituting the  Managers  may  act  by  proxy  given  to  any  other  of  said 
firms.  The  Managers  may  act  either  at  a  meeting  or  without  a  meet- 
ing. In  case  of  the  resignation  or  retirement  of  Kuhn,  Loeb  &  Co., 
said  firm  may  appoint  its  own  successor  as  one  of  the  Managers,  and 
in  case  the  resignation  or  retirement  of  any  other  of  the  firms  con- 
stituting said  Managers,  a  successor  to  said  firm  may  be  appointed 
by  the  other  firms  which  constitute  the  Managers;  and  the  successor 
in  any  case  so  appointed  shall  have  all  the  powers  conferred  hereby 
upon  the  firms  now  constituting  the  Managers.  The  Managers  may 
at  any  time  in  their  discretion  appoint  two  or  more  persons  who,  upon 
executing  a  counterpart  of  this  agreement  and  delivering  it  to  the 
Depositary  shall  take  the  place  of  the  Managers  and  thereafter  have 
and  exercise  all  the  powers  hereby  conferred  upon  the  Managers  who 
shall  thereupon  be  relieved  from  all  further  responsibility  hereunder. 
All  the  powers  conferred  by  this  agreement  upon  the  Managers  shall 
be  exercised  by  the  persons  or  firms  who  for  the  time  being  constitute 
such  Managers.  The  Managers  undertake  to  endeavor  to  execute  the 
plan  and  this  agreement,  but  neither  the  Managers  nor  the  Depositary 
assume  any  individual  responsibility  for  the  execution  of  the  plan  or 
of  this  agreement,  or  any  part  of  either,  nor  for  the  result  of  any  steps 
taken  or  acts  done  for  the  purposes  thereof.  The  Readjustment 
Managers  shall  not  be  responsible  for  the  accuracy  of  any  of  the  state- 


READJUSTMENT    OF   CAPITAL   ACCOUNT         959 

ments  or  figures  contained  in  the  Plan.  Nor  shall  the  Managers  or 
the  Depositary  be  individually  liable  for  any  act  or  omission  of  any 
agent  or  employee  selected  by  them,  nor  for  any  error  of  judgment  or 
mistake  of  fact  or  law,  nor  in  any  case  except  for  his,  its  or  their  own 
individual  willful  malfeasance  or  neglect;  nor  shall  any  of  the  Man- 
agers be  liable  for  the  acts  or  defaults  of  any  other  thereof  or  of  the 
Depositary;  nor  shall  the  Depositary  be  liable  for  any  act  or  default 
of  the  Managers  or  otherwise  than  for  its  own  willful  malfeasance  or 
neglect.  The  Managers  shall  have  the  right  to  sell,  or  cause  to  be 
sold,  or  to  buy  for  their  own  account,  any  securities  of  any  new  Com- 
pany not  required  for  exchange  under  said  plan,  for  the  purpose  of 
procuring  cash  to  purchase  any  obligations  or  claims  that  in  the 
opinion  of  the  Managers  should  be  purchased  for  deposit  under  the 
plan.  The  Managers  shall  have  the  right  to  form,  or  procure  the 
formation  of,  any  syndicate  or  syndicates  which  they  may  deem  neces- 
sary or  advantageous  for  the  purpose  of  providing  funds  needed  for 
any  of  the  purposes  of  this  agreement,  and  any  of  them  may  act  as 
members  or  managers  of  any  such  syndicate  or  syndicates  without 
being  accountable  to  the  Depositors,  or  any  of  them,  and  the  terms 
of  any  such  syndicate  shall  be  fixed  by  the  Managers,  even  though 
the  firms  constituting  the  Managers  hereunder  are  also  managers  of 
or  interested  in  the  Syndicate,  and  the  terms  as  so  fixed  shall  be  bind- 
ing and  conclusive  upon  all  parties.  The  accounts  of  the  Managers 
shall  be  filed  with  the  Board  of  Directors  of  the  Company,  or  any 
successor  company,  within  one  year  after  the  readjustment  shall  have 
been  completed,  unless  a  longer  time  be  granted  by  said  board  with 
which  they  are  to  be  filed.  The  accounts,  unless  disapproved  by  such 
Board  of  Directors  within  thirty  days  after  such  filing,  shall  be  final, 
binding  and  conclusive  upon  all  parties  having  any  interest  therein, 
and  thereupon  the  Managers  shall  be  discharged.  The  acceptance  of 
new  securities  by  any  Depositor  shall  prevent  such  acceptor  from  ques- 
tioning the  conformity  of  such  securities  in  any  particular  to  any 
provisions  of  the  plan. 

Tenth. — The  enumeration  of  specific  powers  hereby  conferred  shall 
not  be  construted  to  limit  or  to  restrict  general  powers  herein  con- 
ferred or  intended  so  to  be ;  and  it  is  hereby  distinctly  declared  that  it 
is  intended  to  confer  on  the  Managers,  in  respect  of  all  bonds  and 
stock  and  cash  deposited  or  to  be  deposited,  and  in  all  other  respects, 
any  and  all  powers  which  the  Managers  may  deem  necessary  or 
expedient  in  or  towards  carrying  out  or  promoting  the  purposes  of 
the  plan  and  this  agreement  in  any  respect  as  now  existing,  or  as  the 
same  may  be  modified  or  amended,  even  though  any  such  power  be 
apparently  of  a  character  not  now  contemplated ;  and  the  Managers 


960         MATERIALS    OP   CORPORATION    FINANCE 

may  exercise  any  and  every  such  power  as  fully  and  effectively  as  if 
the  same  were  herein  distinctly  specified,  and  as  often  as,  for  any 
cause  or  reason,  they  may  deem  expedient.  The  methods  and  means 
to  be  adopted  for  or  towards  carrying  out  said  plan  of  readjustment 
and  this  agreement  shall  be  entirely  discretionary  with  the  Managers. 

Eleventh, — The  bonds  and  stock  deposited  under  the  plan  and  this 
agreement,  and  all  obligations  and  securities  purchased  or  otherwise 
acquired  under  this  agreement,  shall  remain  in  full  force  and  effect 
for  all  purposes,  and  shall  not,  unless  the  Managers  shall  otherwise 
direct,  be  deemed  merged,  satisfied,  released  or  discharged  by  any 
delivery  of  new  securities;  and  no  legal  right  or  lien  shall  be  deemed 
released  or  waived.  Any  purchase  or  purchases  by  or  on  behalf  of  the 
Managers  shall  vest  the  property  purchased  in  the  Managers  free  from 
all  interest  or  claim  on  the  part  of  any  stockholders,  creditors  or  other 
parties.  No  right  is  conferred  or  created  hereby,  nor  is  any  liability 
or  obligation  incurred,  by  the  plan  and  this  agreement,  or  assumed 
hereunder,  in  favor  of  any  creditor,  stockholder  or  other  person  or  of 
any  holder  of  any  claim  whatsoever  against  the  Company,  nor  in  favor 
of  any  company  now  existing  or  to  be  formed  hereafter,  with  respect 
to  any  bonds  or  stock  deposited  under  this  agreement  or  any  moneys 
paid  to,  or  received  by,  the  Managers  or  by  the  Depositary  hereunder, 
or  with  respect  to  any  property  acquired  by  purchase,  or  with  respect 
to  any  new  securities  to  be  issued  hereunder,  or  with  respect  to  any 
other  matter  or  thing.  This  agreement  shall  be  construed  strictly 
between,  and  as  solely  affecting  and  relating  to,  the  parties  hereto. 

Twelfth. — All  calls  for  the  presentation  or  surrender  of  Certificates 
of  Deposit  issued  hereunder,  all  calls  for  the  payment  of  any  amount 
payable  in  respect  of  deposited  certificates  of  preferred  or  common 
stock,  all  notices  fixing  or  limiting  any  period  for  the  deposit  or  with- 
drawal of  bonds  and  stock,  and  all  other  calls  or  notices  hereunder, 
shall  be  inserted  in  two  daily  papers  of  general  circulation  published 
in  the  City  of  New  York,  and,  if  deemed  necessary  by  the  Managers, 
in  two  daily  papers  of  general  circulation  published  in  the  City  of 
London,  England,  at  least  twice  in  ten  successive  days,  beginning  on 
any  day  of  the  week.  Any  call  or  notice  whatsover,  when  so  published 
by  the  Managers,  shall  be  taken  and  considered  as  though  personally 
served  on  all  Depositors  and  certificate  holders  and  on  all  parties 
hereto  and  upon  all  parties  bound  hereby,  as  of  the  day  of  the  final 
insertion  thereof,  and  such  publication  shall  be  the  only  notice  required 
to  be  given  under  any  provision  of  the  plan  and  this  agreement.  When 
a  call  or  notice  shall  have  been  advertised  as  above  specified,  publica- 
tion shall  be  complete  as  regards  all  holders  of  Certificates  of  Deposit, 
and  no  further  publication  or  notice  shall  be  required  so  far  as  the 


READJUSTMENT   OF   CAPITAL   ACCOUNT         961 

holders  of  such  Certificates  of  Deposit  are  concerned.  Depositors  may, 
however,  furnish  an  address  to  the  Depositary,  where  such  notices 
may  be  mailed,  and  the  mailing  of  a  copy  of  such  notice  to  said 
address  shall  be  sufficient,  whether  or  not  received  by  the  addressee, 
and  whether  or  not  such  notice  shall  have  been  published  as  above 
provided. 

Thirteenth. — The  plan  and  this  agreement  shall  bind  and  benefit 
the  several  parties,  including  the  Depositors  hereunder  and  holders 
for  the  time  being  of  Certificates  of  Deposit,  their  and  each  of  their 
survivors,  heirs,  executors,  administrators,  successors  and  assigns. 
Each  of  the  firms  constituting  the  Readjustment  Managers  act  as  a 
copartnership  and  this  agreement  shall  extend  to  said  firms  as  from 
time  to  time  constituted. 

IN  WITNESS  WHEREOF,  the  Managers,  or  a  majority  of  them,  and 
the  Depositary  have  executed  these  presents  in  three  counterparts  the 
day  and  year  first  above  written,  and  an  original  has  been  lodged  with 
the  Depositary,  and  the  Depositors  have  become  parties  hereto  by 
depositing  their  bonds  or  stock  or  assignments  thereof,  or  accepting 
Certificates  of  Deposit  hereunder. 

KTJHN,  LOEB  &  Co.,        }  D     ,.    . 

-ci  c.  n      I  Readjustment 

ROBERT  FLEMING  &  Co.,  V    ,,  ( 

HARVEY  Fisz  &  SONS,   [    Mt 

GUARANTY  TRUST  COMPANY  OP  NEW  YORK, 
(Corporate  Seal.)  by 

A.  J.  HEMPHILL, 

President 
Attest: 

E.  C.  HEBBARD, 

Secretary. 

[9225] 


962         MATEEIALS    OF    CORPORATION    FINANCE 

INCOME  ACCOUNT  FOR  YEAR  ENDED  DECEMBER  31sx,  1912  * 

Gross  revenue,  passenger  fares $3,404,519.67 

Miscellaneous  revenue  for  railroad  operations: 

Advertising $151,381 .89 

Other  car  and  station  privileges 59,620.96 

Sale  of  power 9,061 . 95 

Miscellaneous  transportation  revenue 13 . 06 

Other  miscellaneous  revenue 5,463 . 57 

Total  miscellaneous  railroad  revenue $225,541 .43 

Total  railroad  revenue $3,630,061 . 10 

Operating  expenses  of  railroad: 

Maintenance  of  way  and  structures  {^serve.        $114,'527.'50 
Maintenance  of  equipment  {  ^^e  '  ^'^ '.  25 

Traffic  expenses 11,471 .20 

Transportation  expenses 844,453 . 14 

General  expenses _      148,180.02 

Total  operating  expenses  of  railroad $1,308,104.76 

Net  operating  revenue  from  railroad $2,321,956 . 34 

Taxes  on  railroad  operating  properties 209,473 . 66 

Net  income  from  railroad  operation $2,112,482.68 

Net  income  from  Hudson  Terminal  Buildings . .        $946,369 . 64 
Net  income  from  Greenwich  and  Tenth  Street 
properties , 3,369.12 

Total  net  income  from  outside  operations . .  $949,738 . 76 


Total  net  income  from  all  operating  sources $3,062,221 . 44 

Non-operating  income 32,183 . 13 

Gross  income $3,094,404 . 57 

Income  deductions: 

Interest  on  total  interest-bearing  bonds $2,943,196 .06 

Less  interest  chargeable  to  construction 64,114.77 

Balance  being  interest  on  capital  employed  in 
operation  and  chargeable  against  income. .     $2,879,081 .29 

Interest  on  car  purchase  agreements 72,666.66 

Interest  on  real  estate  mortgages 20,433 . 34 

Interest  on  loan  payable 23,692.43 

Rentals,  City  of  New  York 61,953 .66 

Rental  tracks,  yards  and  terminals 62,459 . 81 

Amortization  of  debt  discount 48,649 . 59 

Total  income  deductions ~  $3,168,936 . 78 

Net  loss  carried  to  corporate  deficit  account 74,532 .21 

NOTE — As  additional  property  has  been  put  into  operation,  bond  interest 
has  been  applied  against  income,  as  follows: 

April  1st,  1909  to  July  19th,  1909,  on  $13,512,000  Bonds 
July  19th,  1909  to  Aug.  2nd,  1909,  on  $18,691,000  Bonds 
Aug.  2nd,  1909  to  Sept.  20th,  1909,  on  $33,991,000  Bonds 
Sept.  20th,  1909  to  Jan.  1st,  1910,  on  $35,028,000  Bonds 
Jan.  1st,  1910  to  Jan.  1st,  1911,  on  $45,028,000  Bonds 
Jan.  1st,  1911  to  Dec.  1st,  1911,  on  $50,000.000  Bonds 
Dec.  1st,  1911  to  April  14th,  1912,  on  $60,000,000  Bonds 
April  14th,  1912  to  Jan.  1st,  1913,  on  $65,000,000  Bonds 

1  The  following  income  statements  and  balance  sheets  for  the  year  previous 
to  and  the  first  ten  months  subsequent  to  the  readjustment  were  copied  .from  the 
application  for  listing  on  the  New  York  Stock  Exchange  the  new  securities 
referred  to  in  the  Readjustment  Agreement  above. 


KEADJUSTMENT   OF   CAPITAL   ACCOUNT         963 


BALANCE  SHEET  AS  OF  DECEMBER  Slsr,  1912 

Assets 

Property  accounts $119,013,500.22 

Materials  and  supplies  and  disused  construction 

plant $396,618.23 

Less  reserve  for  depreciated  values ; 157,534 . 72 

$239,083.51 

Investment 1,000.00 

Cash  deposited  with  trustees  of  N.  Y.  &  J.  Mortgage 114,099. 14 

Current  cash  on  hand  and  in  bank 334,058 . 23 

Accounts  receivable 178,492 . 75 

Deposits  with  public  departments 12,932 . 66 

Prepaid  insurance 17,863 . 63 

Prepaid  taxes 5,097 . 65 

Other  prepayments 2,784. 18 

Accounts  m  suspense 12,616 .06 

Deferred  charges — unamortized  bond  discount  and  expense  . . .  2,137,199.86 

Profit  and  loss,  deficit 96,041 . 32 

Total  assets $122,164,769 .21 


Liabilities 

Common  Capital  Stock  and  Scrip $39,994,890.00 

Preferred  Capital  Stock  and  Scrip 5,242,151 .25 

Stocks  and  Serin  to  redeem  outstanding  securities  of  predecessor 

companies 12,908.75 

New  York  &  Jersey  Railroad  Co.  First  Mortgage  5%  bonds, 

due  1932 5,000,000.00 

Hudson  A  Manhattan  Railroad  Co.  First  Mort- 
gage 4M%  bonds,  due  1957 $60,000,000.00 

H.  &  M.  R.  R.  Co.  First  Mortgage  bonds  bear- 
ing no  interest  until  Feb  1,  1914,  and  there- 
after at  4^2%  per  annum  until  maturity,  with 
an  additional  2%  per  annum  until  Feb.  1, 
1920,  if  and  to  the  extent  earned 7,500,000.00 

$67,500,000.00 
Less  Treasury  bonds  deposited  as  collateral 352,000 . 00 

$67,148,000.00 

Real  estate  mortgages  payable 652,000.00 

Deferred  installments  on  car  purchase  agreements 1,376,000.00 

Loan  payable  (collateral,  352  bonds  as  above) 250,000.00 

Current  accounts  payable 151,068.94 

Accrued  bond  interest  payable  February  1st 1,226,492 . 37 

Other  accrued  interest 30,025.00 

Accrued  taxes 517,170.22 

Rentals  received  in  advance 17,513.66 

Amortization  reserve 512,794 . 14 

Other  reserves 33,754.88 

Total  Liabilities....  $122,164,769.21 


964          MATERIALS    OF   CORPORATION    FINANCE 
CONDENSED  STATEMENT  OF  INCOME,  TEN  MONTHS  ENDED  NOVEMBER  30,  1913 

Gross  revenue  from  all  sources $4,535,389 . 38 

"Operating  expenses  and  taxes 2,091,930.93 

Gross  income  applicable  to  fixed  charges $2,443,458 . 45 

Income  deductions  other  than  bond  interest 221,110.07 

Net  income  applicable  to  bond  interest $2,222,348 . 38 

Deduct  interest  on  bonds  prior  to  adjustment  income  bonds ....         1,680,960 . 56 

Balance  of  net  income  for  the  period,  available  for  interest  on 
Adjustment  Income  Bonds $$541,387.82 

^Includes  $276,070.68,  the  first  installment  of  interest,  at  $8.34  per  $1,000, 
earned  during  five  months  prior  to  July  1,  1913,  declared  August  21,  1913,  paid 
September  30,  1913,  leaving  $265,317.14  available  for  distribution. 

*Depreciation  included  in  operating  expenses $134,900 . 80 

Percentage  of  railroad  operating  expenses  vs.  railroad  revenue . .  39 . 24% 

Number  of  revenue  car  miles  operated 6,564,143 

Number  of  passengers  carried 48,628,676 

Total  railroad  revenue  per  car  mile 46 . 65 

Railroad  operating  expenses  per  car  mile 18 . 31 

Net  railroad  revenue  per  car  mile 28 . 34 


CONDENSED  BALANCE  SHEET  AS  OF  NOVEMBER  30,  1913. 

Assets 

Property  accounts $120,216,679.99 

Less  reserve  for  amortization 637,082.20 

$119,579,597.79 
Investment  (Tunnel  Advertising  Co.  stock) 1,000 . 00 

Proceeds  of  sales  of  property  released  from  the  lien  of  New  York 
&  Jersey  Railroad  Company  mortgage  deposited  with  trustee 

of  the  mortgage 114,099. 14 

Amortization  funds,  deposited  or  invested 169,108 . 33 

*Bond  discount  and  expense  in  process  of  amortization 3,659,711 .09 

WORKING  ASSETS: 

Current  cash  account $1,158,882.43 

Current  accounts  receivable 214,366.90 

Deposits  with  public  departments 9,060. 66 

Prepaid  insurance,  taxes,  etc 69,176.39 

Materials  and  supplies — less  reserves 206,721 . 97 

Accounts  in  suspense 1,471 . 73 


Total  working  assets 1,659,680.08 

$125,183,196.43 


READJUSTMENT   OF   CAPITAL   ACCOUNT          965 

Liabilities  and  Capital 

Common  capital  stock  and  scrip $39,994,890.00 

Preferred  capital  stock  and  scrip 5,242,151 . 25 

Stocks  held  in  reserve  to  redeem  outstanding  securities  of  prede- 
cessor companies 12,908 . 75 

New  York  &  Jersey  Railroad  Company  5%  Mortgage  Bonds . . .  5,000,000 . 00 

JFirst  Mortgage  4^%  Bonds 944,000.00 

First  Lien  and  Refunding  Mortgage  5%  Bonds 36,562,633 . 66 

Adjustment  Income  Mortgage  Bonds 33,102.000.00 

Real  estate  mortgages 1,207,500.00 

Car  purchase  obligations  payable  in  semi-annual  instalments  to 

1921 1,192,000.00 

Readjustment  reserve 613,422.52 

WORKING  LIABILITIES: 

Current  accounts  payable $249,176.56 

Accrued  interest 731,245.76 

Accrued  taxes 14,419.33 

Rentals  received  in  advance 3,291 . 27 

Temporary  operating  reserves 48,240. 19 

1,046,373.11 

Surplus  income  for  distribution  as  interest  on  adjustment  Income 
Bonds 265,317.14 

$125,183,196.43 


*Charged  off  monthly  to  eliminate  debt  during  the  life  of  bond. 

fThe  balance  of  the  issue  of  old  4^%  bonds  ($66,204,000)  has  been  deposited 
with  the  trustees  of  the  new  first  lien  and  refunding  mortgage  and  the  adjust- 
ment income  mortgage  in  accordance  with  the  terms  thereof. 


966         MATERIALS    OF   CORPORATION    FINANCE 


REORGANIZATION  OF  THE  BALTIMORE  AND  OHIO 
RAILROAD  COMPANY1 

PLAN   AND   AGREEMENT 

[Dated  June  22,  1908.] 

Reorganization  Committee — Louis  Fitzgerald,  chairman,  August 
Belmont,  Edward  R.  Bacon,  Henry  Budge,  Eugene  Delano,  William 
A.  Read,  Howland  Davis.  H.  C.  Deming,  secretary.  William  C.  Gul- 
liver, counsel  to  Reorganization  Committee. 

Reorganization  Managers — Speyer  Bros.,  7  Lothbury,  London. 
Speyer  &  Co.,  30  Broad  Street,  New  York.  Kuhn,  Loeb  &  Co.,  27 
Pine  Street,  New  York. 

Counsel  to  Reorganization  Managers — Seward,  Guthrie  &  Steele,  40 
Wall  Street,  New  York.  Evarts,  Choate  &  Beaman,  52  Wall  Street, 
New  York.  Freshfields  &  Williams,  London. 

Advisory  Committee — Louis  Fitzgerald,  Edward  R.  Bacon,  Henry 
Budge,  William  A  Read.  Alvin  W.  Krech,  secretary,  120  Broadway, 
New  York.  William  C.  Gulliver,  counsel  to  Advisory  Committee. 

Depositary — The  Mercantile  Trust  Co.,  of  New  York.  London  and 
Westminster  Bank,  Limited,  London  agent. 

The  undersigned  committee,  at  the  request  of  holders  of  a  large 
amount  of  the  securities,  has  been  for  a  long  time  past  engaged  in  an 
examination  of  the  affairs  of  the  Baltimore  &  Ohio  system  and  the 
relative  value  and  earning  capacity  of  the  various  lines  comprised 
therein,  with  a  view  to  formulating  a  plan  of  reorganization  therefor 
which  should  fairly  recognize  the  rights  of  all  security  holders,  and 
at  the  same  time  bring  the  fixed  charges  of  the  reorganized  company 
safely  within  the  net  earning  capacity  of  the  system.  Much  time  and 
attention  have  been  devoted  to  acquiring  full  and  accurate  informa- 
tion as  to  all  details,  including  a  careful  examination  of  the  company's 
accounts  for  the  period  of  nine  years  and  six  months,  made  by  Mr. 
Stephen  Little  on  behalf  of  the  committee.  The  aim  of  the  committee 
has  been  to  formulate  a  plan  for  the  reorganization  of  the  system 
which  should  accomplish  the  following  results  : 

(a)  The  reduction  of  the  fixed  charges  to  a  limit  safely  within  the 
net  earning  capacity  of  the  reorganized  properties;  (b)  adequate  capi- 
tal for  present  and  future  requirements;  (c)  the  payment  of  floating 
debt  and  provision  for  existing  car-trust  obligations;  (d)  the  preser- 
vation of  the  integrity  of  the  system  as  far  as  the  same  can  be  econ- 

1  Reprinted  in  the  so-called  Congressional  Money  Trust  Investigation  Report 
of  the  Pujo  Committee. 


REORGANIZATION    OF   B.   &   0.,    1898  967 

omically  and  advantageously  accomplished  and  such  control  of  the  re- 
organized company  as  shall  secure  a  satisfactory  management  of  the 
property  for  a  period  of  years. 

Having  these  objects  in  view,  the  annexed  plan  has  been  prepared, 
and  Messrs  Speyer  &  Co.  and  Messrs  Kuhn,  Loeb  &  Co.,  of  New 
York,  and  Messrs.  Speyer  Bros.,  of  London,  have  been  selected  by  the 
committee  to  act  as  reorganization  managers  to  carry  out  the  plan. 

Messrs.  Louis  Fitzgerald,  Henry  Budge,  Edward  R.  Bacon,  and 
William  A  Read  have  been  appointed  an  advisory  committee  to  con- 
tinue and  complete  the  work  of  the  Reorganization  Committee  and  to 
consult  and  cooperate  with  the  reorganization  managers.  Any  vacancy 
in  the  Advisory  Committee  occasioned  by  death,  resignation,  or  other- 
wise may  be  filled  by  the  joint  action  of  the  reorganization  managers 
and  of  the  remaining  members  of  the  Advisory  Committee. 

Lours  FITZGERALD, 
AUGUST  BELMONT, 
.     EDWARD  R.  BACON, 
HENRY  BUDGE, 
EUGENE  DELANO, 
WILLIAM  A.  READ, 
HOWLAND  DAVIS, 

Reorganization  Comittee. 
New  York,  June  22,  1898. 

PLAN  FOR  THE  REORGANIZATION  OF  THE  BALTIMORE  &  OHIO  RAILROAD 
CO. — CONDITIONS   OF    PARTICIPATION 

Participation  under  this  plan  of  reorganization  in  any  respect  what- 
soever is  dependent  upon  the  deposit  of  securities  with  the  Mercantile 
Trust  Co.,  of  New  York,  the  depositary  named  in  the  reorganization 
agreement,  either  at  its.  office,  No.  120  Broadway,  in  the  city  of  New 
York,  or  at  the  London  &  Westminster  Bank  (Ltd.),  its  agency  in  the 
city  of  London,  England,  within  such  time  as  may  be  fixed  by  notice, 
and  the  plan  will  embrace  only  securities  so  deposited.  No  securities 
will  be  received  on  deposit  unless  in  negotiable  form,  and  bonds  must 
carry  all  coupons  (or  claims  for  interest  on  registered  bonds)  matur- 
ing on  or  after  July  1,  1898.  The  first-mortgage  6  per  cent,  bonds 
of  the  Washington  City  &  Point  Lookout  Railroad  Co.  must  also  carry 
all  matured  and  unpaid  coupons. 

Pursuant  to  the  offer  of  the  syndicate  hereinafter  stated,  holders 
of  the  first  and  second  preferred  and  common  stock  of  the  Baltimore 
&  Ohio  Railroad  Co.  may  purchase  from  the  syndicate  the  new  pre- 
ferred and  common  stock  by  depositing  their  old  stock  with  the  Mer- 


MATERIALS   OF   CORPORATION   FINANCE 

eantfle  Trust  Co.  or  its  agency  in  Tandon  as  above  stated,  on  the  fol- 
lowing tenon:  As  consideration  for  snares  of  the  new  company,  de- 
positors of  first  preferred  stock  most  pay  $2  per  share  deposited  for 
new  preferred  and  vnmmtm  stock ;  depositors  of  second  preferred  stock 
paj  $20  per  share  deposited  for  new  preferred  and  common 
:;  and  depositors  of  common  stock  must  pay  $20  per  share  de- 
posited for  new  preferred  and  common  stock,  all  as  hereinafter  indi- 
cated on  page  978. 

The  payments  by  depositors  of  such  preferred  and  common  stocks 
most  be  made  for  account  of  the  syndicate  at  the  office  of  the  Mercan- 
tile Trust  COL,  in  New  York,  or  at  its  agency  in  London  above  named, 
in  not  teas  than  three  installments  at  least  thirty  (30)  days  apart, 
when  and  as  called  for  by  advertisement  published  in  each  instance 
at  least  twice  a  week  for  two  weeks  in  at  least  two  of  the  daily  news- 
papers of  general  circulation  published  in  the  cities  of  New  York, 
Baltimore  and  London,  respectively. 

AE  payments  must  be  receipted  for  by  the  depositary  or  its  London 
agent  on  the  certificates  of  deposit 

Failure  to  pay  any  installment  when  and  as  payable  will  subject 
the  deposited  stock  and  all  rights  on  account  of  any  prior  payments 
to  forfeiture  to  the  syndicate  as  provided  in  the  reorganization  agree- 
ment. 

The  depositary  will  issue  proper  receipts  or  certificates  of  deposit 
for  all  securities  deposited. 

The  following  bonds,  coupons,  and  stocks  may  be  deposited  on  the 
terms  hereinafter  provided : 

Baltimore  ft  Ohio  Railroad  Co.  bonds,  loan  of  1853,  extended  to 
1935  at  4  per  cent 

Baltimore  &  Ohio  Railroad  Co.  100-year  5  per  cent  consolidated 
mortgage  bonds  of  1888. 

Baltimore  &  Ohio  Railroad  Co.  sterling  6  per  cent,  loan  of  1872, 
doe  March  1,  1902. 

Baltimore  ft  Ohio  Railroad  Co.  sterling  6  per  cent,  loan  of  1874, 
due  May  1, 1910. 

Baltimore  &  Ohio  Railroad  Co.  6  per  cent  loan  of  1879,  due  April 
1,  1919  (account  Parkersburg  Branch  Railroad  Co.). 

Baltimore  ft  Ohio  Railroad  Co.  5  per  cent  bonds,  loan  of  1885 
(account  Pittsburgh  &  ConnellsviHe  Railroad  Co.). 

Baltimore  &  Ohio  Railroad  Co,  4£  per  cent  terminal  mortgage 
bonds  of  1894. 

Baltimore  &  Ohio  Railroad  Co.  sterling  4r|  per  cent  loan  of  1883, 
Philadelphia  Branch. 


REORGANIZATION   OF   B.   &   O.,   1898  909 

Baltimore  &  Ohio  Railroad  Co.  sterling  5  per  cent  loan  of  1877, 
due  June  1,  192?  (account  Baltimore  &  Ohio  &  Chicago  Railroad 
Co.). 

Baltimore  &  Ohio  Railroad  Co.  first  preferred  stock. 

Baltimore  &  Ohio  Railroad  Co.  second  preferred  stock. 

Baltimore  &  Ohio  Railroad  Co.  common  stock. 

Pittsburgh  &  Connellsville  Railroad  Co.  first-mortgage  bonds,  ex- 
tended to  1946  at  4  per  cent 

Pittsburgh  &  Connellsville  Railroad  Co.  first-mortgage  7  per  cent 
bonds,  due  July  1,  1898. 

Pittsburgh  &  Connellsville  Railroad  Co.  6  per  cent  consolidated 
mortgage  bonds. 

Akron  &  Chicago  Junction  Railroad  Co.  first-mortgage  5  per  cent 
bonds. 

Akron  &  Chicago  Junction  Railroad  Co.  preferred  stock. 

Washington  City  &  Point  Lookout  Railroad  Co.  6  per  cent  bonds. 

Matured  and  unpaid  coupons  (and  claims  for  interest  on  registered 
bonds),  appertaining  to  any  of  the  above-named  bonds  except  those  of 
the  Washington  City  &  Point  Lookout  Railroad  Co.  may  be  deposited 
separate  from  the  bonds  as  hereinafter  stated. 

NEW  RAILROAD  COJtPAST 

Unless  the  reorganization  managers  shall  decide  to  proceed  without 
foreclosure  or  sale,  the  various  properties  will  be  sold  under  fore- 
closure of  one  or  more  of  the  gristing  mortgages,  or  otherwise  dealt 
with,  and  a  successor  company  or  companies  will  be  organized.  The 
term  "new  company,"  as  hereinafter  used,  is  intended  to  mean  either 
the  existing  company  or  the  new  proprietary  company  or  companies 
which  may  be  organized. 

DEPOSITED   SECURITIES 

The  securities  deposited  hereunder  will  be  held  by  the  depositary 
subject  to  the  order  and  control  of  the  reorganization  managers  as 
provided  in  the  reorganization  agreement 

All  securities  deposited  under  the  plan  are  to  be  kept  alive  so  long 
as  deemed  necessary  by  the  managers  for  the  purposes  of  reorganiza- 
tion or  the  protection  of  the  new  company  or  its  security  holders. 

All  matured  and  unpaid  coupons  and  claims  for  interest  on  regis- 
tered bonds  (excepting  the  unpaid  coupons  on  the  first-mortgage  6 
per  cent  bonds  of  the  Washington  City  &  Point  Lookout  Railroad  Co., 
which  matured  and  unpaid  coupons,  however,  must  be  deposited  with 
the  bonds  as  above  stated),  may  be  deposited  separate  from  the  bonds, 
and  the  same  will  be  paid  in  cash  as  soon  as  practicable  after  the  plan 


970          MATEEIALS    OF    CORPORATION    FINANCE 

is  declared  operative,  with  interest  on  such  coupons  (and  claims  for 
interest  on  registered  bonds)  at  the  rate  of  5  per  cent,  per  annum 
from  the  date  of  maturity  up  to  the  date  when  the  same  are  finally 
paid.  Interest  will  also  be  paid  in  cash  upon  the  completion  of  the 
reorganization  on  all  deposited  bonds  (excepting  the  first-mortgage  6 
per  cent,  bonds  of  the  Washington  City  &  Point  Lookout  Railroad  Co. 
above  mentioned),  at  the  rate  provided  in  the  old  bonds,  up  to  July 
1,  1898,  from  the  coupon  date  last  preceding. 

The  syndicate  will  purchase  such  coupons  (and  claims  for  interest 
on  registered  bonds)  matured  prior  to  July  1,  1898,  from  holders 
who  do  not  desire  to  deposit  the  same  under  the  plan  (provided,  and 
so  soon  as,  the  bonds  to  which  such  coupons,  and  claims  for  interest 
on  registered  bonds,  appertain,  have  been  deposited),  at  their  face 
value  with  interest  at  the  rate  of  5  per  cent,  per  annum  from  the  re- 
spective dates  of  maturity  of  such  coupons  or  claims  for  interest,  to 
date  of  purchase,  provided  such  coupons  and  claims  for  interest  on 
registered  bonds  shall  be  presented  for  sale  to  the  syndicate,  at  the 
office  of  the  Mercantile  Trust  Co.,  in  New  York,  or  at  its  London 
agency  above  mentioned,  on  or  before  July  22,  1898. 

The  syndicate  has  agreed  to  purchase  for  cash,  upon  the  plan  being 
declared  operative,  all  Baltimore  &  Ohio  Railroad  Co.  100-year  5  per 
cent,  consolidated  mortgage  bonds,  deposited  under  the  plan,  whose 
holders  prefer  to  accept  cash  rather  than  to  take  the  new  securities, 
at  the  price  (in  New  York)  of  110  and  interest  accrued  and  unpaid 
since  the  maturity  of  the  last  paid  coupon,  provided  such  holders 
shall  signify  their  election  to  take  cash  in  the  manner  and  within 
the  time  hereinafter  limited :  Depositors  electing  to  receive  cash  for 
their  bonds  must  signify  their  election  by  presenting  their  Mercantile 
Trust  Co.  certificates  of  deposit  at  the  office  of  that  company  in  New 
York  or  at  its  London  agency  above  specified,  within  60  days  from 
the  time  the  plan  shall  be  actually  issued,  to  be  stamped  as  electing 
to  accept  such  cash  payment,  and  will  thereupon  be  entitled  to  re- 
ceive such  cash  payment  so  soon  as  the  plan  is  declared  operative  by 
the  reorganization  managers,  upon  surrender  of  their  certificates  of 
deposit  so  stamped. 

NEW   STOCKS   AND   BONDS 

The  new  company  is  to  authorize  the  following  securities: 
First. — $70,000,000  prior  lien  3£  per  cent,  gold  bonds,  due  1925. 
These  bonds  will  bear  interest  from  July  1,  1898,  and  are  to  be  se- 
cured by  a  mortgage  upon  the  main  line  and  branches,  Parkersburg 
Branch  and  Pittsburg  Division   (see  appendix,  Table  C)   when  ac- 
quired by  the  new  company,  covering  about  1,017  miles  of  first  track, 


REORGANIZATION    OF   B.   &   0.,   1898  971 

and  about  964  miles  of  second,  third  and  fourth  tracks  and  sidings 
and  also  all  the  equipment  now  owned  by  the  company  of  the  value  of 
upward  of  $20,000,000  (see  appendix,  Table  E)  or  hereafter  acquired 
in  any  manner  except  by  the  use  of  the  $34,000,000  reserved  first 
mortgage  bonds,  as  hereinafter  stated. 

The  right  will  be  reserved  to  issue,  after  January  1,  1902,  not  to 
exceed  $5,000,000  additional  of  these  bonds,  at  the  rate  of  not  ex- 
ceeding $1,000,000  a  year,  for  the  enlargement,  betterment  or  ex- 
tension of  the  properties  covered  by  the  prior  lien  mortgage,  or  for 
the  acquisition  of  additions  thereto. 

In  case  delay  should  occur  in  acquiring  any  of  the  said  lines  of 
railway,  the  execution  of  the  plan  will  not  for  that  reason  necessarily 
be  postponed,  but  the  existing  bonds  upon  such  line  deposited  under 
the  plan  may  be  pledged  under  the  prior  lien  mortgage,  as  security 
for  the  bonds  issued  thereunder,  until  such  line  of  railway  shall  be 
acquired  by  the  new  company  and  subjected  to  the  lien  of  said  mort- 
gage. 

The  prior  lien  bonds  are  to  be  applied  as  follows : 

In  partial  exchange  for  existing  bonds   (see  page  975) $60,073,090 

Purchased  by  syndicate  to  provide  cash  requirements  of  plan  (see 

page  975)    9,000,000 


$69,073,090 
For  contingencies    (any  surplus  to  new  company) 926,910 


$70,000,000 

Second. — $63,000,000  first  mortgage  50-year  4  per  cent,  gold  bonds. 

These  bonds  will  bear  interest  from  July  1,  1898,  and  are  to  be 
secured  by  a  mortgage  which  will  be  a  first  lien  on  the  Philadelphia, 
Chicago  and  Akron  divisions  and  branches,  and  the  Fairmont,  Mor- 
gantown  and  Pittsburg  Railroad,  covering  about  570  miles  of  first 
track,  and  about  332  miles  of  second,  third  and  fourth  tracks  and 
sidings  (see  appendix,  Table  D),  and  also  on  the  properties  now  in- 
cluded in  the  present  Baltimore  &  Ohio  terminal  mortgage  of  1894, 
when  said  lines  and  properties  are  acquired  by  the  new  company; 
also  on  the  Baltimore  Belt  Railroad,  if  and  when  the  same  shall  be 
acquired  by  the  new  company;  and  a  lien  subject  to  the  prior  lien 
mortgage  upon  the  lines,  property  and  equipment  covered  by  the 
latter. 

The  right  will  be  reserved  to  increase  the  amount  of  these  bonds 

to  $90,000,000  for  the  enlargement,  betterment  or  extension  of  the 

railroads  and  properties  covered  by  the  prior  lien  mortgage  and  also 

those  covered  by  the  first  mortgage,  or  for  the  acquisition  of  exten- 

83 


972         MATEKIALS    OF   CORPORATION   FINANCE 

sions  or  additions  thereto  or  equipment  for  use  thereon,  at  the  rate 
of  not  exceeding  $1,500,000  a  year  for  the  first  four  years  after  the 
organization  of  the  new  company  and  at  the  rate  of  not  exceeding 
$1,000,000  a  year  thereafter.  The  right  will  also  be  reserved  to  call 
in  and  redeem  all  or  any  part  of  the  first  mortgage  bonds  after  25 
years,  at  105,  and  also  to  issue  not  to  exceed  $75,000,000  additional 
of  said  bonds  or  such  lesser  amount  as  may  be  required  to  retire  the 
prior  lien  bonds  when  due. 

In  case  delay  should  occur  in  acquiring  any  of  the  said  lines  of 
railway  or  properties  to  be  included  under  the  first  mortgage  as  above 
stated,  the  execution  of  the  plan  will  not  for  that  reason  necessarily 
be  postponed,  but  the  existing  bonds  upon  such  line  or  property  de- 
posited under  the  plan  may  be  pledged  under  the  first  mortgage,  as 
security  for  the  bonds  issued  thereunder,  until  such  line  or  property 
shall  be  acquired  by  the  new  company,  and  subjected  to  the  lien  of 
first  mortgage. 

The  first  mortgage  bonds  are  to  be  applied  as  follows: 

In  partial  exchange  for  existing  bonds   (see  page  975) $36,384,535 

Purchased  by  syndicate  to  provide  cash  requirements  of  plan   (see 

page  976)    12,450,000 

For  contingencies  (any  surplus  to  new  company) 1,165,465 


$50,000,000 
Reserve  for  new  company    7,000,000 


$57,000,000 

Reserve  to  be  issued  only  to  retire  Baltimore  Belt  Line  5s    (see 

page  976)    6,000,000 


$63,000,000 

Third.    $40,000,000  4  per  cent,  non-cumulative  preferred  stock. 
This  stock  will  be  entitled  to  receive  non-cumulative  dividends  at  the  rate 
of  4  per  cent,  per  annum  before  the  payment  of  any  dividend  on  the  common 
stock.    This  stock  will  be  applied  as  follows: 

For  reorganization  purposes  (see  page  977) $17,218,700 

Purchased  by  syndicate  to  provide  cash  requirements  of  plan  (see 

page  977)    16,450,000 

For  adjustment  with  various  outstanding  bondholders'  and  stock- 
holding interest,  contingencies,  etc.  (any  surplus  to  new  com- 
pany)    1,331,300 


$35,000,000 
Reserve  for  new  company 5,000,000 


$40,000,000 


REORGANIZATION   OF   B.   &   0.,   1898  973 

Fourth.    $35,000,000  common  stock. 

This  stock  will  be  applied  as  follows: 

For  reorganization  purposes  (see  page  977 ) $31,178,000 

For   adjustment   outstanding   securities,   contingencies,   etc.    (any 

surplus  to  new  company ) 3,822,000 


$35,000,000 

RESTRICTIONS  AS  TO  ADDITIONAL  MORTGAGE  DEBT  AND  PREFERRED 

STOCK 

Provision  is  to  be  made  that  no  additional  mortgage  shall  be  put 
upon  the  property  to  be  acquired  by  the  new  company  hereunder,  and 
that  no  increase  in  the  amount  of  the  preferred  stock  authorized  un- 
der this  plan  shall  be  made,  except  in  each  instance  after  obtaining 
the  consent  of  the  holders  of  a  majority  of  the  whole  amount  of  pre- 
ferred stock  outstanding  given  at  a  meeting  of  the  stockholders  called 
for  that  purpose,  and  the  consent  of  the  holders  of  a  majority  of  such 
part  of  the  common  stock  as  shall  be  represented  at  such  meeting,  the 
holders  of  each  class  of  stock  voting  separately.  During  the  existence 
of  the  voting  trust  similar  consent  of  holders  of  like  amounts  of  the 
respective  classes  of  certificates  of  beneficial  interest  shall  also  be 
accessary  for  the  purposes  indicated. 

VOTING   TRUST 

The  preferred  and  common  stock  of  the  new  company  (except  such 
number  of  shares  as  may  be  disposed  of  to  qualify  directors)  shall  be 
vested  in  the  following  five  voting  trustees :  William  Salomon,  Abra- 
ham Wolff,  J.  Kennedy  Tod,  Louis  Fitzgerald,  and  Charles  H.  Coster. 

In  the  event  of  the  death  or  failure  or  refusal  to  serve  of  any  person 
designated  as  a  voting  trustee  prior  to  the  creation  of  the  voting  trust, 
the  vacancy  shall  be  filled  by  the  reorganization  managers.  The 
stock  shall  be  held  by  the  voting  trustees,  and  their  successors,  jointly 
(under  a  trust  agreement  prescribing  their  powers  and  duties  and 
the  method  of  filling  vacancies)  for  five  years,  although  the  voting 
trustees  may,  in  their  discretion,  as  provided  in  the  trust  agreement, 
deliver  the  stock  at  an  earlier  date.  Until  delivery  of  stock  is  made 
by  the  voting  trustees  they  shall  issue  certificates  of  beneficial  interest 
entitling  the  registered  holders  to  receive,  at  the  time  therein  pro- 
vided, stock  certificates  for  the  number  of  shares  therein  stated,  and 
in  the  meanwhile  to  receive  payments  equal  to  the  dividends  collected 
by  the  voting  trustees  upon  the  number  of  shares  therein  stated, 
which  shares,  however,  with  the  voting  power  thereon,  shall  be  vested 
in  the  voting  trustees  until  the  stock  shall  become  deliverable,  as  pro- 


974         MATERIALS    OF    CORPORATION    FINANCE 

vided  in  the  trust  agreement  and  in  the  certificates  of  the  voting  trus 
tees  issued  thereunder. 

SYNDICATE 

A  syndicate  has  been  formed  by  Messrs.  Speyer  Bros.,  of  London, 
and  Messrs.  Speyer  &  Co.,  Kuhn,  Loeb  &  Co.,  August  Belmont  &  Co., 
Hallgarten  &  Co.,  and  Vermilye  &  Co.,  of  New  York,  which  will  be 
conducted  by  the  first-named  three  firms  as  syndicate  managers,  and 
which  agrees — 

(1)  To  purchase  $6,975,000  of  the  new  preferred  stock  and  $30,- 
250,000  of  the  new  common  stock  and  to  offer  the  same  for  sale  to 
depositing  holders  of  old  first  and  second  preferred  and  common 
stock  of  the  Baltimore  &  Ohio  Railroad  Co.,  as  stated  on  page  968  of 
this  plan. 

(2)  To  purchase  $9,000,000  3|  per  cent,  prior  lien  bonds,  $12,- 
450,000  first  mortgage  4  per  cent,  bonds,  $16,450,000  preferred  stock. 

(3)  To  protect  the  new  company  in  the  ownership  and  possession 
of  the  properties  covered  by  $49,974,098  (sterling  issues  being  figured 
at  $4.8666)   of  the  existing  mortgage  bonds  of  the  old  company  of 
different  issues,  by  agreeing  to  purchase  from  the  new  company  the 
new  securities  not  taken,  but  to  which  the  holders  of  such  bonds* 
would  have  been  entitled  if  deposited  under  the  plan,  at  a  price  equal 
to  the  prinicpal  of  the  respective  old  securities,  and  also  to  make  ad- 
vances and  perform  other  obligations  essential  for  the  purposes  of 
the  plan. 

APPLICATION   OF  SECURITIES 

It  is  contemplated  that  as  a  consideration  for  the  property  and  se- 
curities to  be  conveyed  and  delivered  to  the  new  company,  or  which 
it  shall  acquire  pursuant  to  the  plan,  it  shall  deliver  the  new  bonds 
and  stock,  excepting  such  final  amounts  of  the  new  bonds  as  shall  be 
reserved  for  the  future  use  of  the  new  company.  The  requisite  deliv- 
eries of  the  new  securities  to  depositors  and  subscribers  under  the  plan 
will  thus  be  provided  for. 

The  following  details  show  the  disposition  to  be  made  under  the 
plan  of  the  securities  of  the  new  company: 

DISPOSITION  OF    NEW   SECURITIES   IN   DETAIL 

The  new  prior-lien  3£  per  cent,  gold  bonds  will  be  disposed  of  as 
follows : 

Present  authorized  issue $70,000,000 


REORGANIZATION    OF    B.    &    0.,    1898  975 

To  be  used  in  partial  exchange  for  existing  bonds,  as  follows: 


Existing  bonds 

Amount 
outstanding 

Each                             • 
lien  Bonds 

Baltimore  &  Ohio  loan  of  1853,  extended 
Baltimore  &  Ohio  consolidated  mortgage 
5  per  cent  

$1,661,000 
11,988,000 

$1,025           $1,702,525 
1,050           12,587,400 

Baltimore-A  Ohio  sterling  loan  of  1872. 
Baltimore  &  Ohio  sterling  loan  of  1874. 
Baltimore  &  Ohio,  Parkereburg  branch. 
Pittsburgh  <fe  Connellsville  first  extended 
4  per  cent        .                          

£1,921,800 
£1,990,600 
$3,000,000 

2,581,000 

1,020             9,801,180 
1,120           11,147,360 
1,050            3,150,000 

1,025             2,645  525 

Pittsburgh  &  Connellsville  first  7  per 
cent,  not  extended  

1,419,000 

1,000             1,419,000 

Baltimore  &  Ohio  5  per  cent  loan  of  1885 
Pittsburgh  &  Connellsville  6  per  cent 
consolidated  mortgage  

10,000,000 
£1,352,000 

1,000           10,000,000 
1,025             6,929,000 

Chicago  division  5  per  cent  

£1,382,200 

100               691,100 

Sold  to  syndicate  for  cash  requirements  . 

$60,073,090 
9,000,000 

For  contingencies  (any  surplus  to  new 
company)..  . 

926,910 

$70,000,000 

The  new  first  mortgage  4  per 
follows  : 

Present  authorized  issue 

cent,  bonds 

will  be  disposed  of  as 
$63,000,000 

To  be  used  in  partial  exchange 

for  existing 

bonds,  as  follows: 

Existing  bonds 

Amount 
outstanding 

Each         Amount  of 
$1,000  or        new  first- 
£200           mortgage 
receives  —          bonds 

Baltimore  &  Ohio  loan  of  1853,  extended 
Baltimore  &  Ohio  consolidated  mortgage 
5  per  cent  

$1,661,000 
$11,988,000 

$125               $207,625 
125              1,498,500 

Baltimore  &  Ohio  sterling  loan  of  1872  .  . 
Baltimore  &  Ohio  sterling  loan  of  1874  .  . 
Baltimore  &  Ohio,  Parkereburg  branch  . 
Pittsburgh  &  Connellsville  first  extended 
4  per  cent  

£1,921,800 
£1,990,600 
$3,000,000 

$2,581,000 

120              1,153,080 
120              1,194,360 
125                375,000 

125                322,625 

Pittsburgh  and  Connellsville  first  7  per 
cent.,  not  extended  

$1,419,000 

150                 177,375 

Baltimore  &  Ohio  5  per  cent  loan  of  1885 
Pittsburgh  &  Connellsville  4H  per  cent, 
consolidated  mortgage  

$10,000,000 
£1,352,000 

125              1,250,000 
120                811,200 

Philadelphia  division  5  per  cent  

£2,400,()(X) 

1,000            12,000,000 

Chicago  division  5  per  cent         

£1,382,200 

1,070             7,394,770 

Akron  &  Chicago  Junction  5  per  cent  .  .  . 
Baltimore  &  Ohio  terminal  •!  '  j  per  cent. 

$1,500,000 
$8,500,000 

1,000              1,500,000 
1,000              8,500,000 

976 


MATERIALS    OF   CORPORATION   FINANCE 


Sold  to  syndicate  for  cash  requirements . 

For  contingencies  (any  surplus  to  new 

company) 


Total 

Reserve  for  new  company. . 


Reserve  to  be  issued  only  to  retire  Balti- 
more Belt  Line  fives l. . . 


$12,450,000 
1,165,465 

$50,000,000 
7,000,000 

$57,000,000 

6,000,000 

$63,000,000 


The  new  preferred  stock  is  to  be  disposed  of  as  follows: 
Total  issue $40,000,000 

To  be  used  in  partial  exchange  for  existing  bonds  and  to  purchase  existing 
stocks,  as  follows: 


Existing  securities 


Amount 
outstanding 


Each  Amount 
$1,000  or  of  new 

£200  preferred 
receives —  stock 


Baltimore  &  Ohio  loan  of  1853,  extended 
Baltimore  &  Ohio  consolidated  5  per 

cent,  mortgage  bonds 

Baltimore  &  Ohio  sterling  loan  of  1872 . . 
Baltimore  &  Ohio  sterling  loan  of  1874 . . 
Baltimore  &  Ohio  5  per  cent,  loan  of 

1885 

Pittsburgh  &  Connellsville  first  extended 

4  per  cent,  bonds 

Pittsburgh  &  Connellsville  6  per  cent. 

consolidated  mortgage  bonds 

Chicago  division  5  per  cent,  bonds 

Philadelphia  division  4^  per  cent,  bonds 
Akron  &  Chicago  Junction  5  per  cent. 

bonds 

Akron  &  Chicago  Junction  preferred 

stock 

Washington  City  &  Point  Lookout  6  per 

cent,  bonds./ 


$1,661,000          $140 


$11,988,000 
£1,921,800 
£1,990,600 

$10,000,000 
$2,581,000 

£1,352,000 
£1,382,200 
£2,400,000 

$1,500,000 
$600,000 
$328,000 


85 

40 

160 

100 
40 

200 
100 
265 

250 
250 
500 


$232,540 

1,018,980 

384,360 

1,592,480 

1,000,000 
103,240 

1,352,000 

691,100 

3,180,000 

375,000 

150,000 

164,000 

$10,243,700 


;  properties  covered  by  the  Baltimore  Belt  Line  mortgage  will  be  leased 
tal  equivalent  to  interest  at  4  per  cent,  on  the  existing  belt  line  5  per  cent. 


iThe 
at  a  rents 

bonds,  which  is  to  be  in  full  payment  of  said  interest.  The  rental  agreement  will 
provide  that  in  consideration  of  the  rental  the  new  company  shall  have  an  option 
to  purchase  all  the  said  belt  line  5  per  cent,  bonds  at  par  and  accrued  interest  at 
any  time  within  5  years  on  60  days'  notice,  and  that  in  case  the  company  shall 
not  purchase  such  bonds  within  the  5  years  specified  it  will,  at  the  termination 
of  that  period,  assume  the  ultimate  payment,  when  due,  of  the  principal  of  such 
bonds. 


REORGANIZATION    OF   B.   &   0.,   1898  977 

Purchased  by  syndicate  and 

offered  for  sale  to  deposit- 

ing holders  of  $25,000,000 

of  old  common  stock,  be- 

ing 20  per  cent,  of  the  par 

value  thereof  ............  $5,000  00 

Purchased  by  syndicate  and 

offered  for  sale  to  deposit- 

ing holders  of  $3,000,000 

of  old  first  preferred  stock, 

being  52  J^  per  cent,  of  the 

par  value  thereof  ........     1,575,000 

Purchased  by  syndicate  and 

offered  for  sale  to  deposit- 

ing holders  of  $2,000,000 

of    old    second    preferred 

stock,  being  20  per  cent. 

of  the  par  value  thereof.  .  .        400,000 

-         ..............  6,975,000 

$17,218,700 
Sold  to  syndicate  for  cash  requirements  ...........         ......  16,450,000 

$33,668,700 
For  adjusting  existing  securities,  con- 

tingencies, etc.  (any  surplus  to  new 
company)  .........................................  1,331,300 

$35,000,000 
Reserve  for  new  company  .............         ........         ......  5,000,000 

_  $40,000,000 

The  new  common  stock  is  to  be  disposed  of  as  follows  : 

Total  issue  .  .  .......  .  ....................   $35,000,000 

To  be  used  in  exchange  for  existing  bonds  and  to  purchase  existing 
stocks,  as  follows: 

Fach  Amount 


Akron   &   Chicago  Junction   preferred 
stock  

$000,000 

$1,000 

$600,000 

Washington  City  &  Point  Lookout  6  per 
cent,  bonds  

328,000 

1,000 

328,000 

$928,000 

Purchased  by  syndicate  and 

offered  for  sale  to  deposit- 

ing holders  of  $25,000,000 

of  old  common  stock,  be- 

ing 100  per  cent,  of  the  par 

value  thereof  ............  $25,000,000 

Purchased  by  syndicate  and 

offered  for  sale  to  deposit- 

ing holders  of  $3,000,000 

of  old  first  preferred  stock, 

being  75  per  cent,  of  the 

par  value  thereof  ........     2,250,000 

Purchased  by  syndicate  and 

offered  for  sale  to  deposit- 

ing holders  of  $2,000,000 

of    old    second    preferred 

stock,  being  150  per  cent 

of  the  par  value  thereof  .  .  3,000,000 

-  ......................  30.250.000 


978         MATERIALS    OF   CORPORATION   FINANCE 

For  adjustment  outstanding  securities, 
contingencies,  etc.  (any  surplus  to  new 
company) $3,822,000 

$35,000,000 

Non-interest-bearing  scrip,  exchangeable  in  round  amounts  for  the  new  secur- 
tiee,  will  be  issued  for  fractional  amounts  of  new  bonds  and  stocks. 

LEASED   ROADS 

Holders  of  bonds  or  stocks  of  the  following  companies  are  requested 
to  communicate  with  the  advisory  committee,  giving  the  amount  of 
their  holdings  and  stating  how  the  same  are  held:  Columbus  &  Cin- 
cinnati Midland  Railroad,  Central  Ohio  Railroad,  Newark,  Somerset 
&  Straitsville  Railroad,  Sandusky,  Mansfield  &  Newark  Railroad, 
Schuylkill  River,  East  Side  Railroad,  Winchester  &  Potomac  Railroad, 
Winchester  &  Strasburg  Railroad. 

In"  order  to  deal  with  the  holders  of  these  leased-line  securities,  it  is 
deemed  necessary  to  consider  each  case  separately  and  upon  its  merits. 
After  hearing  from  the  holders  of  a  large  proportion  of  each  class  of 
securities  of  said  leased  lines  the  matter  of  adjustment  will  be  con- 
sidered. 

EXISTING  GUARANTIES. 

If  the  managers  shall  deem  it  advisable  to  proceed  without  foreclos- 
ure and  sale,  they  will  endeavor  to  secure  some  satisfactory  arrange- 
ment in  connection  with  the  existing  guaranties  of  the  company. 

PRESENT  FIRST  PREFERRED  STOCK. 

Upon  completion  of  the  reorganization  the  managers,  on  behalf  of 
the  syndicate,  will  deliver  to  each  depositor  of  first  preferred  stock  who 
shall  have  paid,  for  account  of  the  syndicate,  $2  per  share  deposited, 
as  provided  on  page  968  of  this  plan,  the  following  new  securities :  For 
each  share  of  first  preferred  stock  deposited  $52.50  in  new  preferred 
stock  trust  certificates,  $75  in  new  common  stock  trust  certificates. 

PRESENT  SECOND  PREFERRED  STOCK. 

Upon  completion  of  the  reorganization  the  managers,  on  behalf  of  the 
syndicate,  will  deliver  to  each  depositor  of  second  preferred  stock  who 
shall  have  paid,  for  account  of  the  syndicate,  $20  per  share  deposited, 
as  provided  on  page  968  of  this  plan,  the  following  new  securities:  For 
each  share  of  second  preferred  stock  deposited  $20  in  new  preferred 
stock  trust  certificates,  $150  in  new  common  stock  trust  certificates. 

PRESENT  COMMON  STOCK. 

Upon  completion  of  the  reorganization  the  managers,  on  behalf  of  the 
syndicate,  will  deliver  to  each  depositor  of  common  stock  who  shall 


REORGANIZATION   OF   B.   &   0.,    1898  979 

have  paid,  for  account  of  the  syndicate,  $20  per  share  deposited,  as 
provided  on  page  968  of  this  plan,  the  following  new  securities :  For 
each  share  of  common  stock  deposited  $20  in  new  preferred  stock  trust 
certificates,  $100  in  new  common  stock  trust  certificates. 

Estimated  cash  requirements  as  of  July  1,  1898,  and  provision  therefor. 

Unpaid  interest,  as  per  Table  F $4,565,375 

To  provide  for  existing  car  trusts,  receivers'  certificates,  and  other 

outstanding  obligations 19,192,225 

For  floating  debt,  improvements,  equipment,  working  capital,  and 
other  purposes  of  the  new  company,  including  also  expenses  of 
the  reorganization,  commission  to  syndicate,  and  compensa- 
tion of  the  reorganization  managers  and  their  associates  in 
the  formation  of  the  syndicate 12,334,900 


$36,092,500 

To  meet  these  requirements  the  syndicate  will  con- 
tribute    $32,592,500 

The  sale  of  certain  securities  in  treasury  is  estimated 

to  yield  3,500,000 


Making  a  total  of $36,092,500 

POSITION   OF   THE   NEW   COMPANY. 

The  fixed  charges  for  year  ending  June  30,  1897,  as  reported  by  the 

receivers  were  $7,771,111 

The  annual  fixed  charges  after  reorganization  and  retirement  of 
existing  bonds  as  proposed,  it  is  estimated,  will  be  stated  in 
Table  B 6,252,351 


Decrease  of  annual  fixed  charges. . .  .  1,518,760 

The  net  earnings  for  year  ending  June  30,  1896,  were,  including 

miscellaneous  income  $7,330,359 

The  net  earnings  for  year  ending  June  30,  1897,  were,  including 

miscellaneous  income   6,593,990 

(For  the  fiscal  year  ending  June  30,  1897,  equipment  of  the  com- 
pany valued  on  its  books  at  $1,155,829.95  was  put  out  of  ser- 
vice and  charged  not  to  operating  expenses  but  to  "Profit  and 
loss,"  because  it  represented  the  depreciation  of  a  number  of 
years.  As  against  this,  however,  extraordinary  expenses — 
estimated  at  not  less  than  $750,000 — for  the  maintenance  of 
the  property  generally  were  incurred  during  the  year  and 
charged  to  operation.  For  the  year  1898,  as  stated  in  the  an- 
nual report  of  last  year,  all  equipment  when  put  out  of  service 
is  replaced  with  equipment  of  equal  value,  as  shown  on  the 
books  of  the  company,  and  the  cost  thereof  charged  to  "Main- 
tenance of  equipment.") 


980      MATERIALS  OF  CORPORATION  FINANCE 

The  net  earnings  from  the  operations  of  the  property 
for  the  present  fiscal  year  (April,  May  and  June 
approximated)  have  (notwithstanding  liberal 
charges  for  maintenance)  as  compared  with  the 
same  period  of  the  preceding  fiscal  year  increased.  $1,443,909 

Miscellaneous   income  decreased 62,114 


Net  increase $1,381,795 


Estimated  net  earnings  for  the  fiscal  year  ending  June  30, 

1898,  including  miscellaneous  income $7,975,785 

(Taxes  not  deducted,  they  being  included  in  fixed  charges.     See  Table  B.) 

From  which,  however,  will  have  to  be  deducted  the  sum  of  about 
$251,000,  representing  the  decrease  in  the  amount  of  miscellaneous 
income  which  will  be  occasioned  by  the  proposed  sale  of  securities  and 
the  cancellation  of  sinking-fund  investments  under  the  reorganization. 

The  company,  as  shown  by  Mr.  Stephen  Little's  expert  examination 
and  report,  dated  July  11,  1896,  from  September  30,  1888,  to  Novem- 
ber 30,  1895,  a  period  of  seven  years  and  two  months,  earned  net,  in- 
cluding miscellaneous  income,  a  yearly  average  of  $7,234,000,  without 
deduction,  however,  of  average  taxes  amounting  to  $437,000. 

The  fixed  charges  of  the  new  company,  on  completion  of  the  reor- 
ganization, will  be  well  within  the  past  net  income  of  the  property, 
even  that  of  the  last  fiscal  year  of  extreme  depression. 

The  new  company  will  be  relieved  from  floating  debt  and  the  embar- 
rassment of  car  and  wheelage  trust  payments,  and  will  start  not  only 
with  a  substantial  working  cash  capital,  but  also  with  power  to  provide 
facilities  for  the  increase  of  business. 

The  by-laws  of  the  new  company  will  provide  that  its  accounts  shall 
be  audited  annually  by  accountants  of  established  reputation. 

JUNE,  22,  1898. 


REORGANIZATION    OF   B.   &   0.,   1898 


981 


APPENDIX 

TABLE  A — Showing   the  Amount  of  Cash  and  New  Securities  Which  Deposited 
Securities  Will  be  Entitled  to  Receive  on  Completion  of  Reorganization 


Existing  Bonds  and  Stock  to 
be  Deposited 

Each  $1,000  or  £200  Receives— 

Actual     Percentage     for 
Sterling  Issues,  Figured 
at  $4.8666. 

Gash' 

New 
Prior 
Lien  3} 
per 
cent 
Bonds 

New 
First- 
Mort- 
gage 
4  per 
cent 
Bonds 

New 
Pre- 
ferred 
Stock 
Trust 
Certifi- 
cates 

New 
Com- 
mon 
Stock 
Trust 
Certifi- 
cates 

New 
Prior 
Lien  3J 
per 
cent 
Bonds 

New 
First- 
Mort- 
gage 
4  per 
cent 
Bond 

New 
Pre- 
ferred 
Stork 
Trust 
Certifi- 
cates 

Baltimore    &   Ohio   loan    of 
1853,  extended  

$10.00 
20.83 
19.47 
9.73 
15.00 
20.00 
35.00 
20.83 

29.20 
4.06 

10  95 

$1,025 
1,050 
1,020 
1.120 
1,050 
1,025 
1.000 
1,000 

1.025 
100 

$125 
125 
120 
120 
125 
125 
125 
125 

120 
1,070 

1,000 
1.000 
1,000 

$140 
85 
40 
160 

Per  ct. 

Per  et. 

Por  ct. 

Baltimore    &    Ohio   consoli- 
dated mortgage,  5  per  cent. 
Baltimore    &    Ohio   sterling 
loan  of  1872  

104.79 
115.07 

12.33 
12.33 

4.11 
16.44 

Baltimore    &    Ohio    sterling 
loan  of  1874  

Baltimore  A  Ohio  Parkers- 
burg  Branch  bonds  

Pittsburgh   &   Connellsville, 
first  extended  fours  

40 

Pittsburgh   &    Connellsville, 
first  sevens,  not  extended  . 
Baltimore  A  Ohio  fives,  loan 
of  1885  

100 

200 
100 

265 

250 
250 
500 
525 

200 
200 

Pittsburgh    &    Connellsville 
consolidated    mortgage,   6 
per  cent  bonds  

105.31 
10.27 

12.33 
109.93 

102.74 

20.55 
10.27 

27.22 

Chicago  Division,  5  per  cent. 
Philadelphia  Division,  4)  per 
cent  

Baltimore  &  Ohio  41  per  cent 
terminal  bonds  of  1894.  .  . 
Akron  &  Chicago  Junction 
Bonds  
Akron   A   Chicago  Junction 

3.75 
8.33 

$1,000 
1,000 
750 

1,500 
1,000 

Washington    City    A    Point 
Lookout  Bonds  

Old  first  preferred  stock,  may 
purchase  from  syndicate  .  . 

Old  second  preferred  stock, 
may  purchase  from  syndi- 
cate   

Old  common  stock,  may  pur- 
chase from  syndicate. 

1  Interest  at  the  rate  provided  in  the  old  bonds,  from  the  date  of  the  last  matured  coupon  next 
preceding  July  1,  1898,  up  to  the  date  when  the  ir-w  bonds  begin  to  bear  interest,  namely,  July  1, 
1898  (exclusive  of  previously  matured  coupons  otherwise  provided  for,  bee  p.  90S;. 

TABLE  B — Fixed  Charges  on  Completion  of  Reorganization  and  Retirement  of 

Existing  Bonds 

$70,000,000  prior  lien  3H  per  cents $2,450,000 

$50jOOO,000  first  mortgage  4  per  cents 2,000,000 

Estimated  Rentals  ana  Charges  (including  Belt  Line  as  stated  in  foot- 
note, p.  976),  say 1,000,000 

Taxes'...   ......  525,351 

Terminals 202,000 

Ground  Rents  and  Mortgage  Interest 75,000 

Total..  .  $6,252,351 


1  In  caae  foreclosure  shall  be  found  necessary,  the  exemption  from  taxation  und 
of  the  old  company  may  be  lost  and  the  amount  of  annual  taxes  be  increased. 


ler  the  charter 


982          MATERIALS    OF    CORPORATION    FINANCE 

TABLE  C — Mileage  of  Roads  to  be  Included  in  the  Prior-Lien  Mortgage 


First 
Track 

Second, 
Third,  and 
Fourth 
Tracks 

Sidings 

Total 

Main  Line  

379.80 

329.78 

261.87 

971  45 

Branches: 
Locust  Point  Branch  

5.60 

5  60 

14  81 

26  01 

Curtis  Bay  Branch  

5.30 

45 

5  75 

Sea  Wall  Branch  

1.50 

1.61 

3  11 

Camden  Cut-off  

1.50 

1.50 

3  00 

Washington  Branch  1  

31.00 

31  00 

12  49 

74  49 

Alexandria  Branch  

12.50 

1  86 

14  36 

Metropolitan  Branch   

42.80 

21  41 

13  36 

77  57 

Frederick  Branch  

3.50 

2  64 

6  14 

Parkersburg  Bridge  

1.40 

1  40 

Benwood  Bridge  

1.10 

1  10 

South  Baltimore  Branch  

2  00 

43 

2  43 

Patuxent  Branch  

1.30 

18 

1  48 

South  Branch  

16.00 

86 

16  86 

Parkersburg  Branch  

103.30 

1  55 

38  98 

143  83 

Washington  County  Railroad  .  .  . 

24.20 

5.14 

29.34 

Berkeley  Springs  &  Potomac  .  .  . 

5.95 

.87 

6  82 

Metropolitan  Southern  

2.25 

2  25 

Graf  ton  &  Belington  Division.  .  . 

42.00 

2.40 

44.40 

Pittsburgh  Division: 
Pittsburgh  &  Connellsville  

150  20 

59  70 

89  86 

299  76 

Hickman  Run  Branch  

2.10 

04 

2  14 

Salisbury  

8.60 

6  13 

14  73 

Grassy  Run  Extension  

2.00 

i 

2  46 

4  46 

Hocking  Extension  

1.10 

.27 

1.37 

Berlin  Branch  

8.00 

.95 

8.95 

Somerset  &  Cambria  

45.10 

9  23 

54  33 

Ohio  &  Baltimore  Short  Line, 
Eastern  Division  

9  30 

3  31 

12  61 

Fayette  County  Branch  

11  80 

6  37 

18  17 

Mount  Pleasant  Branch  

9.70 

3  61 

13.31 

Red  Stone  Branch  

1.00 

1.00 

Wheeling,   Pittsburgh  &   Balti- 
more   

65.80 

31  42 

97  22 

Confluence  &  Oakland  

19  70 

1  85 

21  55 

1,017.40 

450.54 

513.45 

1,981.39 

>  This  line  cannot  be  directly  mortgaged,  but  will  be  controlled  by  deposit  with  the  trustee 
under  the  new  prior-lien  mortgage  of  two-thirds  of  its  capital  stock.  The  line  is  not  subject  to 
any  existing  mortgage. 


REORGANIZATION    OF   B.   &   0.,   1898 


983 


TABLE  D — Mileage  of  Roads  to  be  Included  in  the  First  Mortgage  and  Other 
Properties  Covered  Thereby 


First 
Track 

Second, 
Third,  and 
Fourth 
Tracks 

Sidings 

Total 

Philadelphia  Division: 
Philadelphia  Branch  

52  60 

51  10 

16  78 

120  48 

Sparrow  Point  Branch  .         ... 

1  60 

1  60 

Highlandtown  Branch  

.90 

.90 

Baltimore  &  Philadelphia  Rail- 
road   

36.80 

36.80 

23  98 

97  58 

Landenberg  Branch  

14  30 

2  97 

17  27 

Crum  Creek  Branch  

2.40 

2.40 

Market  Street  Branch  

3  02 

3  02 

South  Wilmington  Branch  

2.80 

2.80 

Lancaster,  Cecil  &  Southern.  .  .  . 

4.00 

.20 

4.20 

Chicago  Division  l  

282  37 

40.60 

113.47 

436  44 

Akron  Division     

76  66 

15  63 

12.37 

104  66 

Wooster  Branch  

36  26 

3.24 

39  50 

Fairmont,   Morgantown  &  Pitts- 
burgh. . 

56.60 

15.08 

71.68 

570.31 

144.13 

188.09 

902.53 

The  first  mortgage  will  also  be  a  first  lien  on  the  properties  now  covered  by 
the  Baltimore  &  Ohio  terminal  mortgage  of  1894  when  acquired. 


TABLE  E — Equipment  to  be  Included  in  Prior-Lien  Mortgage 


Rolling  equipment : 

Electric  motors 

Locomotives 

Passenger  coaches 

Combination  coaches. , 

Dining  cars 

Baggage  and  mail  cars 

Express  care 

Refrigerator  cars 

Officers'  care 

Pay  care 


4 

897 

360 

77 

9 

97 

60 

14 

9 

2 

Freight-service  care 28,332 


Floating  equipment: 

Tugs 

Steam  lighters 

Covered  lighters. . . 


Barges. 

Floats 

Pile  drivers. . 
Open  lighters. 


8 

2 

15 

31 

2 

2 

4 


1  Of  the  mileage  given  for  the  Chicago  Division  34.94  mile*  an  not  owned,  but  are  held  under 

trackage  rights. 


984 


MATERIALS  OF  CORPORATION  FINANCE 


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986         MATEEIALS    OF   CORPORATION   FINANCE 

REORGANIZATION  AGREEMENT. 

An  agreement  made  this  22d  day  of  June,  1898,  between  Louis  Fitz- 
gerald, August  Belmont,  Edward  R.  Bacon,  Henry  Budge,  Eugene 
Delano,  William  A.  Read  and  Rowland  Davis  (hereinfater  called  the 
"Reorganization  Committee"),  parties  of  the  first  part;  Speyer  &  Co. 
and  Kuhn,  Loeb  &  Co.,  of  New  York,  and  Speyer  Bros.,  of  London 
(hereinafter  called  the  "Managers"),  parties  of  the  second  part;  hold- 
ers of  the  mortgage  bonds,  stocks,  and  evidences  of  indebtedness  here- 
inafter mentioned,  who  shall  become  parties  to  this  agreement  (here- 
inafter called  "Depositors"),  parties  of  the  third  part  and  the  Mer- 
cantile Trust  Co.,  of  the  city  of  New  York  (hereinafter  called  the 
"Depositary"),  party  of  the  fourth  part. 

Whereas,  the  Baltimore  &  Ohio  Railroad  Co.  has  made  default  in  the 
payment  of  its  obligations,  and  receivers  of  its  railroads  and  property 
have  been  appointed: 

And  whereas,  the  plan  referred  to  in  this  agreement  has  been  pro- 
posed by  the  Reorganization  Committee  for  the  reorganization  of  the 
railroad  company:  Now,  therefore,  it  is  mutually  agreed  by  and 
between  the  respective  parties  hereto  as  follows: 

First.  A  printed  copy  of  this  agreement,  signed  by  the  parties 
hereto  of  the  first,  second,  and  fourth  parts,  shall  be  lodged  with  the 
Mercantile  Trust  Co.,  in  the  city  of  New  York,  and  a  duplicate,  signed 
in  like  manner,  shall  be  lodged  with  the  London  and  Westminster 
Bank  (Ltd.),  in  the  city  of  London.  Each  of  said  copies  shall  be 
taken  as  a  complete  and  original  instrument,  but  both  shall  constitute 
but  one  agreement.  The  foregoing  plan  is  and  shall  be  taken  to  be  a 
part  of  this  agreement,  with  the  same  effect  as  though  each  and  every 
provision  thereof  had  been  embodied  herein,  and  said  plan  and  this 
agreement  shall  be  read  as  parts  of  one  and  the  same  paper;  but  no 
estimate,  statement,  explanation,  or  suggestion  contained  in  the  said 
plan  or  this  agreement,  or  in  any  circular  issued,  or  which  may  here- 
after be  issued,  by  the  Depositary  or  by  the  Reorganization  Committee, 
or  by  the  Managers,  is  intended,  or  is  to  be  accepted  as  a  representation 
or  warranty,  or  as  a  condition  of  deposit  or  assent  under  the  plan  and 
this  agreement,  and  no  defect  or  error  shall  release  any  deposit  under 
this  plan  and  agreement,  or  affect  or  release  any  assent  thereto,  except 
by  written  consent  of  the  Managers. 

Holders  of  the  following-named  bonds  and  coupons  (or  claims  for 
interest  on  registered  bonds)  and  stocks,  or  any  of  them,  may  become 
parties  to  this  plan  and  agreement  by  depositing  their  securities  with 
the  Depositary  upon  the  terms  and  conditions  specified  in  the  plan  and 
this  agreement,  or  hereafter  defined,  and  within  the  periods  which 
shall  be  fixed  or  limited  by  the  Managers : 


REORGANIZATION   OF   B.   &   0.,    1898  987 

Baltimore  &  Ohio  Railroad  Co.  bonds,  loan  of  1853,  extended  to 
1935,  at  4  per  cent. 

Baltimore  &  Ohio  Railroad  Co.  100-year  5  per  cent,  consolidated 
mortgage  bonds  of  1888. 

Baltimore  &  Ohio  Railroad  Co.  sterling  6  per  cent,  loan  of  1872,  due 
March  1,  1902. 

Baltimore  &  Ohio  Railroad  Co.  6  per  cent,  sterling  loan  of  1874,  due 
May  1,  1910. 

Baltimore  &  Ohio  Railroad  Co.  6  per  cent,  loan  of  1879,  due  April 
1,  1919  (account  Parkersburg  Branch  Railroad  Co.). 

Baltimore  &  Ohio  Railroad  Co.  5  per  cent,  bonds,  loan  of  1885  (ac- 
count Pittsburgh  &  Connellsville  Railroad  Co.). 

Baltimore  &  Ohio  Railroad  Co.  ±l/2  per  cent,  terminal  mortgage 
bonds  of  1894. 

Baltimore  &  Ohio  Railroad  Co.  sterling  ±l/2  per  cent,  loan  of  1883, 
Philadelphia  Branch. 

Baltimore  &  Ohio  Railroad  Co.  sterling  5  per  cent,  loan  of  1877, 
due  June  1,  1927  (account  Baltimore  &  Ohio  and  Chicago  Railroad 
Co.). 

Baltimore  &  Ohio  Railroad  Co.  first  preferred  stock. 

Baltimore  &  Ohio  Railroad  Co.  second  preferred  stock. 

Baltimore  &  Ohio  Railroad  Co.  common  stock. 

Pittsburgh  &  Connellsville  Railroad  Co.  first  mortgage  bonds,  ex- 
tended to  1946  at  4  per  cent. 

Pittsburgh  &  Connellsville  Railroad  Co.  first  mortgage  7  per  cent 
bonds,  due  July  1,  1898. 

Pittsburgh  &  Connellsville  Railroad  Co.  6  per  cent,  consolidated 
•mortgage  bonds. 

Akron  &  Chicago  Junction  Railroad  Co.  first  mortgage  5  per  cent 
bonds. 

Akron  &  Chicago  Junction  Railroad  Co.  preferred  stock. 

Washington  City  &  Point  Lookout  Railroad  Co.  6  per  cent,  bonds. 

Matured  and  unpaid  coupons  (and  claims  for  interest  on  registered 
bonds)  appertaining  to  any  of  the  above  roadt,  except  those  of  the 
Washington  City  &  Point  Lookout  Railroad  Co. 

Also  such  other  mortgage  bonds  or  stocks,  if  any,  of  any  other  rail- 
road company  or  companies  heretofore  known  as  parts  of  the  Balti- 
more &  Ohio  Railroad  system  as  the  Managers  may  hereaftor  deride  to 
admit  to  participation  in  the  plan  upon  terms  to  be  fixed  by  the 
Managers. 

Such  holders  must  in  all  cases  deposit  the  certificate!!  for  their  stock, 
or  their  bonds  or  coupons,  or  claims  for  interest  on  registered  bonds  or 
other  securities,  with  such  transfers,  assignments,  and  powers  of  sttor- 


988         MATEEIALS    OF   COKPOKATION    FINANCE 

ney,  as  may  be  required  by  the  Managers  in  order  to  vest  in  them,  and 
to  enable  them  to  transfer  the  complete  and  absolute  title  to  such 
stocks,  bonds,  coupons,  claims  for  interest,  or  other  securities,  and  the 
Depositors  agree,  respectively,  at  any  time  on  demand  of  the  Mana- 
gers to  execute  any  and  all  other  transfers,  assignments,  or  writings 
required  for  vesting  the  complete  ownership  of  the  bonds,  coupons, 
claims  for  interest,  and  stocks  deposited  hereunder  in  the  Managers 
or  their  nominees.  All  Depositors  shall  receive  certificates  of  deposit 
in  form  to  be  prescribed  by  the  Managers  specifying  the  respective 
bonds,  coupons,  claims  for  interest,  or  stock  deposited,  and  the  hold- 
ers of  such  certificates  of  deposit  issued  hereunder  shall  be  entitled, 
subject  to  any  provisions  contained  in  such  certificates,  only  to  the 
rights  and  benefits  specified  in  the  plan  and  this  agreement  as  accru- 
ing to  the  holders  of  the  bonds,  coupons,  claims  for  interest,  or  stocks 
of  the  class  represented  by  such  certificates,  respectively,  or  granted 
by  the  Managers  pursuant  to  the  powers  conferred  upon  them,  and 
thereafter  the  holder  of  any  such  certificate  or  any  certificate  issued  in 
lieu  thereof  or  in  exchange  therefor  shall  be  subject  to  the  plan  and 
this  agreement  and  entitled  to  have  and  exercise  only  the  rights  of  the 
original  depositor  under  the  certificate  issued  to  him  in  respect  of  the 
securities  therein  mentioned. 

Such  certificates  of  deposit  issued  hereunder  and  the  interests  repre- 
sented thereby  shall  be  transferable  only  subject  to  the  terms  and  con- 
ditions of  the  plan  and  this  agreement,  and  in  such  manner  as  the 
Managers  shall  approve ;  and  upon  such  transfer  all  rights  of  the  De- 
positors or  in  respect  of  the  deposited  bonds,  coupons,  claims  for  inter- 
est, or  stock  represented  by  such  certificates,  together  with  all  install- 
ments paid  by  the  Depositors  of  such  stock,  or  their  transferees,  and  all 
rights  under  the  certificates  of  deposit  transferred,  shall  pass  to  the 
transferees,  and  the  transferees  and  holders  of  such  certificates  or  de- 
posit shall  for  all  purposes  be  substituted  in  place  of  the  prior  holders, 
subject  to  this  agreement.  All  such  transferees,  as  well  as  the  orig- 
inal holders  of  certificates  of  deposit  issued  hereunder,  shall  be  em- 
braced under  the  term  "Depositors"  whenever  used  herein.  Each  cer- 
tificate of  deposit  may  be  treated  by  the  Managers  and  by  the  Depos- 
itary as  a  negotiable  instrument,  and  the  holder  for  the  time  being 
may  be  deemed  to  be  the  absolute  owner  thereof,  and  of  all  rights  of 
the  original  Depositor  of  the  bond,  coupon,  claim  for  interest,  stock, 
or  other  security  in  respect  of  which  the  same  was  issued,  and  neither 
the  Depositary  nor  the  Managers  shall  be  affected  by  any  notice  to  the 
contrary.  By  accepting  any  such  certificate,  every  recipient  or  holder 
thereof  shall  thereby  become  party  to  the  plan  and  this  agreement  with 
the  same  force  and  effect  as  though  an  actual  subscriber  hereto.  The 


REORGANIZATION    OF   B.   &   0.,   1898  989 

term  Depositor,  whenever  used  herein,  is  intended,  and  shall  be  con- 
strued, to  include  not  only  persons  acting  in  their  own  right,  but  also 
trustees,  guardians,  committees,  agents,  and  all  persons  acting  in  a 
representative  or  fiduciary  capacity,  and  those  represented  by  or  claim- 
ing under  them,  and  partnerships,  associations,  joint-stock  companies, 
and  corporations.  No  rights  hereunder  shall  accrue  in  respect  of  any 
securities  hereinbefore  mentioned  unless,  or  until,  the  same  shall  have 
been  subjected  to  the  control  of  the  Managers  and  to  the  operation  of 
the  plan  and  this  agreement  as  herein  provided. 

The  Depositary  shall  receive  the  deposited  stocks,  bonds  and  cou- 
pons, claims  for  interest,  or  other  securities,  and  shall  hold  the  same 
respectively  subject  to  the  order  and  control  of  the  Managers. 

The  Managers  may  in  their  discretion  fix  or  limit  the  period  or 
periods  within  which  holders  of  bonds,  coupons,  claims  for  interest,  or 
stock  or  other  securities,  or  any  class  thereof,  may  deposit  their  securi- 
ties, and  within  which  they  may  become  parties  to  the  plan  and  this 
agreement,  and  the  periods  within  which  must  be  paid  the  installments 
of  cash  payable  by  depositing  holders  of  first  and  second  preferred  and 
common  stock  as  consideration  for  new  preferred  and  common  stock, 
and  in  their  discretion,  either  generally  or  in  special  instances,  may 
extend  or  renew  the  period  or  periods  so  fixed  or  limited,  on  such  terms 
and  conditions  as  they  may  see  fit. 

Holders  of  securities,  not  deposited  within  the  periods  respectively 
fixed  or  limited  therefor,  will  not  be  entitled  to  deposit  the  same  or  to 
become  parties  to  this  agreement  or  to  share  in  the  benefits  thereof,  and 
shall  acquire  no  rights  thereunder,  except  upon  obtaining  the  express 
consent  of  the  Managers,  who  may  withhold  or  give  such  consent  in 
their  absolute  discretion  and  upon  such  terms  and  conditions  as  they 
may  see  fit. 

The  several  installments  of  cash,  payable  by  depositing  stockholders 
as  provided  in  the  plan  and  this  agreement,  must  be  paid  to  the  Man- 
agers for  account  of  the  syndicate,  and  must  be  receipted  for  by  the 
Depositary  on  the  respective  certificates  of  deposit  issued  for  such 
stock.  The  depositing  stockholders  agree  that  all  such  installments  of 
cash  may  be  used  at  any  time  by  the  Managers,  for  any  of  the  purpoiiij 
of  the  plan  and  this  agreement.  Depositors  of  stock  and  holders  of 
certificates  of  deposit  for  deposited  stock  respectively  agree  that  prompt 
payment  of  the  several  installments  of  cash  payable  by  them  respec- 
tively on  the  terms  of  the  plan  and  this  agreement  is  an  essential  con- 
dition to  their  acquisition  of  new  stock  by  purchase  from  the  syndicate 
under  the  plan  and  this  agreement,  and  that  any  depositor,  or  any 
holder  of  a  certificate  of  deposit  for  stock  who  shall  fnil  to  make  prompt 
payment  of  any  installment  of  cash  payable  as  provided  in  the  plan 


990         MATEEIALS    OF    CORPORATION    FINANCE 

within  the  periods  fixed  or  limited  by  the  Managers  for  such  payment 
shall  forthwith,  and  without  further  or  other  notice  or  action,  cease  to 
have  any  rights,  or  to  be  entitled  to  any  benefits  hereunder,  and  in 
every  such  case  the  deposited  stock  and  any  cash  paid  as  provided  prior 
to  the  date  of  such  default  shall  vest  in  and  belong  to  the  syndicate,  and 
that  no  such  defaulting  depositor  or  certificate-holder  shall  be  entitled 
to  the  return  or  repayment  thereof,  or  to  have  any  further  interest  or 
rights  in  respect  thereof.  The  Managers,  however,  in  their  discretion, 
may  on  behalf  of  the  syndicate  waive  any  such  default  and  accept  pay- 
ment of  overdue  installments  due  from  any  depositor  at  any  time 
before  final  settlement  of  accounts  with  the  syndicate. 

Second.  The  depositors  hereby  irrevocably  request  the  Managers 
to  endeavor  to  carry  into  practical  operation  the  plan  and  this  agree- 
ment in  its  entirety  or  in  part,  to  such  extent  and  in  such  manner  and 
with  such  additions,  exceptions,  and  modifications  as  the  Managers 
shall  deem  to  be  for  the  best  interests  of  the  depositors  or  of  the  proper- 
ties finally  embraced  in  the  reorganization.  Each  and  every  depositor, 
for  himself  and  not  for  any  other,  does  hereby  sell,  assign,  transfer,  and 
set  over  to  the  Managers  as  co-partners,  and  to  the  survivor  and  sur- 
vivors of  them,  and  to  their  successors,  each  and  every  bond,  coupon, 
claim  for  interest  on  registered  bonds,  share  of  stock,  security,  or  obli- 
gation or  evidence  thereof  deposited  hereunder,  and  every  depositor 
hereby  agrees  that  the  Managers  shall  be  and  they  are  hereby  vested 
with  all  the  rights  and  powers  of  owners  of  the  stocks,  bonds,  coupons, 
claims  for  interest,  securities  and  obligations  deposited  hereunder,  in- 
cluding the  right  to  transfer  the  same  into  their  own  names,  as  co- 
partnerships and  as  Managers,  or  into  the  names  of  any  other  person  or 
persons  whom  they  may  select;  and  (without  limiting  the  foregoing 
provision)  it  is  hereby  declared  that  the  Managers  shall  be  fully  au- 
thorized to  vote  thereon  at  any  meeting  of  stockholders  or  bond  or  cer- 
tificate holders  or  creditors  to  use  every  such  stock,  bond,  coupon, 
claim  for  interest,  receipt,  security,  or  obligation  as  fully  and  to  the 
same  extent  as  the  owner  or  holder  thereof ;  to  declare  due  the  princi- 
pal of  any  bond  or  other  obligation  deposited  hereunder,  and  to  revoke 
any  such  declaration  whenever  made ;  to  call  or  attend,  and,  either  in 
person  or  by  proxy,  to  vote  at  any  and  all  meetings  of  stockholders, 
bondholders,  or  creditors  of  any  corporation  however  convened;  to 
terminate  or  to  seek  to  dissolve  or  modify  any  trust,  contract,  or  lease, 
in  whole  or  in  part;  to  apply  for  the  determination  of  the  validity 
thereof,  or  for  the  removal  of  any  trustees  or  the  substitution  of  other 
trustees,  or  to  take  any  other  steps  in  respect  of  any  trust,  contract, 
or  lease,  or  under  any  provision  thereof;  to  purchase  at  any  time  or 
times,  at  such  prices  as  they  shall  deem  proper,  or  to  pay,  compromise, 


REORGANIZATION    OF   B.    &    0.,    1898  991 

or  settle  with  the  holders  of  any  coupons,  notes,  or  other  indebtedness 
or  car  trust  or  other  obligations  of  any  of  the  railroad  companies,  or 
any  receiver's  certificates  or  obligations  issued  or  which  may  be  issued 
or  incurred  by  the  receivers  thereof,  and  to  apply  for  that  purpose  any 
moneys  received  from  the  sale  of  trust  certificates  for  stock  in  the  new 
company,  or  which  may  otherwise  be  received  or  raised  by  them;  to 
borrow  money  for  any  of  the  purposes  of  this  agreement,  and  to 
charge  or  pledge  any  deposited  securities,  property  purchased,  or  new 
securities  to  be  issued,  for  the  payment  of  any  moneys  borrowed;  to 
give  all  bonds  of  indemnity  or  other  bonds,  and  to  charge  therewith  the 
securities  deposited  hereunder,  or  any  part  thereof;  to  institute  or  to 
become  parties  to  any  legal  proceeding;  to  apply  for  receivers,  or  for 
the  removal  of  receivers  and  the  substitution  of  other  receivers,  or  for 
the  termination  of  any  receivership  and  the  delivery  of  any  property 
to  its  owners;  to  settle  any  litigation  now  or  at  any  time  existing  or 
threatened  in  whole  or  in  part,  with  plenary  power  to  enter  into  ar- 
rangements for  decrease,  or  for  facilitating  or  hastening  the  course  of 
litigation,  or  in  any  way  to  promote  the  consummation  of  the  plan ;  to 
do  whatever,  in  the  judgment  of  the  Managers,  may  be  necessary  to 
promote  or  to  procure  the  sale  as  an  entirety  or  the  joint  or  separate 
sales  of  any  lands,  property,  or  franchises  herein  contained,  wherever 
situated;  to  adjourn  any  sale  or  any  property  or  franchises,  or  any 
portion  or  lot  thereof,  at  discretion ;  to  bid,  or  to  refrain  from  bidding, 
at  any  sale,  either  public  or  private,  either  in  separate  lots  or  as  a 
whole,  for  any  property  or  franchises,  or  any  part  thereof,  whether  or 
not  owned,  controlled,  or  covered  by  any  deposited  security,  including 
or  excluding  any  particular  rolling  stock  or  other  property,  real  or  per- 
sonal ;  and  at,  before,  or  after  any  sale  to  arrange  and  agree  for  the  re- 
sale of  any  portion  of  the  property  which  they  may  decide  to  sell  rather 
than  to  retain ;  to  hold  any  property  or  franchises  purchased  by  them 
either  in  their  name  or  in  the  name  of  persons  or  corporations  by  them 
chosen  for  the  purposes  of  this  agreement,  and  to  apply  any  security 
embraced  hereunder  in  satisfaction  of  any  bid  or  toward  obtaining 
funds  for  the  satisfaction  thereof ;  and  the  term  property  and  franchise 
shall  include  any  and  all  railroads,  railroad  or  other  transportation 
lines,  branches,  leaseholds,  lands,  rights  in  lands,  mining  rights,  stocks, 
or  other  interests  in  corporations  in  which  the  railroad  company  has 
any  interest  of  any  kind  whatever,  direct  or  indirect.  The  amount  to 
be  bid  or  paid  by  'the  Managers  for  any  property  or  franchises  shall  be 
absolutely  discretionary  with  them ;  and,  in  case  of  the  sale  to  others  of 
any  property  or  franchises,  the  Managers  may  receive,  out  of  the  pro- 
ceeds of  such  sale,  or  otherwise,  any  dividend  in  any  form  accruing  on 
any  securities  held  by  them. 


992         MATERIALS    OF    CORPORATION    FINANCE 

Third.  The  Managers  may  procure  the  organization  of  one  or  more 
new  companies,  or  they  may  adopt  or  use  any  existing  or  future  com- 
panies, and  they  may  cause  to  be  made  such  consolidations,  leases,  sales, 
or  other  arrangements  and  may  make  or  cause  to  be  made  such  con- 
veyances or  transfers  of  any  properties  or  securities  acquired  by  them, 
and  may  take  such  other  proceedings  as  they  may  deem  proper  for  the 
purpose  of  creating  the  new  securities  provided  for  in  this  plan  and 
agreement  and  for  carrying  out  all  or  any  of  the  provisions  thereof. 
The  Managers  shall  further  be  authorized  to  receive  and  dispose  of, 
in  accordance  with  any  of  the  provisions  of  this  plan  and  agreement, 
the  new  securities  to  be  created,  and  the  Managers  may  vote  upon  all 
the  stock  of  such  new  corporation  for  all  purposes  in  their  judgment 
necessary  to  carry  out  the  plan  until  the  same  shall  be  delivered  to  the 
voting  trustees  or  to  the  depositors  who  shall  be  entitled  to  receive 
the  same. 

Fourth.  The  Managers  may  construe  the  plan  and  this  agreement ; 
and  their  construction  thereof,  or  action  thereunder,  in  good  faith, 
shall  be  final  and  conclusive.  They  may  supply  any  defect  or  omis- 
sion, or  reconcile  any  inconsistency  in  such  manner  and  to  such  an  ex- 
tent as  shall  be  necessary  to  carry  out  the  same  properly  and  effectively, 
and  they  shall  be  the  sole  judges  of  such  necessity.  They  shall  be 
the  sole  and  final  judges  as  to  when  and  whether  the  assent  of  enough 
parties  interested  in  the  railroad  company  shall  have  been  obtained  to 
warrant  them  in  declaring  the  same  or  any  part  thereof  operative,  or 
in  carrying  the  same  or  any  part  thereof  into  effect,  and  as  to  when 
and  whether  a  sufficient  number  of  the  existing  bonds  upon  the  lines 
of  railway  to  be  included  in  the  prior  lien  or  first  mortgages,  respec- 
tively, have  been  deposited,  to  warrant  the  execution  by  the  new  com- 
pany or  such  prior  lien  or  first  mortgage,  respectively,  and  the  issue  of 
bonds  thereunder,  pending  the  acquisition  of  such  lines  of  railway  by 
the  new  company,  and  they  shall  have  power  whenever  they  shall  deem 
proper,  at  any  time  before  the  new  securities  shall  have  been  issued 
and  delivered  to  the  Depositors,  to  abandon  or  to  alter,  modify  or  de- 
part from,  the  plan  of  reorganization,  or  any  part  thereof,  except  the 
provisions  for  the  voting  trust.  They  may  at  any  time  or  times  after 
any  such  partial  abandonment,  restore  to  the  plan  any  abandoned  part 
or  parts  thereof,  and  may  seek  to  carry  the  same  into  effect,  as  fully  as 
if  such  part  or  parts  had  not  been  abandoned.  They  may  also  attempt 
to  carry  the  plan  into  effect  rather  than  abandon  or  modify  the  same, 
even  though  it  be  manifest  that,  as  carried  out,  the  plan  must  depart 
from  the  original  plan  or  from  some  part  thereof.  But  in  case  of  any 
intentional  change  or  modification,  or  departure  from  the  plan,  which 
in  their  judgment  shall  materially  affect  any  of  the  several  classes  of 


REORGANIZATION    OF   B.   &    0.,    1898  993 

Depositors,  or  their  mutual  relations,  a  statement  of  such  proposed 
change,  modification,  or  departure  shall  be  filed  with  the  Depositary 
in  New  York,  and  also  with  its  agent,  the  London  &  Westminster 
Bank  (Ltd.),  in  London,  and  notice  of  the  fact  of  such  filing  shall  be 
given  as  hereafter  provided  in  article  twelfth;  and  within  two  week: 
after  final  publication  all  holders  of  the  outstanding  certificates  for 
such  particular  class  or  classes  of  securities  affected  thereby  may  sur- 
render their  respective  certificates  therefor  and  withdraw  securities 
of  such  particular  class  or  classes,  or  the  proceeds  thereof,  or  substi- 
tutes therefor  then  under  the  control  of  the  Managers,  to  the  amount 
indicated  in  such  certificates,  provided,  however,  that  in  every  case  of 
withdrawal  and  cancellation  the  certificate  holders  shall,  respectively, 
make  payment  of  their  shares  of  the  expenses  of  the  Managers,  as  ap- 
portioned by  the  Managers.  Every  depositor  of  securities  not  so  sur- 
rendering and  withdrawing  within  such  two  weeks  after  final  publica- 
tion shall  be  deemed  to  have  assented  to  the  proposed  changes  or  modi- 
fications, and  whether  or  not  otherwise  objecting,  shall  be  bound  there- 
by as  fully  and  effectively  as  if  he  had  actually  assented  thereto.  Any 
changes  or  modifications  finally  made  by  the  Managers  shall  be  part 
of  the  plan  and  this  agreement ;  and  all  provisions  and  references  con- 
cerning the  plan  shall  apply  to  the  plan  so  changed  or  modified.  In 
every  such  case  of  withdrawal  any  cash  advanced  to  depositors  and  any 
interest  paid  or  advanced  to  holders  of  certificates  of  deposit  in  respect 
of  deposited  bonds,  represented  by  such  certificates  of  deposit,  or  in  re- 
spect of  the  new  bonds  to  be  issued  in  exchange  therefor  under  the 
plan  must  he  repaid,  if  the  Managers  so  require,  by  the  holders  of  such 
certificates  before  the  deposited  bonds,  represented  by  such  certificates 
of  deposit  shall  be  surrendered  in  exchange  therefor ;  but  any  interest 
collected  by  the  Managers  on  deposited  securities  will,  in  case  of  such 
withdrawal,  be  accounted  for  by  the  Managers  to  the  holders  of  the  cer- 
tificates of  deposit  for  such  securities.  In  case  the  Managers  shall 
finally  abandon  the  entire  plan,  the  stocks  and  bonds  and  coupons  de- 
posited hereunder  or  their  proceeds,  or  any  stocks,  bonds,  coupons,  se- 
curities, or  claims  or  representatives  thereof,  then  under  the  control  of 
the  Managers,  shall  be  delivered  to  the  several  Depositors  in  amounts 
representing  their  respective  interests  upon  surrender  of  their  respec- 
tive certificates  and  payment  of  such  actual  expenses  as  shall  have  been 
incurred  by  the  Managers,  and  the  Managers  shall  have  power  to  deter- 
mine and  to  apportion  upon  the  several  classes  of  securities  deposited 
hereunder  the  share  of  expense  to  be  borne  by  each  security.  In  any 
such  case  any  moneys  paid  by  the  depositing  stockholders,  or  any  cou- 
pons, receiver's  certificates,  or  other  obligations,  claims,  or  property 
acquired  therewith,  or  the  proceeds  thereof  when  received,  remaining 


994 

after  deducting  therefrom  the  share  of  the  expenses  incurred  by  the 
Managers  under  this  agreement  apportioned  upon  such  depositing 
stockholders  shall  be  equitably  distributed  or  adjusted  among  the  re- 
spective holders  of  certificates  of  deposit  therefor.  But  the  Managers 
shall  not  be  held  liable  for  loss  of  any  such  money  disbursed  by  them 
for  the  purposes  of  this  agreement  nor  for  the  depreciation  in  value  of 
any  property  or  securities  purchased  by  them,  and  the  depositing  stock- 
holders or  holders  of  such  certificates  of  deposit  shall  have  no  claim 
for  the  repayment  of  any  such  moneys  except  to  the  extent  of  their 
ratable  shares  of  such  moneys  or  their  proceeds  at  the  time  remaining 
in  the  hands  of  or  subsequently  collected  by  the  Managers  after  pay- 
ment of  such  expenses. 

Fifth.  The  Managers  may  proceed  under  the  plan  and  this  agree- 
ment or  any  part  thereof  with  or  without  foreclosure,  and  in  case 
of  foreclosure  may  exercise  any  power  either  before  or  after  foreclos- 
ure sale ;  and  in  every  case  all  the  provisions  of  tne  plan  and  this  agree- 
ment shall  equally  apply  to  and  in  respect  of  any  physical  properties 
embraced  under  the  reorganization  and  to  and  in  respect  of  any  securi- 
ties representing  any  such  property,  it  being  intended  that  for  all  pur- 
poses thereunder  any  such  property  and  any  security  representing  such 
property  may  be  treated  by  the  Managers  as  substantially  identical. 
In  case  any  separate  plan  shall  in  the  opinion  of  the  Managers  become 
necessary  or  expedient  to  effect  the  reorganization  of  any  subordinate 
or  other  company,  the  Managers  may  promote  and  participate  in  any 
such  reorganization  and  may  deposit  thereunder  any  securities  thereby 
affected. 

In  case  of  any  claim,  lien,  or  obligation  not  herein  fully  provided 
for  and  affecting  the  railroad  company,  or  any  property  or  franchises 
thereof,  the  Managers  may  from  time  to  time(  subject,  however,  to 
article  sixth  hereof)  make  such  compromise  in  respect  thereto  or  such 
provision  therefor  as  they  may  deem  suitable,  using  therefor  any  secu- 
rities not  expressly  required  for  settlement  with  Depositors  or  not 
expressly  reserved  for  liens  or  obligations  specified  in  the  plan,  but  the 
total  amount  of  new  securities  to  be  created  as  set  forth  in  the  plan 
shall  not  thereby  be  increased. 

Any  action  contemplated  in  the  plan  and  this  agreement  to  be  per- 
formed on  or  after  completion  and  reorganization  may  be  taken  by  the 
Managers  at  any  time  when  they  shall  deem  the  reorganization  advanced 
sufficiently  to  justify  such  course,  and  the  Managers  as  they  may  deem 
necessary  may  defer  the  performance  of  any  provision  of  the  plan  and 
this  agreement,  or  may  commit  such  performance  to  the  new  company. 

They  may  also  in  their  discretion  set  apart  and  hold  in  trust  or  place 
in  trust  with  any  trust  company  any  part  of  the  new  securities  to  be 


REORGANIZATION    OF   B.   &   0.,   1898  995 

issued  and  cash  which  may  be  received  from  sales  of  new  securities 
or  otherwise  as  they  may  deem  judicious  for  the  purpose  of  securing 
the  application  thereof  for  any  of  the  purposes  of  the  plan  and  this 
agreement. 

Sixth.  From  time  to  time,  for  the  purpose  of  carrying  this  agree- 
ment into  effect,  or  of  obtaining  assents  thereto,  the  Managers,  either 
generally  or  in  specific  instances,  may  make  contracts  with  any  person, 
syndicate,  or  corporation;  and,  in  their  discretion,  either  generally  or 
in  specific  instances  and  upon  such  general  or  special  terms  and  condi- 
tions as  they  may  deem  proper,  may  arrange  to  procure  the  deposit  of 
securities  hereunder;  they  may  also,  from  time  to  time,  by  loan, 
guaranty,  or  by  sale  of  the  new  securities  to  be  created  or  otherwise 
upon  such  terms,  conditions,  and  rates  as  said  Managers  may  deem 
proper,  may  obtain  any  moneys  required  to  carry  out  the  plan  and 
this  agreement,  including  such  sums  as  the  Managers  may  deem  ex- 
pedient to  provide  for  the  uses  of  the  new  company ;  and  for  the  per- 
formance of  any  contract  said  Managers  may  charge  the  deposited  se- 
curities and  the  new  securities  to  be  issued  any  may  pledge  the  same 
for  the  payment  of  any  moneys  borrowed  and  interest  thereon,  and 
other  performance  of  any  other  obligations  incurred  under  the  powers 
herein  conferred.  The  Managers  may  employ  counsel,  agents,  and  all 
necessary  assistance,  and  may  incur  and  discharge  any  and  all  expenses 
by  them  deemed  reasonable  for  the  purpose  of  this  agreement.  They 
may  prescribe  the  form  of  all  securities,  mortgages,  and  all  instru- 
ments at  any  time  to  be  issued  or  entered  into.  They  may  create 
and  provide  all  necessary  trusts,  and  may  nominate  and  appoint 
trustees  thereunder,  excepting  that  the  voting  trustees  shall  be  ap- 
pointed as  stated  in  the  plan.  The  Managers  may,  at  public  or  private 
sale,  or  otherwise,  dispose  of  any  bonds  and  trust  certificates  for  stock 
of  the  new  company  left  in  their  hands  because  of  any  failure  to  make 
deposits  hereunder.  In  so  disposing  of  any  such  new  securities  thus 
left  in  their  hands  they  may  use  the  same  or  the  proceeds  thereof  for 
the  purpose  of  carrying  out  the  .reorganization  in  such  manner  as 
they  may  deem  expedient  and  advisable.  At  the  time  of  the  creation 
of  the  new  securities  or  as  soon  thereafter  as  may  be  the  Managers  may 
take  such  action  (either  by  creating  lesser  amounts  of  securities  or 
otherwise)  as  they  may  deem  necessary  to  guard  against  the  issue  of 
such  particular  securities  in  any  manner  or  to  any  extent  inconsistent 
with  the  purposes  of  the  plan. 

Seventh.  The  said  firms  of  Speyer  &  Co.  and  Kuhn,  Loeb  &  Co.,  of 
New  York,  and  Speyer  Bros.,  of  London,  shall  be  the  Managers  under 
this  agreement.  So  far  as  practicable  the  three  firms  as  such  Man- 
agers shall  act  and  concur  in  all  steps  and  proceedings  hereunder,  but 


996         MATERIALS    OF    CORPORATION    FINANCE 

in  the  event  of  the  three  firms  not  concurring,  the  concurrent  action  of 
any  two  of  said  firms  shall  be  the  action  of  the  Managers,  and  no  action 
shall  be  taken  except  with  the  assent  of  at  least  two  of  said  three  firms. 
The  said  firms  as  managers  shall  each  act  as  a  copartnership,  and  in 
case  of  any  change  in  either  of  said  firms,  the  respective  firms  of  Spey- 
er  &  Co.,  Kuhn,  Loeb  &  Co.,  and  Speyer  Bros.,  or  their  respective  suc- 
cessor firms,  as  from  time  to  time  constituted,  shall  continue  as  Man- 
agers, with  all  the  powers,  rights  and  title  vested  in  the  Managers 
hereunder.  Neither  the  Reorganization  Committee  nor  the  Managers 
nor  the  Depositary  assume  any  personal  responsibility  for  the  execu- 
tion of  the  plan,  or  of  this  agreement,  or  any  part  of  either,  nor  for  the 
result  of  any  steps  taken  or  acts  done  for  the  purposes  thereof;  the 
Managers,  however,  undertaking  in  good  faith  to  endeavor  to  execute 
the  same.  No  member  of  the  Reorganization  Committee,  nor  any 
Depositary  nor  any  of  the  Managers  shall  be  personally  liable  for  any 
act  or  omission  of  any  agent  or  employee  selected  in  good  faith,  nor  fop 
any  error  of  judgment  or  mistake  of  law,  nor  in  any  case  except  for 
his,  its,  or  their  own  individual  wilful  malfeasance  or  neglect,  and  no 
member  of  the  Reorganization  Committee  shall  in  any  case  be  per- 
sonally liable  for  the  act  or  omission  of  any  other  member,  nor  for 
the  acts  of  any  Depositary  or  of  the  Managers ;  nor  shall  any  Depos- 
itary or  any  of  the  Managers  be  personally  liable  for  the  acts  or 
defaults  of  the  Reorganization  Committee  or  any  member  there- 
of, or  of  any  other  Depositary,  or  Manager,  or  of  any  trust  com- 
pany. The  Managers  may  act  through  any  committee  or  agents, 
and  may  delegate  any  authority,  as  well  as  discretion,  to  any  such 
committee  or  agent,  and  the  members  of  such  committee  or  such 
agents  may  be  allowed  a  reasonable  compensation  for  their  services 
hereunder.  The  Managers  shall  be  entitled  for  a  compensation  for 
their  services,  which  shall  be  fixed  by  agreement  between  the  Mana- 
gers and  the  Reorganization  Committee,  and  as  so  fixed,  shall  be 
finally  binding  and  conclusive  upon  all  parties.  The  Managers  shall 
have  the  right  to  form  or  procure  the  formation  of  any  syndicate  or 
syndicates  which  they  may  deem  necessary  or  advantageous  for  carry- 
ing out  the  purposes  of  the  plan,  and  may  act  as  Managers  of  such  syn- 
dicate or  syndicates.  Any  member  of  either  firm  of  the  Managers  or 
Depositaries,  or  any  member  of  the  Reorganization  Committee,  at  any 
time,  may  be  a  voting  trustee,  and  any  of  said  firms  or  any  member 
thereof  or  any  Depositary  or  any  member  of  the  Reorganization  Com- 
mittee may  be  or  become  pecuniarily  interested  in  any  contracts,  prop- 
erty, or  matters  which  this  agreement  concerns,  including  participa- 
tion in  or  under  any  syndicate  agreement,  as  Syndicate  Managers,  or 
otherwise,  whether  or  not  mentioned  in  the  plan.  Any  direction  given 


REORGANIZATION    OF   B.   &   0.,   1898  997 

by  the  Managers  shall  be  full  and  sufficient  authority  for  any  action 
of  the  Depositary  or  of  any  trust  company  or  of  any  other  custodian  or 
of  any  committee  or  agent. 

The  Reorganization  Committee  shall  be  entitled  to  compensation  for 
their  services,  which  shall  be  fixed  by  agreement  between  the  Man- 
agers and  the  Reorganization  Committee,  and  as  so  fixed,  shall  be  finally 
binding  and  conclusive  upon  all  parties.  It  may  discharge  any  and 
all  reasonable  expenses,  including  counsel  fees,  by  it  incurred  for  any 
of  the  purposes  of  this  agreement.  Its  accounts  shall  be  filed  with 
the  Managers,  and  when  approved  by  the  Managers,  shall  be  finally 
binding  and  conclusive  upon  all  parties  having  any  interest  therein. 
The  compensation  of  the  said  Reorganization  Committee  shall  be  paid 
as  part  of  the  expenses  of  the  reorganization. 

Eighth.  The  Managers  may  negotiate  and  contract  with  any  and  all 
companies  or  persons  for  obtaining  or  granting  running  powers,  ter- 
minal facilities,  exchanges  of  property,  or  any  other  convenience  which 
they  may  deem  necessary  or  desirable  to  obtain  or  to  grant,  and  may 
make  contracts  therefor  binding  upon  such  new  company,  and  gener- 
ally may  ratify  and  make  such  purchases,  contracts,  stipulations,  or  ar- 
rangements as  will  in  their  opinion  operate  directly  or  indirectly  to 
aid  in  the  preservation,  improvement,  development,  or  protection  of 
any  property  now  constituting  the  Baltimore  &  Ohio  Railroad  system, 
or  which  the  railroad  company  or  any  subordinate  company  has  con- 
tracted to  acquire,  or  to  prevent  or  avoid  opposition  to  or  interference 
with  the  successful  execution  hereof. 

Ninth.  The  accounts  of  the  Managers  shall  be  filed  with  the  board 
of  directors  of  the  new  company  within  one  year  after  its  organization 
shall  have  been  completed,  unless  a  longer  time  be  granted  by  the  said 
board.  The  accounts,  when  approved  by  such  board  of  directors,  shall 
be  final,  binding,  and  conclusive  upon  all  parties  having  any  interest 
therein,  and  thereupon  the  Managers  shall  be  discharged.  The  ac- 
ceptance of  new  securities  by  any  depositor  .shall  estop  such  acceptor 
from  questioning  the  conformity  of  such  securities  in  any  particular  to 
any  provisions  of  the  plan ;  and  the  acceptance  of  new  securities  by  the 
holders  of  a  majority  in  amount  of  the  certificates  or  deposit  for  any 
class  of  securities  shall  in  each  case  respectively  estop  all  holders  of 
certificates  of  deposit  for  securities  of  that  class. 

Tenth.  The  enumeration  of  specific  powers  hereby  conferred  shall 
not  be  construed  to  limit  or  to  restrict  general  powers  herein  con- 
ferred or  intended  so  to  be;  and  it  is  hereby  distinctly  declared  that  it 
is  intended  to  confer  on  the  Managers,  in  respect  of  all  securities  de- 
posited, or  to  be  deposited,  and  in  all  other  respects,  any  and  all  powers 
which  the  Managers  may  deem  necessary  or  expedient  in  or  toward 


MATERIALS    OF    CORPORATION    FINANCE 

carrying  out  or  promoting  the  purposes  of  the  plan  and  this  agreement 
in  any  respect,  even  though  any  such  power  be  apparently  of  a  charac- 
ter not  now  contemplated;  and  the  Managers  may  exercise  any  and 
every  such  power  as  fully  and  effectively  as  if  the  same  were  herein 
distinctly  specified,  and  as  often  as,  for  any  cause  or  reason,  they  may 
deem  expedient.  The  methods  to  be  adopted  for  or  toward  carrying 
out  this  agreement  shall  be  entirely  discretionary  with  the  Man- 
agers. 

The  bonds,  coupons,  claims  for  interest  on  registered  bonds,  and 
other  obligations  deposited  under  the  plan  and  this  agreement,  and 
all  receivers'  certificates,  coupons,  and  claims  purchased  or  otherwise 
acquired  under  this  agreement,  shall  remain  in  full  force  and  effect  for 
all  purposes,  and  shall  not  be  deemed  satisfied,  released,  or  discharged 
by  any  delivery  of  new  securities;  and  no  legal  right  or  lien  shall  be 
deemed  released  or  waived,  but  said  bonds  and  other  claims,  and  any 
judgment  upon  any  of  such  claims,  including  claims  and  judgments 
for  deficiencies,  and  all  liens  and  equities,  shall  remain  unimpaired, 
and  may  be  enforced  by  the  Managers  or  by  the  new  company  or  by 
any  other  assign  of  the  Managers  until  paid  or  satisfied  in  full  or  ex- 
pressly released.  Neither  the  Managers  nor  any  bondholders  or  cred- 
itors of  the  railroad  company,  by  executing  this  agreement,  or  by  be- 
coming parties  thereto,  release,  surrender,  or  waive  any  lien,  right,  or 
claim  in  favor  of  any  stockholders  of  other  creditors  of  such  com- 
pany, and  all  such  liens,  rights,  or  claims  shall  vest  unimpaired  in  the 
Managers  and  in  the  new  company,  or  its  assigns,  severally  and  respec- 
tively ;  and  any  purchase  or  purchases  by  or  on  behalf  of  the  Managers, 
or  the  new  company,  under  any  decree  for  the  enforcement  of  any  such 
lien,  right,  or  claim,  shall  vest  the  property  purchased  in  the  Managers 
or  the  new  company  free  from  all  interest  or  claim  on  the  part  of  any 
such  stockholders,  creditors,  or  other  parties.  No  right  is  conferred, 
nor  any  trust,  liability,  or  obligation  (except  the  agreements  herein 
contained  in  favor  of  the  holders  of  certificates  of  deposit  hereunder) 
is  created  by  the  plan  and  this  agreement,  or  is  assumed  hereunder, 
or  by  or  for  any  new  company  in  favor  of  any  bondholder,  or  any  other 
creditor,  or  of  any  holder  of  any  claim  whatsoever  against  the  railroad 
company,  nor  in  favor  of  any  company  now  existing  or  to  be  formed 
hereafter  (whether  such  claim  be  based  on  any  bonds,  coupons,  stocks, 
securities,  lease,  guaranty  or  otherwise),  with  respect  to  any  securities 
deposited  under  this  agreement  or  any  moneys  paid  to  or  received  by 
the  Managers  or  by  the  Depositary  hereunder  or  with  respect  to  any 
property  acquired  by  purchase  at  any  foreclosure  sale,  or  with  respect 
to  any  new  certificates  to  be  issued  hereunder,  or  with  respect  to  any 
other  matter  or  thing. 


REORGANIZATION    OF   B.   &   0.,   1898  999 

Eleventh.  All  moneys  paid  under  or  with  reference  to  the  plan  and 
this  agreement  shall  be  paid  over  to  the  Managers,  who  shall,  as  bank- 
ers, hold  the  same  subject  to  application  for  any  of  the  purposes  of  the 
plan  and  this  agreement  as  may  be  most  convenient,  and  as  from  time 
to  time  may  be  determined  by  the  Managers,  whose  determination  as 
to  the  propriety  and  purpose  of  any  such  application  shall  be  final  and 
nothing  in  the  plan  shall  be  understood  as  limiting  or  requiring  the 
application  of  specific  moneys  to  specific  purposes.  Any  obligation  in 
the  nature  of  floating  debt  or  otherwise  against  any  company  or  prop- 
erty embraced  in  the  plan  either  as  proposed  or  carried  out,  or  any 
securities  held  as  collateral  for  any  such  obligation,  may  be  acquired 
or  extinguished  or  held  by  the  Managers  at  such  time,  in  such  manner 
and  upon  such  terms  as  they  may  deem  proper  for  the  purposes  of  re- 
organization, but  nothing  in  the  plan  and  this  agreement  contained  is 
intended  to  constitute,  nor  shall  it  constitute,  any  liability  or  trust  in 
favor  or  in  respect  of  any  such  obligation. 

Twelfth.  All  calls  for  the  payments  to  be  made  by  depositing  stock- 
holders or  for  the  surrender  of  certificates  of  deposit  issued  hereunder, 
all  notices  fixing  or  limiting  any  period  for  the  deposit  of  securities 
or  for  such  payments,  and  all  other  calls  or  notices  hereunder,  except 
when  herein  otherwise  expressly  provided,  shall  be  inserted  in  the 
New  York  'Times  and  the  New  York  Tribune,  or  in  two  other  daily 
papers  of  general  circulation  published  in  the  City  of  New  York ;  the 
Baltimore  Sun  and  the  Baltimore  American,  or  in  two  other  daily 
papers  of  general  circulation  published  in  the  city  of  Baltimore,  Md., 
and  in  two  daily  papers  of  general  circulation  published  in  the  city  of 
London,  twice  in  each  week  for  two  successive  weeks,  beginning  on  any 
day  of  the  week.  Any  call  or  notice  whatsoever  when  so  published  by 
the  Managers  shall  be  taken  and  considered  as  though  personally 
served  on  all  parties  hereto  and  upon  all  parties  bound  hereby,  as  of 
the  respective  dates  of  insertion  thereof,  and  such  publication  shall  be 
the  only  notice  required  to  be  given  under  any  provision  of  this  plan 
and  agreement.  When  a  call  or  notice  shall  have  been  advertised  aa 
above  specified  in  New  York  or  in  London,  publication  shall  be  com- 
plete as  regards  all  holders  of  certificates  of  deposit,  issued  by  the 
depositary  in  the  city  in  which  such  publication  shall  have  been  made, 
and  no  further  publication  shall  be  required  in  such  city. 

Thirteenth.  The  plan  and  this  agreement  shall  bind  and  benefit 
the  several  parties,  including  the  depositors  hereunder,  their  and  each 
of  their  survivors,  heirs,  executors,  administrators,  successors  and 
assigns. 

In  witness  whereof,  a  majority  of  the  Reorganization  Committee, 
the  Managers,  and  the  Mercantile  Trust  Co.  of  New  York  have  caused 


1000       MATERIALS    OF    CORPORATION    FINANCE 

these  presents  to  be  duly  executed,  the  day  and  year  first  above  written, 
and  the  parties  of  the  third  part  have  become  parties  hereto  by  depos- 
iting their  securities  and  accepting  certificates  of  deposit  therefor 
hereunder. 


REORGANIZATION   OF   DUPONT    POWDER   CO.    1001 


THE   DISSOLUTION    OF    THE   POWDER    TRUST* 

It  is  thereupon,  on  this  13th  day  of  June,  A.  D.  1912,  ordered, 
adjudged  and  decreed  as  follows,  to  wit: 

2.  That  the  remaining  twenty-seven  defendants,  namely:  Hazard 
Powder  Company,  Laflin  &  Rand  Powder  Company,  Eastern  Dyna- 
mite Company,   Fairmont  Powder   Company,   Judson   Dynamite  & 
Powder  Company,  Delaware  Securities  Company,  Delaware  Invest- 
ment Company,  California  Investment  Company,  E.  I.  duPont  de 
Nemours  &  Company  of  Pennsylvania,  duPont  International  Pow- 
der Company,  E.  I.  duPont  de  Nemours  Powder  Company,  E.  I. 
duPont  de  Nemours  &  Company,  Thomas  Coleman  duPont,  Pierre 
S.  duPont,  Alexis  I.  duPont,  Alfred  I.  duPont,  Eugene  duPont, 
Eugene  E.  duPont,  Henry  F.  duPont,  Irenee  duPont,  Francis  I. 
duPont,  Victor  duPont,  Jr.,  Jonathan  A.  Haskell,  Arthur  J.  Mox- 
ham,  Hamilton  M.  Barksdale,  Edmund  G.  Buckner  and  Frank  L. 
Connable,  are  maintaining  a  combination  in  restraint  of  interstate 
commerce  in  powder  and  other  explosives  in  violation  of  section  I, 
of  an  Act  entitled  "An  Act  to  Protect  Trade  and  Commerce  against 
Unlawful  Restraints  and  Monopolies,"  approved  July  2,  1890,  and 
have  attempted  to  monopolize  and  have  monopolized  a  part  of  such 
commerce  in  violation  of  section  2  of  said  Act. 

Wherefore,  It  is  further  ordered,  adjudged  and  decreed  that  the 
twenty-seven  (27)  defendants  above  mentioned,  and  each  of  them 
be  enjoined  from  continuing  said  combination  and  monopoly,  and 
that  said  combination  and  monopoly  be  dissolved. 

3.  That  the  petitioner   having  availed   itself   of  the  permission 
granted  in  said  interlocutory  decree  and  having  presented  a  certain 
plan  for  the  dissolution  of  said  combination  and  the  dissolution  of 
said  monopoly,  so  far  as  the  present  situation  of  the  parties  and 
the  properties  involved  will  permit,  to  which  plan  the  said  twenty- 
seven  (27)  defendants  do  not  object,  which  said  plan  is  as  follows: 

First:  Dissolve  the  defendant  corporation  E.  I.  duPont  de  Ne- 
mours &  Company  (1902,  Delaware  corporation)  and  distribute  ita 
property  among  its  stockholders. 

Second :  Dissolve  the  defendant  corporation  Hazard  Powder  Com- 
pany and  distribute  its  property  among  its  stockholders. 

1  Quoted  by  W.  8.  Stevens  in  his  Industrial  Combination*  and  Trusts  from  the 
opinion  of  Court  and  Final  Decree  in  the  ease  of  The  United  Mate*  of  America 
T.  E.  /.  duPont  de  Jfemours  &  Company  and  Others,  in  the  District  Court  of 
the  United  States,  for  the  District  of  Delaware  in  Equity  No.  280. 

SANTA  BARBARA  STATE  COLLEGE  LIBRARY 


1002       MATEKIALS    OF    CORPORATION    FINANCE 

Third:  Dissolve  the  defendant  corporation  Delaware  Securities 
Company  and  distribute  its  property  among  its  stockholders. 

Fourth:  Dissolve  the  defendant  corporation  Delaware  Investment 
Company  and  distribute  its  property  among  its  stockholders. 

Fifth:  Dissolve  the  defendant  corporation  Eastern  Dynamite  Com- 
pany and  distribute  its  property  among  its  stockholders. 

Sixth:  Dissolve  the  defendant  corporations  California  Investment 
Company  and  Judson  Dynamite  and  Powder  Company  and  distrib- 
ute their  property  among  their  stockholders. 

Seventh:  Organize  two  corporations  in  addition  to  E.  I.  duPont 
de  Nemours  Powder  Company  (1903,  New  Jersey  Corporation)  which 
shall  be  capitalized  as  hereinafter  provided,  or  reorganize  the  Laflin 
and  Rand  Powder  Company  and  the  Eastern  Dynamite  Company, 
or  either  of  them,  to  be  used  instead  of  one  or  both  of  said  two  cor- 
porations, and  in  case  the  said  Eastern  Dynamite  Company  is  so 
selected,  then  it  need  not  be  dissolved  as  hereinbefore  provided.  In 
case  the  Laflin  and  Rand  Powder  Company  is  not  used  under  this 
paragraph  dissolve  said  company  and  distribute  its  property  among 
its  stockholders. 

To  the  first  of  said  corporations  transfer  the  following  plants: 

For  the  Manufacture  of  Dynamite: 
Plant  at  Kenville,  New  Jersey, 
Plant  at  Marquette,   Michigan. 
Plant  at  Pinole,   California. 

For  the  Manufacture  of  Black  Blasting  Powder: 
Plant  at  Rosendale,  New  York, 
Two  (2)  plants  at  Ringtown,  Pennsylvania, 
Plant  at  Youngstown,  Ohio, 
Plant  at  Pleasant  Prairie,  Wisconsin, 
Plant  at  Turck,  Kansas, 
Plant  at  Santa  Cruz,  California. 

For  the  Manufacture  of  Black  Sporting  Powder: 
Plant  at  Hazardville,  Connecticut. 
Plant  at  Schaghticoke,  New  York. 

To  the  second  of  said  corporations  transfer  the  following  plants: 

For  the  Manufacture  of  Dynamite: 

Plant    at  Hopatcong,  New  Jersey, 
Plant  at  Senter,  Michigan, 
Plant  at  Atlas,  Missouri, 
Plant  at  Vigorit,  California. 


REORGANIZATION   OF   DUPONT    POWDER   CO.    1003 

For  the  Manufacture  of  Black  Blasting  Powder: 
Plant  at  Riker,  Pennsylvania, 
Plant  at  Shenandoah,  Pennsylvania, 
Plant  at  Ooltewah,  Tennessee, 
Plant  at  Belleville,  Illinois, 
Plant  at  Pittsburg,  Kansas. 

And  permit  the  said  defendant  E.  I.  duPont  de  Nemours  Powder 
'Company  to  retain  the  following  plants : 
For  the  Manufacture  of  Dynamite: 

Plant  at  Ashburn,  Missouri, 

Plant  at  Barksdale,  Wisconsin, 

Plant  at  duPont,  Washington, 

Plant  at  Emporium,  Pennsylvania, 

Plant  at  Hartford  City,  Indiana, 

Plant  at  Louviers,  Colorado, 

Plant  at  Gibbstown,  New  Jersey, 

Plant  at  Lewisburg,  Alabama. 

For  the  Manufacture  of  Black  Blasting  Powder: 
Plant  at  Augusta,  Colorado, 
Plant  at  Connable,  Alabama, 
Plant  at  Oliphant  Furnace,  Pennsylvania, 
Plant  at  Mooar,  Iowa, 
Plant  at  Nemours,  West  Virginia, 
Plant  at  Patterson,  Oklahoma, 
Plant  at  Wilpen,  Minnesota. 

For  the  Manufacture  of  Black  Sporting  Powder: 
Plant  at  Brandywine  Delaware 
Plant  at  Wayne  New  Jersey. 

For  the  Manufacture  of  Smokeless  Sporting  Powder: 
Plant  at  Carney's  Point,  New  Jersey, 
Plant  at  Haskell,   New  Jersey. 

For  the  Manufacture  of  Government  Smokeless  Powder: 
Plant  at  Carney's  Point,  New  Jersey, 
Plant  at  Haskell,  New  Jersey. 

Eighth:  Transfer  to  or  furnish  the  first  of  said  two  corporations 
with  a  plant  for.  the  manufacture  of  smokeless  sporting  powder  and 
the  brands  now  or  heretofore  owned  by  the  Laflin  and  Rand  Powder 
Company.  Such  plant  to  be  located  at  Kenville,  New  Jersey,  or  some 
other  suitable  Eastern  point,  and  to  be  of  a  capacity  sufficient  to 
manufacture  950,000  pounds  per  annum  of  smokeless  sporting  pow- 
der of  the  brands  to  be  assigned  to  the  first  of  said  corporations. 
88 


1004        MATERIALS    OF   CORPORATION   FINANCE 

Ninth:  Furnish  said  two  corporations  respectively  with  sufficient 
working  capital  and  the  necessary  cash  and  facilities  to  enable  them 
to  efficiently  carry  on  the  business  which  will  attend  the  properties 
so  to  be  transferred  to  them. 

Tenth:  Transfer  said  properties  to  said  two  corporations  re- 
spectively upon  a  valuation  thereof  based  on  the  last  inventory  of 
said  properties,  to  include  a  fair  valuation  for  brands  and  good  will, 
and  issue  to  said  E.  I.  duPont  de  Nemours  Powder  Company  in 
payment  therefore1  securities  of  said  two  corporations  respectively 
at  par  value  as  follows:  Fifty  per  cent.  (50%)  of  said  purchase  price 
in  bonds  not  secured  by  mortgage  which  shall  bear  interest  at  the 
rate  of  six  per  cent.  (6%)  per  annum,  payable  if  earned  by  the  com- 
pany during  said  year,  or  to  the  extent  thereof  earned  but  not  other- 
wise; nor  cumulative;  payable  not  less  than  ten  years  from  date;  the 
form  of  said  bonds  to  be  approved  by  the  Attorney-General  or  the 
Court,  which  bonds  shall  be  subject  to  call  at  one  hundred  and 
two  (102) ;  and  the  other  fifty  per  cent.  (50%)  of  said  purchase  price 
in  the  stock  of  said  two  corporations  respectively,  which  for  the  time 
being  shall  be  their  entire  stock  issues.  Upon  the  receipt  of  said 
stock  and  bonds  by  E.  I.  duPont  de  Nemours  Powder  Company, 
distribute  the  said  stock  and  one-half  of  said  bonds  or  the  proceeds 
of  the  sale  of  said  bonds  among  the  stockholders  of  E.  I.  duPont  de 
Nemours  Powder  Company.  In  the  organization  or  reorganization 
of  said  two  corporations  to  which  said  properties  are  to  be  trans- 
ferred, provide  two  issues  of  stock  in  said  two  corporations  re- 
spectively, one  of  which  shall  have  voting  power  and  the  other  of 
which  shall  have  no  voting  power.  So  distribute  said  stocks  among 
the  stockholders  of  E.  I.  duPont  de  Nemours  Powder  Company  that 
any  amounts  thereof  which  upon  said  distribution  shall  go  to  any 
one  of  the  twenty-seven  defendants  hereinbefore  mentioned  shall 
consist  of  one-half  of  said  stock  with  voting  power  and  one-half  of 
said  stock  without  voting  power,  and  provide  that  upon  the  transfer 
through  death  or  by  will  from  any  one  of  said  twenty-seven  de- 
fendants of  any  stock  which  has  no  voting  power,  to  some  person  or 
persons  other  than  one  of  said  twenty-seven  defendants  herein,  or 
upon  the  sale  by  any  one  of  said  twenty-seven  defendants  of  any 
stock  which  has  no  voting  power,  to  some  person  or  persons  other 
than  one  of  said  twenty-seven  defendants  herein,  or  their  respective 
wives  or  children,  said  stock  so  sold  or  transferred  may  be  exchanged 
for  stock  with  voting  power. 

Eleventh:  Transfer  to  said  two  corporations,  respectively,  so  far 
as  practicable,  a  fair  proportion  of  the  business  in  explosives  now  con- 

*Thus  in  original. — Ed. 


REORGANIZATION   OF   DUPONT   POWDER   CO.    1005 

trolled  by  E.  I.  duPont  de  Nemours  Powder  Company  under  time 
contract. 

Twelfth :  During  a  period  of  at  least  five  years  furnish  each  of  said 
two  corporations  respectively,  under  such  arrangements  as  may  be 
reasonable,  such  information  from  the  records  of  the  Trade  Bureau 
maintained  by  E.  I.  duPont  de  Nemours  Powder  Company  as  may 
be  desired. 

Thirteenth :  During  a  period  of  at  least  five  years  furnish  to  each  of 
said  two  corporations  such  facilities,  information  and  use  of  organiza- 
tion, as  E.  I.  duPont  de  Nemours  Powder  Company  may  operate  or 
possess  in  reference  to  purchase  of  materials,  experimentation,  de- 
velopment of  the  art  and  scientific  research,  as  said  two  corporations 
may  desire  from  time  to  time,  in  the  interests  of  their  business,  and 
upon  some  reasonable  terms  as  to  the  cost  thereof  to  said  two  cor- 
porations. 

And  said  plan  having  been  duly  considered  by  the  Court,  it  is 
ordered,  adjudged  and  decreed  that  the  said  defenants  are  respec- 
tively directed  to  proceed  forthwith  to  carry  said  plan  into  effect,  and 
it  is  further 

Ordered,  adjudged  and  decreed,  that  if  said  defendants  shall  not 
have  carried  said  plan  into  operation  and  effected  the  same  on  or  be- 
fore the  fifteenth  day  of  December,  1912,  then  and  in  that  event  an 
injunction  shall  issue  out  of  this  Court  restraining  the  said  defendants 
in  paragraph  two  of  this  decree  mentioned  and  each  of  them,  and 
their  agents  and  servants  from  thereafter  in  any  manner  whatsoever 
placing  the  products  of  any  of  the  factories  owned  by  said  defend- 
ants or  said  combination  into  the  channels  of  interstate  commerce, 
or  such  other  relief  shall  be  granted  by  the  appointment  of  a  receiver 
or  otherwise  as  this  Court  may  determine. 

4.  That  should  the  defendants  find  it  impossible  to  perfect  the 
details  of  said  plan  on  or  before  the  said  fifteenth  day  of  December, 
1912,  they  may  have  leave  to  apply  to  the  Court  for  further  time  to 
carry  out  said  plan. 

5.  That  until  said  plan  is  Carried  into  operation  and  effect,  the 
said  twenty-seven  defendants  hereinbefore  named  in  paragraph  two 
of  this  decree,  are,  and  each  of  them  is,  and  the  agents  and  servants 
of  them  are  jointly  and  severally  hereby  enjoined  from  doing  any 
acts  or  act  which  shall  in  any  wise  further  extend  or  enlarge  the  field 
of  operations,  or  the  power  of  the  aforesaid  combination. 

It  is  further  ordered,  adjudged  and  decreed  that  the  said  twenty- 
seven  (27)  defendants,  their  stockholders,  officers,  directors,  servants, 
agents  and  employees  be  and  they  are  hereby  severally  enjoined  and 
restrained  as  follows: 


From  continuing  or  carrying  into  further  effect  after  said  fifteenth 
day  of  December,  1912,  the  combination  adjudged  illegal  in  this  suit, 
and  from  entering  into  or  forming  among  themselves  or  with  others 
any  like  combination  or  conspiracy,  by  any  method  or  device  what- 
soever, the  effect  of  which  is  or  will  be  to  restrain  interstate  com- 
merce in  explosives  or  to  renew  the  unlawful  monopoly  of  such  com- 
merce obtained  and  possessed  by  the  defendants  as  adjudged  herein, 
in  violation  of  "Act  to  Protect  Trade  and  Commerce  Against  Unlaw- 
ful Restraints  and  Monopolies,"  approved  July  2,  1890,  and  espe- 
cially : 

1.  By  causing  the  conveyance  of  the  factories,  plants,  brands  of 
business  of  either  of  said  two  new  corporations  to  the  other  corpo- 
ration to  E.  I.  duPont  de  Nemours  Powder  Company  or  vice  versa 
after  the  segregation  of  the  properties  among  said  corporations  shall 
have  taken  place  as  herein  provided;  by  placing  the  stocks  of  either 
of  said  corporations  in  the  hands  of  voting  trustees  or  controlling  the 
voting  power  of  such  stocks  by  any  device : 

2.  By  making  any  express  or  implied  agreement  or  arrangement 
with  one  another  or  with  others  relative  to  the  control  or  management 
of  either  of  said  corporations,  or  the  price  or  terms  of  purchase,  or 
of  sale  of  explosives  or  relative  to  the  purchase,  sale,  manufacture, 
or  transportation  of  explosives  which  will  have  the  effect  of  restrain- 
ing interstate  commerce;  or  by  making  any  agreement  or  arrange- 
ment of  any  kind  between  said  corporations  under  which  trade  or 
business  is  apportioned  between  said  corporations  in  respect  either 
to  customers  or  localities. 

3.  By  offering  or  causing  to  be  offered  or  making  or  causing  to  be 
made  more  favorable  prices  or  terms  of  sale  for  the  products  manu- 
factured by  them  or  either  of  them  to  the  customers  of  any  rival 
manufacturer  or  manufacturers  than  they  at  the  same  time  offer  to 
make  their  established  trade,  where  the  purpose  is  to  unfairly  cripple 
or  drive  out  of  business  such  rival  manufacturer  or  manufacturers  or 
otherwise  unlawfully   to  restrain   the  trade  and   commerce  of  the 
United  States  in  any  of  said  products;  provided  that  no  defendant 
is  enjoined  or  restrained  from  making  any  price  or  prices  in  the  sale  of 
said  products,  or  any  thereof,  to  meet  or  to  compete  with  prices 
made  by  any  other  defendant,  or  by  any  rival  manufacturer;  and 
provided,  further,  that  nothing  in  this  decree  shall  be  taken  in  any 
respect  to  enjoin  or  restrain  fair,  free  and  open  competition. 

4.  By  either  of  said  corporations  retaining  or  employing  the  same 
clerical  force  or  organization,  or  keeping  the  same  office  or  offices 
as  any  other  of  said  corporations. 


REORGANIZATION   OF   DUPONT    POWDER   CO.    1007 

5.  By  either  of  said  corporations  doing  business  directly  or  in- 
directly under  any  other  than  its  own  corporate  name  or  the  name  of 
a  subsidiary  corporation  controlled  by  it;  provided,  however,  that,  in 
case  of  a  subsidiary  corporation,  the  controlling  corporation  shall 
cause  the  products  of  such  subsidiary  corporation  which  are  sold  in 
the  United  States  and  bear  the  name  of  the  manufacturer  to  bear  also 
a  statement  indicating  the  fact  of  such  control. 

It  is  further  ordered,  adjudged  and  decreed  that  said  defendants 
cancel  and  annul: 

a.  Agreement  of  October  2,  1902,  between  William  Barclay  Par- 
sons, of  the  City  of  New  York,  and  the  Delaware  Securities  Company. 
Petitioner's  Record,  Exhibits,  Volume  4,  page  1984. 

b.  Agreement  of  October  6,  1902,  between  H.  deB.   Parsons  of 
the  City  of  New  York,  and  the  Delaware  Securities  Company.    Peti- 
tioner's Record,  Exhibits,  Volume  4,  page  1986. 

c.  Agreement  of  the  second  day  of  October,  1902,  between  Schuyler 
L.  Parsons,  of  the  City  of  New  York,  and  the  Delaware  Securities 
Company.     Petitioner's  Record,  Exhibits,  Volume  4,  page  1988. 

d.  A  like  and  identical  agreement  made  about  the  same  date  be- 
tween J.  A.  Haskell  and  the  Delaware  Securities  Company,  described 
in  Petitioner's  Testimony,  Volume  2,  page  1012. 

It  is  further  ordered,  adjudged  and  decreed  that  during  a  period  of 
five  years  from  the  date  hereof  each  of  said  corporations,  the  E.  I. 
duPont  de  Nemours  Powder  Company  and  said  other  two  corpora- 
tions, their  stockholders,  officers,  directors,  agents,  servants  and  em- 
ployees, be  hereby  enjoined  and  restrained  as  follows : 

1.  None  of  said  corporations  shall  have  any  officer  or  director  who 
is  also  an  officer  or  director  in  any  other  of  said  corporations. 

2.  None  of  said  corporations  shall  employ  the  same  agent  or  agents 
for  the  sale  in  interstate  commerce  of  explosives  which  might  be  sold 
in  competition  with  each  other;  provided  that  any  one  of  said  cor- 
porations may  sell  its  products  on  commission  through  a  merchant  or 
dealer  who  is  similarly  employed  by  either  or  both  of  said  corpora- 
tions. 

3.  None  of  said  corporations  shall  directly  or  indirectly  acquire  any 
stock  in  another  of  said  corporations  or  purchase  or  acquire  any  of 
the  factories,  plants,  brands  or  business  of  such  other  corporation. 

It  is  further  ordered,  adjudged  and  decreed  that  each  and  all  of 
the  individual  defendants  by  this  decree  adjudged  to  be  engaged  in 
said  combination,  while  holding  stock  in  said  two  corporations  and 
E.  I.  duPont  de  Nemours  Powder  Company  or  any  two  thereof  be 
enjoined  and  restrained  from  at  any  time  within  three  years  from 
the  date  hereof  acquiring,  owning  or  holding,  directly  or  indirectly, 


1008       MATERIALS    OF   CORPORATION    FINANCE 

any  stock  or  a  legal  or  equitable  interest  in  any  stock  in  either  of 
said  two  corporations  to  which  said  properties  shall  be  transferred, 
in  excess  of  the  amount  to  which  he  may  be  entitled  under  the 
provisions  of  the  plan  herein  mentioned  when  the  same  shall  have 
been  carried  out  as  proposed;  provided,  however,  that  any  of  said 
individual  defendants  may  notwithstanding  this  prohibition  acquire 
from  any  other  or  others  of  said  defendants,  or  in  case  of  death,  from 
their  estates,  any  of  the  stock  held  by  such  other  defendant  or  de- 
fendants in  said  corporations  and  may  acquire  their  proportions  of 
any  increase  of  stock. 

It  is  furthed  ordered,  adjudged  and  decreed  that  any  new  company 
or  companies  organized  for  the  purpose  of  taking  property  under  the 
provisions  of  this  decree  or  otherwise,  necessary  to  the  carrying  out 
of  this  plan,  shall,  after  their  formation  and  by  appropriate  proceed- 
ings, be  made  parties  to  this  cause,  and  subject  tc  the  provisions  of 
this  decree  and  bound  by  the  injunctions  herein  granted. 

It  is  further  ordered,  adjudged  and  decreed  that  any  party  hereto 
may  make  application  to  this  Court  for  such  orders  and  directions  as 
may  be  necessary  or  proper  in  relation  to  the  carrying  out  of  such 
plan  and  the  provisions  of  this  decree. 

It  is  further  ordered,  adjudged  and  decreed  that  the  twenty-seven 
(27)  defendants  hereinabove  mentioned,  do  pay  to  the  United  States 
Government  its  cost  in  this  cause. 

It  is  further  ordered,  adjudged  and  decreed  that  jurisdiction  of  this 
cause  is  retained  by  this  Court,  for  the  purpose  of  making  such  other 
and  further  orders  and  decrees  as  may  become  necessary  for  carrying 
out  the  plan  herein  set  forth. 

It  is  further  ordered,  adjudged  and  decreed  that  after  the  plan  here- 
inabove mentioned  shall  have  been  carried  into  effect  a  report  shall 
be  made  to  this  Court  for  its  approval,  setting  out  the  manner  in 
which  said  plan  shall  have  been  carried  out. 


REFUNDING  WITHOUT  THE  AID  OF  A  BANKER    1009 
REFUNDING  WITHOUT  THE  AID  OF  A  BANKER » 

CHICAGO  ELEVATED  RAILWAYS 
TWO-YEAR  FIVE  PER  CENT.  SECURED  GOLD  NOTES 

To  the  Holders  of  Said  Notes: 

The  above  obligations  were  issued  July  1,  1914,  as  part  of  a  plan 
of  temporary  financing.  Since  that  date,  the  City  of  Chicago  has 
appointed  a  Commission  of  eminent  engineers  to  study  transportation 
conditions  and  to  formulate  a  concrete  plan  for  the  unification  of  all 
the  elevated  and  surface  lines  in  the  city.  This  Commission  is  now 
actively  engaged  in  its  labors.  Pending  the  promulgation  of  such 
plan  and  of  appropriate  municipal  action  in  the  matter,  it  is  neither 
practicable  nor  desirable  to  undertake  permanent  financing;  and  an 
extension  of  the  maturity  of  said  notes  to  July  1,  1919,  is  advisable 
and  necessary. 

The  Chicago  Elevated  Railways  has  arranged  to  materially  increase 
the  value  of  the  security  for  all  extended  notes,  and  proposes  such  ex- 
tension thereof  under  the  provisions  of  an  Extension  Agreement  upon 
the  following  terms : 

1.  The  interest  on  the  extended  notes  will  be  increased  from  the 
present  rate  (5%)  to  six  per  cent.  (6%)  per  annum,  payable  semi- 
annually.    New  coupon  sheets  to  evidence  such  future  interest  will  be 
attached  to  each  extended  note. 

2.  The  sum  of  $15  in  cash  will  be  paid  in  respect  of  each  $1,000 
face  amount  of  extended  notes. 

3.  In  addition  to  and  by  way  of  material  increase  of  the  value 
of  the  security  for  said  extended  notes: 

(a)  Chicago  Elevated  Railways  will  acquire  and  pledge  as  security 
under  the  Extension  Agreement  promissory  notes  of  the  Railroad 
Companies,  shares  of  whose  capital  stock  now  constitute  the  sole  col- 
lateral securities  pledged  under  the  Trust  Indenture  of  July  1,  1914, 
under  which  the  Gold  Notes  were  issued.  These  promissory  notes  will 
aggregate,  approximately,  $1,070,000;  and,  until  so  acquired  and 
pledged,  they  rank  in  priority  to  the  collateral  securities  under  the 
Trust  Indenture  of  July  1,  1914 ; 

(6)  Chicago  Elevated  Railways  will  cause  to  be  similarly  pledged 
under  the  Extension  Agreement  as  security  for  the  payment  of  the 
extended  notes,  claims  or  notes  representing  additional  floating  in- 
debtedness of  the  Railroad  Companies  amounting  approximately  to 

1  Advertisement  in  New  York  Times,  June  21,  1916. 


1010        MATERIALS  OF  CORPORATION  FINANCE 

$1,000,000,  incurred  principally  as  a  result  of  betterments  made  to 
the  railroad  properties,  and  now  likewise  ranking  in  priority  to  the 
collateral  securities  pledged  under  the  Trust  Indenture  of  July  1, 
1914;  and 

(c)  Chicago  Elevated  Railways  will  procure  an  agreement  with 
Commonwealth  Edison  Company  whereby  all  claims  for  power  sup- 
plied to  the  Railroad  Companies  after  June  30,  1916,  and  until  the 
Extended  Notes  shall  have  become  due,  will  be  assigned  to  a  trustee 
and  will  be  paid  only  if  and  as  other  floating  debt  of  subsidiary  com- 
panies (except  capital  debt),  is  not  increased.  In  case  other  collateral 
securities  pledged  for  the  Extended  Notes  shall  upon  sale  prove  in- 
sufficient to  pay  such  Extended  Notes  in  full,  the  said  power  claims 
then  unpaid  will  be  placed  on  a  parity  with  the  Extended  Notes. 

Except  only  as  the  same  may  be  modified  and  supplemented  by 
the  Extension  Agreement  in  respect  of  Noteholders  assenting  thereto, 
the  provisions  of  the  Trust  Indenture  of  July  1,  1914,  will  remain  in 
full  force  and  effect. 

The  extension-  of  the  notes  has  not  been  underwritten.  The  success 
of  the  proposed  extension  depends  therefore  solely  upon  the  coopera- 
tion of  the  noteholders  in  availing  themselves  of  the  substantial  bene- 
fits above  outlined.  The,  extension  does  not  involve  the  payment  of 
commissions,  and  all  incidental  expenses  will  be  borne  by  the  Chicago 
Elevated  Railways. 

Holders  of  Gold  Notes  may  become  parties  to  said  Extension  Agree- 
ment by  depositing  of  said  notes,  having  first  detached  therefrom  the 
July  1,  1916,  coupon,  with  the  Depositary:  The  National  City  Bank 
of  New  York,  New  York ;  or  with  either  of  the  following  sub-deposi- 
taries: Illinois  Trust  and  Savings  Bank,  Chicago;  International 
Banking  Corporation,  London. 

All  deposits  must  be  made  on  or  before  July  15,  1916,  or  such  later 
date,  if  any,  as  may  be  prescribed  therefor  in  the  exercise  of  the  dis- 
cretion and  in  the  manner  in  the  Extension  Agreement  provided. 
Should  the  Extension  Agreement  not  become  definitive  and  effective 
as  therein  provided,  the  deposited  notes  (or  an  equal  face  amount 
of  the  same  issue),  in  either  event  in  unextended  form,  will  be  re- 
turned, without  charge,  to  the  holders  of  certificates  of  deposit,  on 
surrender  of  such  certificates  to  the  Depositary  which  issued  the  same. 

The  July  1,  1916,  coupons  will  be  paid  at  maturity. 

CHICAGO  ELEVATED  RAILWAYS. 
New  York,  June  19,  1916. 


WESTERN  MARYLAND  RY.  CO.  1011 


FROM  THE  CERTIFICATE  OF  INCORPORATION  OF  WEST- 
ERN MARYLAND  RAILWAY  COMPANY 

The  capital  stock  of  Western  Maryland  Railway  Company,  the 
consolidated  corporation  hereby  created,  shall  be  Seventy-eight  Million 
Dollars  ($78,000,000),  which  shall  be  divided  into  and  represented 
by  Seven  hundred  and  eighty  thousand  (780,000)  shares  of  the  par 
value  of  $100  each,  and  each  of  which  shares  shall  be  entitled  to  one 
vote  at  any  meeting  of  the  stockholders  of  the  consolidated  corpora- 
tion. Of  such  capital  stock  One  hundred  and  eighty  thousand 
(180,000)  shares,  of  $100  each,  may  be  issued  as  first  preferred  stock, 
One  hundred  thousand  (100,000)  shares,  of  $100  each,  may  be  issued 
as  second  preferred  stock,  and  Five  hundred  thousand  (500,000) 
shares,  of  $100  each,  may  be  issued  as  common  stock. 

The  first  preferred  stock  shall  be  entitled  to  receive,  in  preference 
and  priority  over  the  second  preferred  stock  and  the  common  stock 
of  said  consolidated  corporation,  out  of  the  surplus  or  net  profits  of 
said  corporation,  quarterly  dividends  in  each  and  every  fiscal  year  at 
such  rate,  not  exceeding  seven  per  cent,  per  annum,  as  shall  be  de- 
clared by  the  board  of  directors,  but  shall  have  no  further  interest  or 
rights  in  said  surplus  or  net  profits. 

Annual  dividends  upon  the  first  preferred  stock  shall  be  cumula- 
tive from  July  1,  1918. 

In  the  event  of  any  liquidation,  dissolution  or  winding  up,  whether 
voluntary  or  involuntary,  of  said  consolidated  corporation,  the  hold- 
ers of  the  first  preferred  stock  shall  be  entitled  to  be  paid  in  full  out 
of  the  assets  of  said  consolidated  corporation  the  par  amount  of  their 
shares,  together  with  any  dividends  accrued  or  cumulated  thereon, 
before  any  amount  shall  be  paid  out  of  said  assets  to  the  holders 
of  the  second  preferred  stock  or  of  the  common  stock. 

Said  first  preferred  stock  shall  haVe  no  further  preference  or  pri- 
ority over  the  second  preferred  stock  and  the  common  stock  except  as 
in  this  article  provided. 

The  second  preferred  stock  shall  be  entitled  to  receive,  in  prefer- 
ence and  priority  over  the  common  stock  of  said  consolidated  corpor- 
ation, out  of  the  surplus  or  net  profits  of  said  corporation,  dividends 
in  each  and  every  fiscal  year  at  such  rate,  not  exceeding  four  per  cent, 
per  annum,  as  shall  be  declared  by  the  board  of  directors;  but  shall 
have  no  further  interest  or  rights  in  said  surplus  or  net  profit*. 

Annual  dividends  upon  the  second  preferred  stock  shall  be  non- 
cumulative;  and  if  in  any  one  year  dividends  amounting  to  four  per 


1012  WESTERN  MARYLAND  RY.  CO. 

cent,  shall  not  be  paid  on  the  second  preferred  stock,  the  deficiency 
shall  not  be  paid  upon  such  second  preferred  stock  out  of  the  surplus 
or  net  profits  for  any  subsequent  or  preceding  year.  In  the  event  of 
any  liquidation,  dissolution  or  winding  up,  whether  voluntary  or  in- 
voluntary, of  said  consolidated  corporation,  the  holders  of  the  second 
preferred  stock  shall  be  entitled  to  be  paid  in  full  out  of  the  assets 
of  said  consolidated  corporation  the  par  amount  of  their  shares  and  all 
dividends  thereon  declared  and  unpaid  before  any  amount  shall  be 
paid  out  of  said  assets  to  the  holders  of  the  common  stock. 

The  second  preferred  stock  shall  be  redeemable  as  an  entirety  at  any 
time  at  the  option  of  said  consolidated  corporation  at  the  price  of 
One  Hundred  Dollars  ($100)  per  share,  provided  that  published  no- 
tice be  given  in  a  manner  to  be  determined  by  the  board  of  directors 
of  said  consolidated  corporation,  at  least  once  a  week  for  four  succes- 
sive weeks  prior  to  the  date  of  said  redemption. 

The  holders  of  the  second  preferred  stock  may  at  any  time  prior 
to  the  call  of  the  same  for  redemption,  exchange  the  same  for  common 
stock  of  said  consolidated  corporation  at  par — that  is  to  say,  for  each 
share  of  second  preferred  stock  so  exchanged  one  share  of  common 
stock. 

Said  second  preferred  stock  shall  have  no  further  preference  or 
priority  over  the  common  stock  except  as  in  this  article  provided. 

Any  second  preferred  stock  which  may  be  surrendered  for  exchange 
into  common  stock  may  be  reissued  as  common  stock,  and  the  amount 
of  authorized  second  preferred  stock  shall  thereby  be  correspondingly 
reduced  and  the  amount  of  authorized  common  stock  correspondingly 
increased,  but  without  reduction  or  increase  of  the  total  authorized 
capital  stock  of  the  consolidated  corporation. 


AMERICAN  INTERNATIONAL  CORP.  1013 


FROM  THE  CERTIFICATE  OF  INCORPORATION  OF  AMERI- 
CAN INTERNATIONAL  CORPORATION 


ILLUSTRATING  MANAGERS*   SHARES 

THIRD.  The  amount  of  capital  stock  of  the  corporation  is  Fifty 
million  Dollars  ($50,000,000),  of  which  One  million  Dollars 
($1,000,000)  is  preferred  stock  (to  be  known  as  "Managers'  Shares"), 
and  Forty-nine  million  Dollars  ($49,000,000)  is  common  stock. 

The  preferred  stock  shall  be  entitled  to  receive,  out  of  surplus 
profits,  dividends  at  the  same  rate  as  that  paid  on  the  common 
stock,  until  dividends  aggregating  seven  per  cent.  (7%)  shall 
have  been  paid  or  declared  on  both  classes  of  stock  during  any  one 
year.  Thereafter,  the  preferred  stock  shall  be  entitled  to  receive 
one-fifth  (l/5th)  of  any  further  distribution  of  surplus  during 
that  year,  and  the  common  stock  shall  be  entitled  to  receive  four- 
fifths  (4/5ths)  thereof. 

Upon  the  liquidation  of  the  corporation  and  the  distribution 
of  its  assets,  the  preferred  stock  shall  be  entitled  to  receive  an 
amount  equal  to  the  amount  paid  thereon,  before  any  distribution 
shall  be  made  to  the  common  stock,  which  shall  be  entitled  to 
receive  out  of  the  assets  then  remaining  an  amount  equal  to  the 
amount  paid  on  such  common  stock;  after  which,  the  preferred 
stock  shall  be  entitled  to  receive  one-fifth  (l/5th)  of  the  assets, 
if  any,  then  remaining  undistributed,  and  the  common  stock 
shall  be  entitled  to  receive  four-fifths  (4/5ths)  thereof. 

FOURTH.  The  number  of  shares  of  which  the  capital  stock  shall 
consist  is  Five  hundred  thousand  (500,000),  of  the  par  value  of  One 
hundred  Dollars  ($100)  each.  The  corporation  may  issue  the  whole 
or  any  part  of  its  capital  stock  as  partly  paid  stock,  subject  to  calls 
thereon  until  the  whole  thereof  shall  have  been  paid  in. 

The  amount  of  capital  with  which  the  corporation  will  begin  busi- 
ness is  Three  thousand  Dollars  ($3,000). 


1014        MATERIALS  OF  CORPORATION  FINANCE 

STOCKHOLDERS'  RIGHTS1 

BOSTON,  MASS.,  June  20,  1911. 
To  the  Stockholders: 

This  Company  hereby  offers  to  its  Stockholders  shares  of  new  stock 
for  cash  at  par,  one  hundred  dollars  ($100)  per  share,  as  follows: — 

Each  Stockholder  of  record  at  the  close  of  business  on  Friday, 
June  30,  1911,  will  be  entitled  to  subscribe  for  such  new  stock  in  the 
proportion  of  one  share  for  every  five  shares  that  he  then  holds;  that 
is,  a  right  will  attach  to  each  share  of  the  then  outstanding  stock 
to  subscribe  for  one-fifth  of  a  share  of  new  stock,  but  subscriptions 
must  be  for  full  shares. 

This  right  to  subscribe  will  expire  at  the  close  of  business  on 
Thursday,  August  31,  1911. 

Subscriptions  under  holdings  that  are  not  multiples  of  five  shares 
may  be  adjusted  by  the  purchase  or  sale  of  rights.  Sellers  of  rights 
should  not  subscribe  thereunder.  The  Company  can  neither  buy  nor 
sell  rights. 

Subscriptions  and  assignments  will  be  received  either  at  the  office 
of  the  Treasurer  in  Boston,  No.  125  Milk  Street,  or  at  his  office  in 
New  York,  No.  15  Dey  Street. 

Payment  for  shares  subscribed  for  must  be  made  to  the  Treasurer, 
as  follows: — 

Twenty-five  dollars  per  share  on  or  before  Wednesday,  November 
1,  1911. 

Twenty-five  dollars  per  share  on  or  before  Thursday,  February  1, 
1912. 

Twenty-five  dollars  per  share  on  or  before  Wednesday,  May  1,  1912. 

Twenty-five  dollars  per  share  on  or  before  Thursday,  August  1, 
1912. 

For  the  convenience  of  subscribers  these  payments  may  be  made 
either  at  the  Treasurer's  office  in  Boston,  No.  125  Milk  Street,  or  at 
his  office  in  New  York,  No.  15  Dey  Street. 

Payments  of  the  first  three  instalments  will  bear  interest  from  the 
due  dates  thereof  until  July  1,  1912,  at  the  rate  of  dividend  paid  on 
the  stock  of  this  Company  for  the  same  period,  and  the  interest  ac- 
crued in  any  dividend  period  will  be  paid  on  the  same  date  the  divi- 
dend is  payable  provided  no  default  has  been  made  in  the  payment 
of  any  instalment  of  the  subscription.  Checks  for  this  interest  will 

Circular  sent  to  stockholders  of  the  American  Telephone  and  Telegraph  Com- 
pany, offering  them  new  stock  at  par  at  a  time  when  the  old  stock  was  selling  at 
a  premium. 


STOCKHOLDERS'  RIGHTS  1015 

be  mailed  to  the  subscribers  of  record  except  those  to  whom  nego- 
tiable receipts  have  been  issued.  Such  negotiable  receipts  will  be 
issued  when  requested  and  will  entitle  the  person  named  or  his  assigns 
of  record  in  the  office  of  the  Treasurer  to  the  interest  herein  specified 
and  to  the  shares  of  new  stock  named  therein.  The  new  stock  will 
participate  in  any  dividend  payable  after  August  1,  1912. 

Subscribers  wishing  to  prepay  may  pay  in  full  on  any  one  of  the 
respective  due  dates  for  the  payment  of  instalments,  and  will  be  paid 
interest  on  such  prepayment  at  the  rate  of  four  per  cent,  per  annum 
from  such  due  date  of  payment  to  the  date  when  each  instalment  so 
prepaid  becomes  payable. 

Certificates  of  stock  will  be  dated  August  1,  1912,  and  will  be  de- 
livered as  soon  thereafter  as  they  can  be  prepared. 

Warrants  specifying,  the  amount  of  stock  for  which  stockholders 
are  entitled  to  subscribe  under  this  circular  will  be  issued  to  each  stock- 
holder by  the  Treasurer  as  soon  after  June  30,  1911,  as  practicable, 
and  must  be  returned  to  the  Treasurer  with  the  subscription  en- 
dorsed thereon  duly  signed  on  or  before  August  31,  1911,  otherwise 
the  right  to  subscribe  will  be  void  and  the  warrants  of  no  value. 

Receipt  of  such  warrants  and  subscriptions  will  be  acknowledged  by 
the  Treasurer. 

The  rights  specified  in  such  warrants  may  be  sold  and  transferred 
by  assignment  executed  in  the  form  prescribed  and  printed  thereon. 

Stockholders  who  may  wish  to  subscribe  for  a  portion  of  the  stock 
covered  by  a  warrant  and  dispose  of  the  balance  or  who  may  wish  to 
dispose  of  a  portion  to  one  person  and  the  balance  to  another  should 
return  their  warrants  to  the  Treasurer  at  either  of  the  above-named 
offices,  to  be  exchanged  for  other  warrants,  specifying  the  number 
of  warrant^  desired  in  exchange  and  the  number  of  shares  to  be  cov- 
ered by  each. 

All  correspondence  relating  to  the  foregoing  should  be  addressed 
to  the  Treasurer,  William  R.  Driver,  125  Milk  Street,  Boston,  Mass. 

By  order  of  the  Directors, 

THEODORE  N.  VAIL, 
President. 

MEMORANDUM 

The  proceeds  of  this  issue  of  capital  stock  will  bo  mainly  used  to 
provide  the  associated  companies  of  the  Bell  System  outside  of  the 
State  of  New  York  with  funds  for  current  and  ordinary  construction 
and  extension  of  plant,  and  will  be  represented  in  the  treasury  of  the 


1016  STOCKHOLDERS'  RIGHTS 

American  Telephone  and  Telegraph  Company  by  the  share  capital  or 
the  capital  advance  notes  of  such  companies. 

A  part  will  be  used  for  extensions  to  plant  (Long  Distance  service) 
of  the  American  Telephone  and  Telegraph  Company  outside  of  the 
State  of  New  York,  and  a  part  to  maintain  the  cash  balances  now  be- 
ing drawn  upon  for  all  the  above  purposes. 

Eeference  to  the  Annual  Eeport  for  1910,  end  of  page  7  and  page 
8,  under  head  of  "Depreciation,"  sets  forth  the  great  advantage  and 
economy  of  advance  construction.  Advance  construction  must  be 
planned  and  cared  for,  and  the  cash  provided  in  advance,  if  it  is  to  be 
done  in  the  best  and  most  economical  way. 

The  charges  of  this  proposed  issue  on  this  year's  revenue  will  be 
hardly  appreciable.  As  a  matter  of  fact,  the  usual  yearly  dividend  on 
the  whole  amount  could  be  met  out  of  this  year's  revenue  and  still 
leave  a  surplus. 

The  business  of  the  current  six  months  of  this  year  will  show  a 
continuation  of  increases  in  gross  and  net,  although  the  toll  and  long- 
distance business  as  usual  shows  the  effect  of  business  depression. 

The  increase  of  subscribers'  stations  directly  connected  with  the 
systems  of  the  associated  companies  shows  an  increase  over  any  pre- 
vious year.  The  year  will  probably  show  a  greater  increase  of  stations, 
including  those  of  connected  or  sub-licensed  independent  companies, 
thar  any  previous  year. 

In  any  comparisons  with  the  figures  so  far  of  the  present  year,  con- 
sideration should  be  given  to  the  fact  that  the  year's  surplus  earnings 
will  be  reduced  at  least  $150,000  by  increased  charges  against  it,  due 
to  conversion  of  bonds  into  stock,  and  also  about  $315,000  by  the  de- 
crease of  interest  income,  due  to  the  exchange  of  capital  advance  notes 
of  the  associated  companies  held  by  the  American  Telephone  and  Tele- 
graph Company  into  capital  stock  of  such  companies,  upon  which 
no  dividends  as  yet  have  been  credited. 

All  the  above  facts  taken  in  connection  with  the  growing  and  more 
favorable  sentiment  of  the  community,  which  is  evidenced  by  the 
passage  in  some  states,  and  general  advocacy  and  favorable  considera- 
tion in  others,  of  bills  allowing  opposition  telephone  companies  to 
merge,  together  with  the  very  broad  and  exhaustive  decisions  in  sup- 
porting our  contentions  in  the  very  few  cases  where  we  have  had  to 
go  to  the  courts  for  protection  against  adverse  legislation,  presage 
for  the  next  and  future  years  a  continuation  of  our  past  prosperity. 

THEODORE  N.  VAIL, 
President. 


STOCKHOLDERS'  RIGHTS  1017 

STOCKHOLDERS'  RIGHTS 

Form  of  Assignable  Warrant  Evidencing  Right  of  Stockholder  to 
Subscribe  to  New  Stock. 

Face  of  Warrant 
Void  and  of  no  Value  After  Close  of  Business  November  15,  1915 

ASSIGNABLE   WARRANT 
No $ 

FOR   SUBSCRIPTION    RIGHT  IN  RESPECT  OF 

Seven  Per  Cent.  Cumulative  Preferred  Capital  Stock 

of  the 
AMERICAN  COAL  PRODUCTS  COMPANY 

THIS  is  TO  CERTIFY  that  on  the  terms  and  conditions  of  the 
Resolutions  of  the  Board  of  Directors,  adopted  October  5,  1915, 

is  entitled 

to  the  rights  hereinafter  stated  in  respect  of  a  subscription  privilege 

for Dollars  of  the  Seven  Per  Cent.  Cumulative 

Preferred  Capital  Stock  of  the  American  Coal  Products  Company. 
This  warrant,  and  all  rights  represented  hereby>  are  transferable  by 
assignments,  whereupon  the  holder  thereof  will  be  entitled,  on  surren- 
der hereof,  to  all  rights  of  the  original  holder.  In  cases  where  war- 
rants are  part  "subscribed"  and  balance  "assigned"  same  must  be 
presented  at  the  Registrar  and  Transfer  Company,  32  Nassau  St., 
New  York  City,  to  be  re-issued  in  separate  warrants. 

This  warrant,  and  other  warrants  for  amounts  aggregating  full 
shares  and  multiples  thereof,  shall  be  presented  and  surrendered  at 
the  office  of  the  Company,  17  Battery  Place,  New  York  City,  N.  Y., 
on  or  before  the  close  of  business  November  15th,  1915,  together  with 
payment  of  twenty-five  dollars  ($25.00)  per  share  of  stock  subscribed 
for  (same  being  twenty-five  per  cent,  of  the  total  amount  to  be  paid) 
in  order  to  participate  in  the  issue.  Warrants  not  so  presented  are 
void  and  of  no  value.  The  balance  of  seventy-five  dollars  ($75.00) 
per  share  subscribed  for  is  due  and  payable  December  20,  1915.  Pay- 


1018  STOCKHOLDERS'  RIGHTS 

merits  on  these  warrants  not  subject  to  interest  or  participation  in 
dividends.    No  subscriptions  for  a  fraction  of  a  share  will  be  accepted. 
Engraved  Certificates  of  Stock  will  be  issued  on  and  after  January 
17,  1916,  in  exchange  for  all  full  paid  subscription  receipts. 

By  order  of  the  Board  of  Directors 

AMERICAN  COAL  PRODUCTS  COMPANY 

Treasurer 
Registrar  &  Transfer  Company 


Secretary 
Dated 1915 

Reverse  Side  of  Warrant 
SUBSCRIPTION 

To  the  AMERICAN  COAL  PRODUCTS  COMPANY 

The  undersigned  hereby  subscribes  for  the  stock  mentioned  in  this 
warrant  under  conditions  therein  stated  and  agrees  to  make  payments 
as  therein  provided. 


Dated 

Residence 

Post  Office  Address. 


ASSIGNMENT 

FOR  VALUE  RECEIVED  the  within  warrant  and  all  rights  evi- 
denced thereby  are  hereby  transferred  to 


WITNESS: 


NOTICE :  The  signature  to  this  assignment  must  correspond  with 
the  name  as  written  upon  the  face  of  the  warrant  in  every  particular, 
without  alteration,  enlargement  or  any  change  whatever.  When  as- 
signments are  executed  by  administrators,  executors,  trustees,  guard- 
ians, attorneys,  etc.,  proper  evidence  of  their  authority  so  to  act  must 
be  on  file  with  the  Company. 


VALUATION  OF  DISSENTING  S'iUCK  lull) 

CONSOLIDATION* 
VALUATION  OF  DISSENTING  STOCKHOLDER'S  STOCK 

Proceedings  were  instituted  under  section  7  of  the  Business  Cor- 
porations Law  (Consol.  Laws,  c.  4)  for  the  consolidation  of  two 
domestic  corporations,  the  Yellow  Taxicab  Company  and  the  Mason- 
Seaman  Transportation  Company,  under  the  latter  name. 

The  respondent,  who  is  the  owner  of  173  shares  of  the  preferred 
and  640  shares  of  the  common  stock  of  the  Yellow  Taxicab  Company, 
objected  to  the  consolidation.  Three  appraisers  were  thereupon  ap- 
pointed, as  provided  in  section  8,  for  the  purpose  of  determining  the 
value  of  his  stock.  After  numerous  hearings,  they  filed  a  report 
in  which  they  determined  the  value  of  the  preferred  to  be  $88.43  per 
share,  or  $15,298.39,  and  the  common  stock  of  no  value.  The  re- 
port, upon  motion  of  the  respondent,  was  confirmed,  and  the  Trans- 
portation Company  directed  to  pay  to  him,  upon  the  surrender  of  his 
common  and  preferred  stock,  the  sum  of  $15,298.39.  From  this  order 
the  Transportation  Company  appeals. 

1.  The  appraisers  determined  the  assets  of  the  Yellow  Taxicab 
Company,  as  of  March  9,  1914,  the  date  when  the  respondent  objected 
to  the  consolidation,  to  be  $1,201,728.14,  which  included  the  valuation 
of  the  good  will  at  $366,707.52.  The  appellant  urges  that  the  ap- 
praisers erred  in  fixing  the  value  of  the  good  will.  The  Yellow 
Taxicab  Company  commenced  business  on  May  21,  1912,  and  the 
appraisers  found  that  the  net  earnings  of  the  company,  for  the  year 
ending  May  21,  1913,  were  $203,766.43,  and  for  the  subsequent  period 
ending  March  9,  1914,  $15,239.48,  making  the  total  net  earnings 
during  the  period  mentioned  $219,005.91.  They  divided  the  total  net 
earnings  by  21 1/2,  approximately  the  number  of  months  during  which 
the  corporation  had  been  in  business,  and  found  the  average  monthly 
profit  to  be  $10,186.32,  and  the  average  yearly  profit  $122,235.84. 
They  then  multiplied  the  yearly  profit  by  3,  and  took  the  result, 
$366,707.52,  as  the  value  of  the  good  will. 

The  general  method  adopted  in  determining  the  value  of  good  will 
is  that  suggested  in  Von  Au  v.  Magenheimer,  115  App.  Div.  84,  100 
N.  Y.  Supp.  659,  where  it  is  stated  that : 

"The  value  of  good  will  may  be  fairly  arrived  at  by  multiplying 
the  average  net  profits  by  a  number  of  years,  such  number  being 

1  Opinion  in  case  of  Seaich  v.  Mason-Seaman  Transp.  Co.,  166  N.  Y.  8.  579, 
December,  1915. 


1020        MATERIALS  OF  CORPORATION  FINANCE 

suitable  and  proper,  having  reference  to  the  nature  and  char- 
acter of  the  particular  business." 

The  appraisers,  however,  did  not,  as  suggested  on  the  second  trial 
of  the  Magenheimer  Case,  126  App.  Div.  257,  110  N.  Y.  Supp.  629, 
affirmed  196  N.  Y.  510,  89  N.  E.  1114,  deduct  from  the  average  net 
profits  interest  on  the  capital  invested  in  the  business,  and  of  this  the 
appellant  complains.  I  am  of  the  opinion  that  interest  should  have 
been  deducted.  There  are  several  authorities  which  indicate  that  in- 
terest on  capital  invested  ought  to  be  deducted  from  the  average 
profits  of  a  business  before  using  such  profits  as  a  basis  for  deter- 
mining good  will.  Von  Au  v.  Magenheimer,  supra;  Matter  of  Ball, 
161  App.  Div.  79,  146  N.  Y.  Supp.  499;  Matter  of  Board  of  Water 
Supply,  81  Misc.  Rep.  19,  142  N.  Y.  Supp.  83;  Matter  of  Keahon, 
60  Misc.  Rep.  508,  113  N.  Y.  Supp.  926. 

It  is  impossible  to  accurately  determine  from  the  record  before  us 
the  capital  upon  which  interest  should  have  been  allowed;  but  I 
think  substantial  justice  will  be  done  to  both  parties  if  interest  be 
allowed  on  the  value  of  the  assets  as  determined  by  the  appraisers 
on  March  9,  1914,  excluding  the  value  of  the  good  will.  If  this  be 
done,  then  the  value  of  the  assets  on  the  day  named  was  $835,020.62. 
Six  per  cent,  interest  on  that  sum  for  one  year  is  $50,101.24.  If  this 
amount  be  deducted  from  the  average  yearly  profit,  then  that  amount 
would  be  $72,134.60,  instead  of  $122,235.84,  as  found  by  the  ap- 
praisers; and  multiplying  this  profit  by  3,  the  method  adopted  by 
the  appraisers,  the  value  of  the  good  will  was  $216,403.80,  instead  of 
$366,707.52,  and  the  assets  of  the  corporation  were  $1,051,424.42,  in- 
stead of  $1,201,728.14. 

2.  The  appellant  also  urges  that  other  reductions  should  have 
been  made ;  but  only  one  of  them,  I  think,  requires  serious  considera- 
tion, viz.,  the  one  relating  to  the  value  of  the  taxicabs.  In  ascer- 
taining that  value,  the  appraisers  first  determined  their  value  on 
May  21,  1912,  the  time  when  the  corporation  commenced  business,  to 
be  $539,100.  From  this  amount  they  deducted  for  depreciation  and 
obsolescence  at  the  rate  of  10  per  cent,  per  annum.  The  finding  of 
the  appraisers  that  the  value  of  the  taxicabs  was  $539,100  on  May  21, 
1912,  is  sustained  by  the  evidence;  but,  when  all  of  it  is  considered, 
I  am  of  the  opinion  that  20  per  cent,  per  annum,  instead  of  10, 
should  have  been  allowed  for  depreciation  and  obsolescence.  If  this 
be  done,  then  the  value  of  the  taxicabs  on  March  9,  1914,  was 
$362,275.20,  instead  of  $446,374.80.  The  assets  of  the  corporation 
on  March  9,  1914,  as  determined  by  the  appraisers,  as  already  indi- 
cated, were  $1,201,728.14.  From  this  amount  they  deducted  the  con- 


VALUATION  OF  DISSENTING  STOCK  1021 

ceded  liabilities,  $457,809.89,  which  left  a  surplus  of  $743,918.25, 
and  it  was  upon  this  amount  that  they  determined  the  value  of  the 
petitioner's  preferred  stock  to  be  $88.43  per  share.  But,  as  has  been 
pointed  out,  I  think  the  appraisers  overvalued  the  corporate  good  will 
to  the  extent  of  $150,303.72,  and  the  value  of  the  taxicabs  $84,099.60. 
making  in  all  an  overvaluation  of  $234,403.32,  which  amount  should 
be  deducted  from  $743,918.25,  the  surplus  of  assets  over  liabilities 
as  found  by  the  appraisers.  After  making  this  deduction  then  the 
surplus  of  assets  over  liabilities  on  March  9,  1914,  was  $509,514.93, 
and  the  value  of  petitioner's  preferred  stock,  based  on  these  assets, 
is  $60.57  per  share,  or  $10,478.61. 

In  reaching  this  conclusion  I  recognize  the  impossibility  of  fixing, 
with  a  desired  degree  of  accuracy,  the  value  of  the  petitioner's  stock, 
but  I  think  that  the  result  reached  approximates  as  near  as  can 
be  the  true  value  of  the  stock  and  accomplishes  substantial  justice 
between  both  parties. 

The  order  appealed  from,  therefore.,  is  modified  as  indicated  in  the 
opinion,  without  costs.  All  concur. 


1022        MATERIALS  OF  CORPORATION  FINANCF 
SHORT  TERM  NOTES 

REDEMPTION  AND  SALES  PRICES1 

$50,000,000 

BETHLEHEM  STEEL  CORPORATION 
Secured  Serial  1%  Gold  Notes 

Dated  July  15,  1918.  Due  Series  A,  B,  C  and  D,  $7,500,000  each 
July  15,  1919-1922,  inclusive,  Series  E,  $20,000,000,  July  15,  1923. 

TO   BE  AUTHORIZED  AND   ISSUED   $50,000,000 

Coupon  notes  in  denomination  of  $1,000;  registrable  as  to  principal 
only.  Interest  payable  January  15  and  July  15,  without  deduction 
for  any  tax  or  Governmental  charge  except  any  Federal  Income  Tax 
in  excess  of  2  per  cent,  per  annum. 

Redeemable  at  the  option  of  the  Corporation  at  any  time  upon  30 
days'  notice,  as  a  whole  or  in  series,  (in  which  event  all  the  notes 
of  one  or  more  of  the  series  first  maturing  must  be  called  for  re- 
demption) at 

102      for  Notes  with  4  years  or  more  to  run. 
lOli/o  for  Notes  with  3  years  or  more  but  less  than  4  years  to  run. 
101      for  Notes  with  2  years  or  more" but  less  than  3  years  to  run. 
100%  for  Notes  with  1  year  or  more  but  less  than  2  years  to  run. 
100      for  Notes  with  less  than  1  year  to  run. 

Notes  to  be  convertible  at  the  option  of  the  holder  at  par  into  new 
Bethlehem  Steel  Corporation  Consolidated  Mortgage  30- Year  Sinking 
Fund  6%  Gold  Bonds,  Series  A,  due  August  1,  1948,  when  pledged 
under  the  indenture,  at  a  price  for  said  bonds  equivalent  to  a  6l/2% 
income  basis  at  the  time  of  such  conversion. 

We  offer  these  Notes,  when,  as  and  if  issued  and  received  by  us,  and 
subject  to  approval  of  counsel. 

1-Year  Notes  due  July  15,  1919,  Price  99^  and  interest  to  yield  about 
2-Year      "        "    July  15,  1920,      "    98%    "          "        "       "        " 
3- Year      "        "    July  15,  1921,      "    98%    "          "        "       "        " 
4-Year      "        "    July  15,  1922,      "    97^    "          "        "       "        " 
5-Year  "    July  15,  1923,      "    97        "          ' ' 

1  From  advertisement  in  New  York  Times,  July  16,  1918. 


SINKING  FUND  COMPUTATION 


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1024         MATERIALS  OF  CORPORATION  FINANCE 


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INTEREST,  ANNUITY  AND  SINKING  FUND  TABLES  1025 


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1026        MATERIALS  OF  CORPORATION  FINANCE 

SERIAL  BONDS. 

Table  showing  maturities  of  a  $1,682,500  bond  issue  dated  Febru- 
ary 4,  1918,  arranged  so  that  payment  of  interest  and  repayment  of 
principal  will  aggregate  approximately  the  same  amount  each  year 
after  the  fifth  year.  Denominations  are  $1000  and  $500. x 

Maturities. 

Amount  Maturity  *  Price 

$51,000  August  1,  1923  95.55 

54,000  August  1,  1924  94.85 

56,000  August  1,  1925  94.19 

59,000  August  1,  1926  93.57 

62,000  August  1,  1927  93.08 

65,000  August  1,  1928  92.43 

68,000  August  1,  1929  91.90 

71,000  August  1,  1930  91.41 

75,000  August  1,  1931  90.95 

79,000  August  1,  1932  90.51 

83,000  August  1,  1933  90.10 

87,000  August  1,  1934  89.71 

91,000  August  1,  1935  89.35 

,96,000  August  1,  1936  89.00 

101,000  August  1,  1937  88.67 

106,000  August  1,  1938  88.37 

111,000  August  1,  1939  88.07 

116,000  August  1,  1940  87.81 

122,000  August  1,  1941  87.55 

129,500  August  1,  1942  87.31 

*  Plus  accrued  interest  yielding  about  6%. 

1  From  advertisement  of  Mississippi  County,  Arkansas  Drainage  District 
No.  17  5%  Bonds  in  New  York  Times,  May  21,  1918. 


INDEX 


INDEX 


Accounts   receivable,   Assignment   of, 

908 

Advertising  securities,  Bond  circular, 

374,  404;  Preferred  stock  circular, 

367;    Stock    promotion    prospectus, 

377,  387,  398,  399 

Agreement,    Syndicate    underwriting, 

405,  530,  769 

Albany  &  Susquehanna  Rd.  Co.,  Con- 
vertible bonds,  326 
American  Car  &  Foundry  Co..  Condi- 
tional sale  agreement,  299 

American  Cigar  Co.,  516 
American   Coal   Products  Co.,   Stock- 
holders' rights,  1017 

American  International  Corp.,  Mana- 
gers' stock,  1013 

American  Power  and  Light  Co.,  Short 
term  notes,  291 

American  Smelting  &  Refining  Co.,  Fi- 
nancial statements,  759 

American  Snuff  Co.,  Formation  of,  511 

American  Telephone  &  Telegraph  Co., 
Convertible  bonds,  329;  Valuation 
of  Chicago  Co.,  783;  Stockholders' 
rights,  1014 

Amortization  table,  1023 

Analysis,  Of  a  Public  Utility,  620; 
Of  Chicago,  Milwaukee  &  St.  Paul 
By.,  753 ;  Of  Bethlehem  Steel,  761 ; 
Of  May  Department  Stores,  767 

Annual  report,  See  Report 

Annuity  table,  1024 

Application,  For  bank  loan,  202;  For 
listing  on  New  York  Stock  Ex- 
change, 162 

Appraisal  of  Chicago  Telephone  Co., 
783 

Approval  of  public  utility  issues,  350, 
Ml 

Arbitrage  dealings,  N.  Y.  Stock  Ex- 
change, 139 

Articles,  Of  co-partnership,  1 ;  Of  as- 
sociation, 105;  Of  incorporation, 
101 ;  Of  joint-stock  company,  6 

Assets,  Stock  preferred  as  to,  44,  58, 
61,  103.  110;  Stock  not  preferred 
as  to,  28,  105 

Assignment  of  accounts  receivable. 
908 


Assignment  of  stock,  See  Transfer  of 
certificates 

Atchison,  Topeka  &  Santa  Fe  By.  Co., 
Convertible  bonds,  325 

Atlantic  Fruit  &  Steamship  Co.,  Con- 
vertible bonds,  322 

Authentication  of  trustee,  264,  304, 
293,  316 

B 

Balance  sheet,  See  Reports 

Ballot  for  voting  for  directors  of  cor 
poration,  90 

Baltimore  &  Ohio  Bd.  Co.,  Income 
statement,  625 ;  Beorganization,  966 

Bank  loan,  Application  for,  902 

Banker,  Refunding  with  aid  of,  320; 
Refunding  without  aid  of,  1009 

Bankers  Trust  Company,  313 

Bartica  Company,  Circulars  and  re- 
ports, 383,  384,  387 

Beemis,  Prof.  E.  W.,  783 

Bethlehem  Steel  Corp.,  Analysis  of  fi- 
nancial statements  of,  761 ;  Redemp- 
tion and  sales  prices  of  notes,  1022 

Bids  and  offers,  New  York  Stock  Ex- 
change, 127 

Black  Wonder  Mill  &  Mines,  Adver- 
tisement of  stock,  398 

Blair  &  Co.,  321,  374 

Board  of  Directors,  See  Directors 

Bond,  Form  of,  190,  255;  Authentica- 
tion by  trustee,  264,  293 ;  Baltimore 
&  Ohio  Rd.,  975,  984;  Circular 
374,  404;  Classification  of,  XIII: 
Collateral  trust,  255;  Conversion 
into  stock,  322,  324,  358;  Equip- 
ment trust,  301,  315;  Legal  invest- 
ments,  447;  Redemption  of.  219, 
1022,  1023;  Refunding  of, 
320;  Regulations  concerning  trans- 
fer of,  171 ;  Serial,  in2fi;  Serial  ma- 
turities, 201;  Sinking  fund,  1 

Ttnn.l  house  letter,  404 

Boston  Klevnted  By.  Co.  lease,  55R 

Brooklyn  Rapid  Transit  System,  Con- 
vertible Imnds,  325 

Brooklyn  Union  Gas  Co.,  Convertible 
bonds,  330 

Bucket -shops.  New  York  Stock  Ex> 
e&angc,  Rules  regarding,  142 


1029 


1030 


INDEX 


By-Laws  of  United  States  Steel  Cor- 
poration, 66 
Buying  and  seling  stock,  421,  435 


California  Petroleum  Corporation, 
Charter  of,  101;  Buying  its  stock  to 
support  market,  435 

Calls  and  puts,  438,  444 

Car  Trust  notes,  299,  315 

Certificate  of  beneficial  interest  in 
voting  trust,  91,  98 

Certificate  of  incorporation,  Company 
having  stock  without  par  value,  43 ; 
American  International  Corporation, 
1013 ;  Atchison,  Topeka  and  Santa 
Fe  By.  Co.,  54;  California  Petro- 
leum Co.,  101;  Chicago,  Milwaukee 
&  St.  Paul,  105;  May  Department 
Stores,  107;  United  States  Steel 
Corporation,  59;  Western  Maryland 
Ey.  Co.,  1011;  Wisconsin  Edison 
Co.,  43 

Certificate  of  limited  partnership,  4 

Certificate  of  stock,  150 

Charter,  Of  General  Electric  Com- 
pany, 26;  See  also  Certificate  of  in- 
corporation 

Chicago  &  Alton  Ed.  Co.,  Eecapitaliza- 
tion  of,  910 

Chicago  Elevated  Eailways,  Eefunding 
notes  without  aid  of  banker,  1009 

Chicago,  Milwaukee  &  St.  Paul  Ey. 
Co.,  Articles  of  association,  105; 
Analysis  of  financial  statements,  753 

Chicago  Telephone  Cos.,  Valuation  of, 
783 

Clayton  Law,  595 

Clearing  House,  New  York  Stock  Ex- 
change, 130 

Closing  contracts,  In  New  York  Stock 
Exchange,  131 

Collateral  note,  905 

Collateral  trust  mortgage  and  bonds, 
255 

Commissions.  New  York  Stock  Ex- 
change, 135 

Common  stock,  See  Stock 

Comparison  of  incorporation  taxes  and 
requirements  in  different  states,  51 

Comparisons,  Eules  on  New  York 
Stock  Exchange,  128 

Compound  interest  table,  1024 

Conditional  sale  agreement,  299 

Consolidated  British  American  Mines, 
Certificate  of  stock,  150 

Consolidated  Gas  Co.,  Convertible 
bonds,  330 

Consolidation,  Advantages  of,  570; 
Agreement,  538;  Basis  of,  536; 
Form  of  consent,  545 ;  Holding  com- 


panies, 570;  Lease  of  assets,  555; 
New  York  Central,  542;  Notice  to 
bondholders,  542,  544;  Plan  of, 
New  Orleans  utilities,  526;  Promo- 
tion of,  489;  Purpose  and  method 
of,  548;  Sale  of  assets,  522;  Typi- 
cal agreement,  538;  Valuation  of 
dissenting  stock,  1019 

Construction  of  interurban  railway, 
458 

Conversion  of  bonds  into  stock,  322, 
324 

Convertible  bonds,  324 

Convertible  notes,  1022 

Convertible  stock,  105,  398,  1011 

Co-partnership,  Articles  of,  1 

Corporation,  Acts  requiring  consent  or 
vote  of  stockholders,  99,  182;  Ad- 
vantages and  disadvantages  of,  22; 
Ballot  for  voting  for  directors,  90; 
By-laws,  66;  Classification  and  defi- 
nitions of,  24;  How  created,  22,  26, 
43,  54,  59,  80,  101,  105 ;  How  ended, 
22;  Law,  first  general,  31;  Law, 
general,  34;  Lease  of  assets,  555; 
Liability  of  members  to  creditors, 
23 ;  Notice  of  annual  meeting,  88 ; 
Notice  of  special  meeting,  89 ; 
Proxy  for  annual  meeting,  88;  Be- 
lation  of  members  to  the  whole,  23 ; 
Taxes  and  requirements,  51,  52,  53; 
Transfer  of  certificates,  111,  117, 
122,  171;  Voting  trust,  91 

Coupon  bond,  260,  293,  303 

Cuba,  Eepublic  of,  5%  bond  under- 
writing agreement,  405 

Cumulative  income  bonds,  940 

Cumulative  preferred  stock,  28,  44, 
61,  101,  107 

Cumulative  voting,  35 


Deering  Harvester  Co.,  499 
Delaware  &  Hudson  Co.,  326 
Delivery,  New  York  Stock  Exchange 

rules,  129,  424 

Department  Stores,  See  May  Depart- 
ment Stores 

Depreciation,  Divergent  views  on,  899 
Depreciation    and    maintenance,    Chi- 
cago Tel.  Cos.,  799 
Detroit  Edison  Company,  Convertible 

bonds.  330 

Directors.  Minutes  of  first  meeting,  83 
Discounting    of    accounts    receivable, 

908 

"Discovery"  of  consolidation,  489 
Dissenting  stock  in  consolidation,  Val- 
uation of,  1019 

Dissolution  of  the  Powder  Trust,  1001 
Distillers'  Securities  Corporation,  331 


INDEX 


1031 


Dividends,  New  York  Stock  Exchange 
rules,  134;  Cumulative,  28,  44,  61, 
101,  107 

Domestic  corporation,  24 

Dupont  Powder  Co.,  Reorganization 
of,  1001 

E 

Earning  power  in  consolidations,  536 
Engineer 's  preliminary  report,  Charac- 
ter and  importance  of  trade,  470; 
Cost  of  construction,  464;  Descrip- 
tion of  route,  459;  General  propo- 
sition, 457;  Passenger  income,  483; 
Plan  of  construction,  462;  Popula- 
tion tributary,  484;  Principle  fea- 
tures, 458;  Revenues  expected,  486; 
Rights  of  way  and  franchises,  459; 
Statement  of  revenue  and  operating 
expense,  489 

Equipment  note,  form  of,  301,  313 
Equipment  trust  agreement,  299,  315 
Erie    Railroad    Co.,    Conditional    sale 
agreement,    299,    313;    Convertible 
bonds,  327 


Failure,  Causes  of,  418 
Federal  Trade  Commission  Law,  610 
Financial  statements,  See  Reports 
First  Trust  &  Savings  Bank,  Chicago, 

183 

Foreign  corporation  defined,  24 
Forms  of  business  associations,  22 
Forms  used  in  Joint  Account,  769 
Fractional  lot  trading,  429 
Franchise   of   public   utility   corpora- 
tions, 583 


Gas  plant,  Elements  of  cost  and  value 

of,  455 
General  Corporation  Law  of  Illinois, 

34 

General  Electric  Company,  Charter,  26 
Going  concern  value,  823 
Great  Northern  Iron  Ore  Properties, 

Certificate  of  beneficial  interest.  98 
Guaranty  Trust  Co.,  New  York,  291 

H 

Halsey  &  Co.,  N.  W-»  404 

Hamilton  Automobile  Co.,  80 

Masking  vs.  Ryan,  489 

Hocking  Valley  pool,  436 

Holding  companion,   In   public  utility 

field,  570;    Financial  statement  of, 

764;  Formation  of,  526 


Hudson  &  Manhattan  Rd.  Co.,  Read- 
justment of,  933 
Hull  and  Moran,  1 


Improvement  fund  for  bondholders' 
protection,  163 

Income  Account,  See  Report 

Income  bonds  of  Hudson  &  Manhat- 
tan Rd.  Co.,  939 

Incorporation,  See  Certificate  of  In- 
corporation ;  General  incorporation 
law,  31,  34 

Intercorporate  relations,  See  Consoli- 
dation, Lease,  Holding  companies, 
Pooling  agreement,  Sale  of  assets 

Interest,  New  York  Stock  Exchange 
rules,  134,  426 

Interest  table,  1024 

International  Harvester  Co.,  91 

International  Paper  Co.,  332,  907 

International  Steam  Pump  Co.,  332 

Investments,  legal.  See  Legal  invest- 
ments 

Iowa  Central  Ry.  Co.,  522 


Japan  Mail  Steamship  Co.,  622 
Joint  account  letters  and  forms,  769 
Joint    adventure,    How   created,    22; 

How  ended,  22;  Illustration  of,  769; 

Liability  of  members  to  creditors, 

23 ;    Relation    of    members    to    the 

whole,  23 
Joint  stock  company,  Articles  of,  6; 

How  created,  22;   How  ended,  22; 

Liability  of  members  to  creditors, 

23;    Relation    of    members    to    the 

whole,  23 
Jones  &  Laughlin  Steel  Co.,  Mortgage, 

183;   Bond  circular,  374 


Kansas  City,  Mexico  &  Orient  Ry.  Co., 

412,  418 
Kansas  City,  Southern  Ry.  Co.,  Riil«-« 

governing     transfer    of     •ecuritirn, 

171 
Knickerbocker  Trust  Co.,  322 


Lacknwnnna  Steel  Company,  Convert- 

il.l.-  bonds,  333 
Lease  of  assets,  555 
Lease  of  equipment,  299,  SIS 
invostnn-ntm  447 


1032 


INDEX 


Letters  of  a  Joint  Account.  769 
Lima  Eastern  Railway  Company,  457 
Limited  partnership,  Certificate  of,  4; 
How  created,  22;   How  ended,  22; 
Liability  of  members  to  creditors, 
23;    Relation    of    members   to    the 
whole,  23 

Listing  of  stock  on  exchange,  151,  162 
Loans,  Assignment  of  accounts  receiv- 
able,   908;     Collateral    note,    905; 
Form  of  application  for,  902;  Note 
to    protect    overdrafts,    904;     See 
Notes 
Louisville  &  Nashville  Rd.  Co.,  336 


M 

Maintenance  and  depreciation,  Chi- 
cago Tel.  Cos.,  799 

Managers'  shares,  1011 

Manipulation  of  listed  stock,  435 

Margin  trading,  421 

Mason  Seaman  Transportation  Co., 
Seaich  vs.,  1019 

Massachusetts  Electric  Companies,  11 

Massachusetts  Trust,  11;  Certificates 
of  interest,  98 

May  Department  Stores  Company, 
Charter  of,  107;  Financial  state- 
ments of,  767 

Meetings,  notices  of,  88,  89 

Midwest  Refining  Co.,  Financial  state- 
ments, 766 

Minneapolis  &  St.  Louis  Rd.  Co.,  522 

Minutes,  Of  first  meeting  of  directors, 
83;  Of  organization  meeting,  80 

Moneyed  corporation,  defined,  24 

Monopoly,  Clayton  law,  575;  Dissolu- 
tion of  Powder  Trust,  1001 ;  Federal 
Trade  Commission  law,  610;  Sher- 
man Anti-trust  law,  590 

Morgan,  J.  P.  &  Co.,  499 

Mortgage  Bond  Company,  Mortgage, 
255 

Mortgage,  Corporate,  183,  255;  Af- 
fecting after  acquired  property,  194, 
203;  Authentication  of  bonds,  200; 
Execution  of  bonds,  196;  Improve- 
ment fund,  163;  Pledged  stocks, 
195,  207;  Redemption  of  bonds,  219, 
336;  Registration  of  bonds,  200; 
Release  of  mortgaged  property,  236 ; 
Replacement  of  bonds,  201 ;  Requir- 
ing net  assets  to  exceed  stock,  210; 
Requiring  quick  assets  to  exceed  lia- 
bilities, 210;  Sale' or  lease  by  sub- 
sidiary, 208;  Sinking  fund,  219; 
Tax  on  bonds,  202;  Temporary 
bonds,  202 ;  Trustees,  Duties  of,  240. 

Mortgage,  Real  estate,  176 

Municipal  corporation,  Defined,  24 


N 

National  Lead  Company,  489 

New  Jersey  Public  Utilities  Act,  337 

New  York  Central  lines,  Consolidation 
of,  542,  544,  548 

New  York,  New  Haven  &  Hartford 
Rd.  Co.,  Annual  report,  663;  Con- 
vertible bonds,  327;  Stockholders' 
rights,  358 

New  York  Stock  Exchange,  By-laws 
and  rules,  126;  Application  for  list- 
ing on,  162;  Method  of  trading, 
421;  Rules  of  committee  on  stock 
list,  151 

New  York,  Westchester  and  Boston 
Ry.  Co.,  Statement,  751 

Nippon  Yusen  Kaisha,  622 

Non-cumulative  preferred  stock,  57, 
106 

Non-participating  preferred  stock,  28, 
45,  57,  61,  107,  1011 

Non-stock  corporation,  defined,  24 

Non-voting  stock,  104 

Northwestern  Elevated  Rd.  Co.,  327 

Notes,  Collateral,  905;  Equipment 
trust,  301,  313;  Overdraft,  904;  Re- 
demption price  of,  1022;  Refunding 
of,  320,  1009;  Registration  of,  907; 
Short  term,  291 

Notice,  Of  annual  meeting,  88;  Of 
special  meeting,  88 


Odd  lot  trading,  429 

Offer  to  purchase  bonds  from  sinking 

funds,  336 
Offers  and  bids  on  New  York  Stock 

Exchange,  127 
Oil   company,   Midwest  Refining  Co., 

766 

Opening  a  brokerage  account,  433 
Option  warrant,  293 
Options,  Puts  and  calls,  441,  444 
Orders,  For  purchase  of  securities,  433 
Overdraft,   Note   to   protect   against, 

904 


Pacific  Gas  &  Electric  Co.,  Bond  cir- 
cular, 404;  Readjustment  of,  929 

Pacific  Light  &  Power  Co.,  Applica- 
tion for  listing  stock,  162 

Participating  preferred  stock,  102, 
106,  1013 

Partnership,  Agreement,  1 ;  How  cre- 
ated, 22;  How  ended,  22;  Liability 
of  members  to  creditors,  23;  Lim- 
ited certificate  of,  4;  Of  municipal- 
ity with  public  utility,  583 ;  Relation 
of  members  to  the  whole,  23 


INDEX 


Par  value,  Stock  without,  43,  47 

Payment  and  delivery,  New  York 
Stock  Exchange,  129 

Pennsylvania  Coal  &  Coke  Co.,  336 

Pennsylvania  Kd.  Co.,  328 

Physical  valuation  of  Chicago  Tele- 
phone COB.,  Appraisal,  812;  "Going- 
value,"  823;  Maintenance  and  de- 
preciation, 799,  830;  Rate  of  re- 
turn, 837;  Reproduction  vs.  actual 
cost,  819;  Table  of  contents,  783 

Pierce  Fordyce  Oil  Association,  6 

Pooling  agreement,  Hocking  Valley, 
496;  Steel  rail,  436 

Powder  trust,  Dissolution  of,  1001 

Preferred  stock.    See  Stock 

Premium,  N.  Y.  Stock  Exchange,  134 

Price,  Of  short  term  notes,  1022;  Of 
serial  bonds,  1026 

Profit  and  Loss  Statement,  See  Re- 
ports 

Promoter's  letters,  383,  412,  415 

Promotion,  American  Cigar  Co.,  516; 
American  Snuff  Co.,  511;  Bartica 
Co.,  387;  Black  Wonder  Mines,  398; 
Bearing  Harvester  Co.,  499,  508; 
Discovery  of  new  consolidation,  489 ; 
Elements  of  cost  of  new  gas  plant, 
453 ;  Engineer 's  preliminary  report, 
457 ;  Sterling  Debenture  Corp.,  383 ; 
Supporting  the  market,  435;  Syndi- 
cate agreement,  405,  410;  United 
Dry  Goods  Co.,  367;  United  Lead 
Company,  489. 

Prospectus  of  mining  company,  377, 
398 

Protected  preferred  stock,  107 

Proxy,  Form  of,  88 

Public  Utilities  Commission,  Act  of 
New  Jersey,  338;  Approval  of  se- 
curity issues,  350,  351 

Public  utility,  Holding  companies, 
570;  Analysis  of,  as  investment, 
620;  Lease  of  assets,  555;  Partner- 
ship with  municipality,  583 ;  Read- 
justment of,  929,  933;  Restriction 
on  issue  of  securities,  351 ;  Valua- 
tion of,  453,  783 

Purchase  of  assets,  501 

Puts  and  calls,  438,  441,  444 

R 

Readjustment,  Hudson  &  Manhattan 
Rd.  Co.,  933 ;  Pacific  Gas  ft  Electric 
Co.,  929;  See  also  Reorganization, 
Recapitalization  and  Receivership 

Real  Estate  mortgage  and  bond,  17ft, 
180 

Recapitalization  of  Chicago  ft  Alton 
Rd.  Co.,  910;  flee  also  Receivership, 
Readjustment  and  Reorganization 


Receivership,  Kansas  City,  Mexico  4 
urn-lit  Ry.  Co.,  418;  See  also  Reor- 
ganization, Readjustment  and  H<- 
capitalization 

Redeemable  preferred  stock,  45,  103, 
107 

Redemption  of  bonds,  219,  336,  1023, 
1026 

Redemption  price  of  short  term  note*, 
1022 

Refunding,  With  aid  of  banker,  320; 
Without  aid  of  banker,  1009 

Registration  of  commercial  paper,  907 

Registry,  New  York  Stock  Exchange, 
135 

Reorganization,  Baltimore  ft  Ohio  Rd. 
Co.,  966;  Dupont  Powder  Co.,  1001; 
see  also  Readjustment,  Recapitaliza- 
tion and  Receivership. 

Reports,  annual,  American  Smelting  & 
Refining  Co.,  759;  Baltimore  ft  Ohio 
Rd.  Co.,  625 ;  Bethlehem  Steel  Corp., 
761 ;  Chicago,  Milwaukee  and  St. 
Paul  Ry.  Co.,  753;  Hartford  and 
New  York  Transp.  Co.,  749;  May 
Department  Stores  Co.,  767;  Mid- 
west Refining  Co.,  766;  New  York, 
New  Haven  ft  Hartford  R.  R.  Co., 
663;  New  York,  Westchester  ft 
Boston  Ry.  Co.,  751 ;  Nippon  Yusen 
Kaisha,  622;  United  Light  ft  Ry. 
Co.  and  Subsidiaries,  764;  Westing- 
house  Electric  and  Mfg.  Co.,  627 

Reproduction  vs.  Actual  cost,  Chicago 
Telephone  Cos.,  819 

Restrictions,  On  security  issues  of  pub- 
lie  utilities,  351 ;  On  issue  of  bonds 
in  open  end  mortgage,  197 

Rights,  Stockholders',  358,  363,  773, 
1014,  1017;  Formula  for  valuing, 
XV 


S 


St.  Paul  Ry.,  See  Chicago,  Milwaukee 

ft  St.  Paul  Ry.  Oo. 
Sale  of  assets.  499,  522 
Scrip,  Convertible.  105 
Senich  vs.  Mason  Seaman  Transp.  Co., 

1019 
Selling  of   securities,  367-404;    1014- 

1018;   1022 
Serial  bonds,  Maturities  of,  261,  1026; 

Prices  of,  1026 
Settlement   of    contracts,    New   York 

Stock  Exchange.  1.10 
Shares  of  stock,  Without  par  value, 

43,  47;  See  also  Stork  an<!  Transfer 

«.f  certificate* 

Sherman  anti-trust  law,  800 
Short  t  friii  note*.  291 ;  See  al«o  NoU» 
Short  telling,  423 


1034 


INDEX 


Sinking  fund,  Amortization  table, 
1023;  Bonds,  219,  336;  Improve- 
ment fund,  163 ;  Tables,  1024 

Smelting  and  refining,  See  American 
Smelting  &  Refining  Co.,  759 

Southern  Pacific  Company,  363 

Special  act  to  incorporate  General 
Electric  Co.,  26 

Spencer  Trask  &  Co.,  324 

Standard  Steel  Car  Company,  313 

Statements,  Customers',  426;  see  also 
Eeports 

Steel  rail  pool,  496 

Sterling  Debenture  Corporation,  383, 
384 

Stillwell,  A.  E.,  412,  415,  418 

Stock,  Approval  of  issue,  350;  Buying 
and  selling,  421,  435;  Certificate  of, 
150;  Common,  15,  87,  150;  Convert- 
ible, 105,  1011;  Convertible  into  fu- 
neral, 399;  Cumulative,  28,  44,  61, 
101,  107;  Managers',  1013;  Non- 
cumulative,  57,  106;  Non-participat- 
ing, 28,  45,  57,  61,  107,  1011;  Non- 
voting,  104;  Pooling  agreement, 
436;  Preferred,  16,  28,  44,  58,  61, 
101,  105,  107,  367,  1011;  Redeem- 
able, 45,  103,  107,  1011;  Transfer 
law  of  New  York,  117,  111;  Veto- 
ing, 58,  103;  Valuation  of,  1019; 
Without  par  value,  43,  47 

Stock  corporation,  Defined,  24 

Stock  Exchange,  New  York,  See  New 
York  Stock  Exchange 

Stockholders,  Corporate  acts  requiring 
consent  or  vote  of,  99,  182;  In  vot- 
ing trust,  91;  Liability  to  creditors, 
23 ;  Relation  to  corporation,  23 ; 
Rights,  XV,  358,  363,  1014,  1017 

Stop  loss  orders,  424 

Subscription  to  stock,  1014,  1017 

Supporting  the  market,  435 

Syndicate  underwriting  agreement, 
405,  430,  769 


Tangible  and  intangible  property, 
Valuation  of,  536,  538,  1019 

Taxes,  Incorporation,  51;  Transfer  of 
stock,  117,  122 

Toledo  Traction  Company,  320 

Transfer  of  stock,  In  Wall  Street, 
421;  Certificates,  111,  117,  120,  135, 
424;  Form  of  assignment,  160;  Op- 
tions, 441 ;  Puts  and  calls,  438 ; 
Regulations,  171;  Stock  Exchange 
rules,  126;  Tax  law  regarding,  117; 
To  support  the  market,  435 


Transfer  tax  law  of  New  York,  117, 
122 

Trust  agreement,  Mortgage  Bond  Co., 
255 

Trust,  Collateral  mortgage,  255; 
Equipment,  299,  315;  Massachu- 
setts, 11;  Voting,  91,  940,  973;  See 
also  Monopoly 

Trustee,  Authentication  of,  264,  293, 
304,  316 ;  Certificate  of  beneficial  in- 
terest, 98;  Legal  investments  for, 
447;  R.  R.  equipment  notes,  299 


Underwriting,  Agreement,  405,  530, 
769;  Selling  stock  without,  412, 
1009 ;  Supporting  the  market,  435 ; 
Statement  of  Joint  Account,  769 

Union  Pacific  Rd.  Co.,  329,  363 

United  Dry  Goods  Companies,  367 

United  Fruit  Co.,  333 

United  Light  &  Railways  Co.,  and 
subsidiaries,  Financial  statement  of, 
764 

United  States  Realty  &  Improvement 
Co.,  334 

United  States  Steel  Corporation,  Cer- 
tificate of  incorporation,  59 ;  By- 
laws of,  66;  Notice  of  annual  meet- 
ing, 88;  Notice  of  special  meeting, 
89;  Proxy  for  annual  meeting,  88 


Valuation,  Of  gas  plant,  455;  Of  Chi- 
cago Tel.  Cos.,  783 ;  Of  property  of 
consolidated  companies,  501,  536, 
538 ;  Of  stock  of  dissenting  owner, 
1019 

Voting  trust  agreement,  91,  940,  973 
Voting,  Form  of  proxy,  88,  89 ;  Form 
of  ballot,  90;  Cumulative,  35 


W 


Wall  Street  ways,  421 

Warrant,  Option,  293;  Stockholders' 
rights,  1017 

West  End  St.  By.  Co.,  555 

Western  Maryland  Rd.  Co.,  Convert- 
ible bonds,  329 ;  Extract  from  char- 
ter, 1011 

Western  Union  Telegraph  Co.,  334 

Westinghouse  Elec.  &  Mfg.  Co.,  Con- 
vertible bonds,  335;  Report,  627 

Wisconsin  Edison  Company,  43 


DATE    DUE 


